Q1FY20 results
Key positives: Steady sequential EBITDA margins
Key negatives: Sharp increase in employee costs
Change in estimates: We cut estimates for FY19/FY20 by ~16%/11% on lower volume growth and negative leverage linked margin pressures.
Valuations & view
The demand environment continues to remain weak with no overt signs of a recovery. In such a scenario, we expect pressures on margins to continue in the near term. However, despite the sharp slowdown, the medium to long term outlook remains positive given the highly underpenetrated Indian car market. MSIL’s structural advantages (distribution, economies of scale, brand) will continue to work in its favour. While the current valuations at ~20xFY21 seem stretched given the current environment, we do note that in case of a volume recovery margins/profitability could move up sharply. Maintain Outperformer.
Maruti Suzuki India is engaged in manufacturing, purchasing, and selling motor vehicles, components, and spare parts in India, Europe, Africa, Asia, Oceania, and Latin America. Co. offers 14 brands and approximately 150 variants of passenger cars, multi utility vehicles, and multi-purpose vehicles under the Alto 800, Alto K10, Wagon R, Celerio, StingRay, Ritz, Swift, DZire, SX4, Ertiga, Omni, Eeco, Gypsy, and Grand Vitara brands. Co. is involved in the facilitation of pre-owned car sales, fleet management, and car financing. In addition, it provides motor insurance products, accessories, auto card, and driving school services.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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