MOSL: MARUTI SUZUKI (Buy)-In-line-EBIT margin impacted by pre-GST expenses
​Maruti Suzuki: In-line; EBIT margin impacted by pre-GST expenses
(MSIL IN, Mkt Cap USD35.8b, CMP INR7592, TP INR8863, 17% Upside, Buy)
EBIT margin hit by pre-GST expense: Net sales grew ~17% YoY to INR175.5b (est. of INR175.4b), driven by 13% growth in volumes and 4% increase in realizations to INR445k (in-line). EBITDA margin shrunk 150bp YoY (-130bp QoQ) to 13.3% (est. of 13.8%), dragged by pre-GST expenses (50bp impact from dealer compensation and 30bp from higher sales promotion) and negative operating leverage at Gujarat plant (1st full quarter of operations). EBIT margin contracted 120bp YoY (-140bp QoQ) to 9.4% (est. of 9.6%). Higher tax rate restricted adj. PAT growth to ~4% YoY (to ~INR15.6b v/s est. of INR16.3b).
Earnings call highlights: a) Retail sales in Jun-17 were higher due to pre-GST offers; however, Jul-17 retails have been weak so far. b) Waiting period on Baleno and Dzire at 16 weeks, and Brezza at 20 weeks. c) Discounts were higher by ~INR1,406/unit QoQ to ~INR16.6k. e) Nexa sales contribution at 20.3% with 262 outlets. f) Gujarat plant supplied 24k units for 1QFY18 (~38% utilization). g) 1Q RM cost largely reflects commodity price inflation.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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