MOSL: MARUTI SUZUKI (Buy)-4QFY18 Below Est-Mixed bag as beat at Gross margins, but substantial miss at EBITDA margins

Maruti Suzuki: 4QFY18 Below Est; Mixed bag as beat at Gross margins, but substantial miss at EBITDA margins

(MSIL IN, Mkt Cap USD44.1b, CMP INR8778, TP INR10468, 19% Upside, Buy)

• Revenue in-line, EBITDA and PAT below est.: Revenue grew 15.4% YoY to INR211.6b (in-line), led by a rise of 11.4% in volumes and 3.6% in realizations to INR458k (est. of INR452k). Lower discounts (100bp QoQ, 40bp YoY) drove adj. gross margin improvement of ~60bp QoQ. Adj. EBITDA margin of 14.4% (est. of 16%) shrunk 140bp QoQ (+40bp YoY) due to higher marketing spend (Auto Expo + Swift launch), adverse FX impact on royalty (~INR970m incl. MTM of 3QFY18) and higher employee cost due to actuarial valuation of retirement benefits. Adj. PAT grew 20% YoY to ~INR20.6b (est. of INR23b). FY18 revenue grew 13.8% to INR208.6b and adj. PAT rose 7% to INR79b.
• Earnings call highlights: a) Rural markets grew 16% in FY18. b) Finance penetration highest ever at 80.5%. c) Commodity price inflation impact of ~1pp in 4QFY18; more impact expected in FY19. d) It is not looking to take price hikes, but focus is on cost cutting to absorb cost inflation. e) Expects 8-9% growth for industry in FY19, with MSIL continuing to grow faster. f) Suzuki Motors approved downward revision in royalty rates for all new models launched since Jan-17, starting from Ignis (incl. new Swift and Dzire). g) FY19 capex to be INR50b v/s INR34b in FY18 (of which INR1b capex on land acquisition in FY19 v/s INR7.9b in FY18). h) Total order book of 110k units (v/s 120k units last year).