MOSL: MARUTI SUZUKI (Buy)-In-line-4Q reflects cost inflation, but expect Gujarat ramp-up impact in 1HFY18

​Maruti Suzuki: In-line; 4Q reflects cost inflation, but expect Gujarat ramp-up impact in 1HFY18

(MSIL IN, Mkt Cap USD29.8b, CMP INR6371, TP INR7319, 15% Upside, Buy)

• Pre-operative costs pull down reported EBITDA margin: Net sales grew ~20% YoY (+9% QoQ) to ~INR183.3b (est. of ~INR186.4b), driven by 5% YoY growth (+2% QoQ) in realizations to ~INR442k (est. of ~INR450k). Adjusted EBITDA (for pre-operative costs) grew 15% YoY (+8% QoQ) to ~INR26.8b (est. of INR27.2b). Adjusted EBITDA margin shrunk ~20bp QoQ (-70bp YoY) to 14.6% (in-line), dragged by higher RM costs (+40bp QoQ). Further, lower other income restricted adjusted PAT growth to ~22% YoY (+3% QoQ to ~INR18b; est. of ~INR18.2b). Dividend is raised from INR35/share to INR75/share YoY, implying 37% payout (~24% in FY16).
  
• Earnings call highlights: a) Capacities can support up to 12% growth, but there is headroom to stretch, if needed. b) Waiting period on Ignis at 8-10 weeks. c) Impact of commodity price inflation largely reflected in 4QFY17. d) Discounts were lower by ~INR3,854/unit QoQ to ~INR15.2k (~90bp contribution at EBITDA level). e) All future new model agreement would have INR-based royalty. f) Recurring impact of Gujarat plant negligible in 4QFY17, to impact 1HFY18.