Maruti Suzuki India
Major beneficiary of the latest budget
Higher disposable income, lower duties and new models will keep its growth pace intact
| Buy | Maruti Suzuki India |
| BSE Code | 532500 |
| NSE Code | MARUTI |
| Bloomberg | MSIL@IN |
| Reuter | MRTI.BO |
| 52-week High/Low | Rs 1252 / 700 |
| Current Price | Rs 835 (as on 14th March 2008) |
Maruti Suzuki India (MSIL) is India’s largest passenger vehicle manufacturer with a market share of 52%. It is a key player in the compact car segment with a market share of 59%. Suzuki Motor Corporation (Suzuki) of Japan holds a 54% stake in MSIL. MSIL offers the widest product range in passenger cars (10 models) with special focus on the compact car segment (five models). The company has an installed production capacity of 700,000 units per annum and is expected to increase it to nearly 1 mn units in the next 3-4 years.
Budget boon
The Union Budget 2008-09 has reduced excise duty rate on small cars (length <4m; and petrol engine <1,200cc or diesel engine <1,500cc) to 12% from 16%. Central sales tax has also been cut from 3% to 2%. This has resulted in all major small car manufacturers, including MSIL cutting the prices of qualifying models by ~3.5%. However MSIL had already taken selective price hikes in the last few months, which have been reversed.
The budget also changed the income-tax slabs, reducing the income tax incidence of personal income tax significantly, increasing personal disposable incomes.
These two measures are bound to have significant positive impact on the passenger car demand, particularly in the compact car segment. MSIL, being the largest player in this segment, will be the major beneficiary of this growth in demand.
Moreover, the $13.25 bn allocation in the 5tth Pay Commission, spurred spending on Capital goods and automobiles including two-wheelers and four-wheelers. The 6th Pay Commission’s recommendations are scheduled for 5th April with an estimated allocation of ~ $ 16.3 bn - $20 bn. This too is expected to spur spending on consumer goods and automobiles.
December 2007 quarter results – Swift growth
In the quarter ended Dec ’07, MSIL registered healthy sales growth of 27% to Rs 4674.13 crore. Its total sales volume grew by 17% to 201629 units in quarter ended Dec ’07. Its domestic sales, that represent 93% to total sales volume, increased by 15% 187875 units. Its exports, that represent 7% of total sales volume, spurted by 52% to 13754 units.
Operating profit margin (OPM) slumped 70 bps to 13.1% due to the rise in its raw material cost. Raw material cost, as % to sales net stock adjusted, surged by 160 bps to 71%. Also, company had to spend on higher sales and promotion expenses. OP grew 21% to Rs 613.25 crore.
Other income grew 33% to Rs 170.67 crore and interest cost declined by 9% to Rs 14.36 crore. As its depreciation rose by 14% to Rs 86.73 crore, PBT recorded healthy growth of 26% to Rs 682.83 crore. Net profit grew by 24% to Rs 467.04 crore.
For the nine months ended December 2007, the company achieved unit sales growth of 18% to 562623 in its total sales volume. Its domestic sales, that contributes 93% to total sales volume, rose by 17% to 524633 units. Its exports, that contributes 7% to total sales volume, spurted by robust 51% to 37990 units. This led a 29% rise in its sales value to Rs 13097.37 crore. OP grew 24% to Rs 1785.83 crore. PBT grew 28% to Rs 2067.67 crore and net profit went up by 29% to Rs 1433.14 crore.
Better realisations drive the performance
Maruti registered a 17% y/y growth in volumes to 201629 units in December 2007 quarter. However, net sales grew by 27% y/y to Rs 4674.13 crore on account of significant improvement in average realizations. Average realizations registered an improvement of 8.5% to Rs 231,818 per vehicle sold.
The improvement in realization has largely come for improving product mix, rather that pricing action. Apart from rising sales of new launches, there is higher demand for Vxi and Zxi models. Company is selling around 3000 units of SX4 and 3000 units of Swift diesel per month. But for the capacity constraints at its Manesar plant, the mix could have been more favorable.
Gearing to manufacture 1 million cars by 2010-11
MSI has set plans to investment $1.8 billion in order to produce 1 million cars by 2010-11. A significant portion of the investment would be in research & development of both cars and engines that would be sold in India. Also it would invest in a spare parts depot, stockyard, showrooms and a vehicle-testing facility. The company has entered into JV with Magneti Marelli, a subsidiary of the Fiat group to produce electronic control units for diesel engines. The JV is held in 51:30:19 ratio between Magneti Marelli, Suzuki and Maruti. The new manufacturing facility, that would be located at Maruti’s existing suppliers’ park at Manesar, would cater to all car manufacturers. It involves initial investment of Rs 75 crore. The production is anticipated to begin at end of calendar year 2008 with maximum capacity of 5,00,000 units.
New launches in line
MSI showcased A-star, a compact car and Kizashi, mid sized concept sedan at the Auto Expo 2008 held in Delhi. The A-star concept car is jointly developed with Suzuki Motor Corporation (SMC). A-star would be launched in Indian market in 2009. It will be the precursor to MSI’s global compact car that will be launched in post 2010. Kizashi will be positioned in Rs 10 lakh plus price band. It will be rolled from MSIL’s Manesar plant. It will be launched in 2010.
Swift upgrades and upgrades of other models will also continue to keep the customer interest alive.
Robust outlook
With its dominant position in the compact car segment, MSIL is in a strong position to take advantage of the ongoing boom in the Indian passenger car market. There is also enough visibility in the industry’s volume growth. The company is also likely to get a major boost in sales from exports and is likely to become an export hub for compact cars for Suzuki Motor.
Thus, going forward, the passenger car segment is expected to report better volume growth, compared to CV and Two-wheeler segments on the back of an increase in disposable incomes and changing demographics. Also the excise duty cut will benefit the consumer and improve demand mainly for compact cars. MSIL still holds a healthy potential to take on the competition through its existing product line-up, new product launches and competitive pricing.
Valuation
In FY 2008, we expect the company to register sales and net profit of Rs 18246.54 crore and Rs 1920.16 crore, respectively. On equity of Rs 144.46 crore and face value of Rs 5 per share EPS works out to Rs 66.5. This EPS is likely to rise to Rs 82.0 in FY 2009. The share price trades at Rs 835. While the P/E on FY 2008, EPS works out to 12.6, it falls to just 10.2 on FY 2009 EPS.
| | 0603 (12) | 0703 (12) | 0803 (12P) | 0903 (12P) |
| Operating inc. | 12052.2 | 14653.89 | 18246.54 | 22808.18 |
| OPM (%) | 13.5 | 13.6 | 13.1 | 13.20 |
| OP | 1626.61 | 1990.41 | 2397.14 | 3010.68 |
| Other inc. | 429.19 | 598.41 | 828.36 | 911.19 |
| PBIDT | 2055.80 | 2588.82 | 3225.49 | 3921.87 |
| Interest | 20.39 | 37.63 | 58.49 | 60.00 |
| PBDT | 2035.41 | 2551.19 | 3167.00 | 3861.87 |
| Dep. | 285.42 | 271.36 | 343.23 | 377.56 |
| PBT Before EO | 1749.99 | 2279.83 | 2823.77 | 3484.31 |
| EO | 0.00 | 0.00 | 0.00 | 0.00 |
| PBT After EO | 1749.99 | 2279.83 | 2823.77 | 3484.31 |
| Tax | 560.94 | 705.36 | 903.61 | 1114.98 |
| PAT | 1189.05 | 1574.47 | 1920.16 | 2369.33 |
| EPS (Rs)* | 41.2 | 54.5 | 66.5 | 82.0 |
| * Annualised on equity capital of Rs 144.46 crore; | ||||
| Maruti Suzuki India: Results |
| | 0712(3) | 0612(3) | Var (%) | 0712(9) | 0612(9) | Var (%) | 0703 (12) | 0603 (12) | Var (%) |
| Operating inc. | 4674.13 | 3679.47 | 27 | 13152.32 | 10224.13 | 29 | 14653.89 | 12052.2 | 22 |
| OPM (%) | 13.1 | 13.8 | | 13.6 | 14.1 | | 13.6 | 13.5 | |
| OP | 613.25 | 507.16 | 21 | 1785.83 | 1439.38 | 24 | 1990.41 | 1626.61 | 22 |
| Other inc. | 170.67 | 128.43 | 33 | 582.38 | 393.43 | 48 | 598.41 | 429.19 | 39 |
| PBIDT | 783.92 | 635.59 | 23 | 2368.21 | 1832.81 | 29 | 2588.82 | 2055.80 | 26 |
| Interest | 14.36 | 15.74 | -9 | 43.49 | 22.07 | 97 | 37.63 | 20.39 | 85 |
| PBDT | 769.56 | 619.85 | 24 | 2324.72 | 1810.74 | 28 | 2551.19 | 2035.41 | 25 |
| Dep. | 86.73 | 75.86 | 14 | 257.05 | 199.54 | 29 | 271.36 | 285.42 | -5 |
| PBT Before EO | 682.83 | 543.99 | 26 | 2067.67 | 1611.20 | 28 | 2279.83 | 1749.99 | 30 |
| EO | 0.00 | 0.00 | 0 | 0.00 | 0.00 | 0 | 0.00 | 0.00 | 0 |
| PBT After EO | 682.83 | 543.99 | 26 | 2067.67 | 1611.20 | 28 | 2279.83 | 1749.99 | 30 |
| Tax | 215.79 | 167.58 | 29 | 634.53 | 497.78 | 27 | 705.36 | 560.94 | 26 |
| PAT | 467.04 | 376.41 | 24 | 1433.14 | 1113.42 | 29 | 1574.47 | 1189.05 | 32 |
| PPA | 0.00 | 0.00 | 0 | 0.00 | 0.00 | 0 | -12.49 | 0.00 | PL |
| PAT after PPA | 467.04 | 376.41 | 24 | 1433.14 | 1113.42 | 29 | 1561.98 | 1189.05 | 31 |
| EPS (Rs)* | 64.7 | 52.1 | | 66.1 | 51.4 | | 54.5 | 41.2 | |
| * Annualised on equity capital of Rs 144.46 crore; | |||||||||
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