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Maruti Suzuki India 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Maruti Suzuki India (MSIL)'s 2QFY2013 results were lower-than-expected on the bottom-line front on account of raw-material cost pressures (due to unfavorable forex impact on indirect imports and higher discounts) and higher employee expenditure (due to wage hikes and Manesar settlement). While, we expect MSIL to post a modest volumes growth of ~3% in FY2013, we expect volumes to rebound in FY2014E and post a growth of 13% driven by availability of additional diesel engines and revival in demand for petrol cars. We also expect operating margins to improve ~130bp in FY2014E led by a favorable product-mix, lower discounts and ongoing cost reduction initiatives taken by the company. Nonetheless, post the sharp run-up in the stock price (up ~25%) over the last three months; the stock appears to be fairly valued. Thus we maintain our Neutral rating on the stock.

2QFY2013 results marred by labor strike and weak demand: For 2QFY2013, net sales grew by a healthy 8.2% yoy (down 22.9% qoq) to Rs.8,305cr which was 4.1% lower than our estimates, driven by an 18.9% yoy (down 1.6% qoq) increase in net average realization (on better product-mix). Volumes during the quarter witnessed a decline of 8.7% yoy (22.1% qoq) led by labor strike at the Manesar plant and reduced demand for petrol cars. The EBITDA margin declined 117bp qoq to 6.1% due to increase in raw-material and employee expenses. While raw-material expenses jumped 1 75bp qoq due to higher discounts and lagged impact of indirect imports; employee expense increased 60bp qoq due to wage hikes and one-time expense related to the Manesar plant. On the positive side, other expenditure declined 120bp qoq due to favorable currency movement which resulted in lower royalty, down 80bp qoq to 5.4%. The net profit declined 5.4% yoy (46.3% qoq) to Rs.227cr as higher depreciation and interest expense negated the positive impact of lower tax rate and higher other income.

Outlook and valuation: At Rs.1,395, MSIL is trading at 14.8x its FY2014E earnings. We maintain our Neutral rating on the stock.