MOSL: MARUTI SUZUKI (Buy)-More of the same: increasing share, margins & growth

Maruti Suzuki: More of the same: increasing share, margins & growth; Upgrade cycle to continue led by higher volumes and margins

(MSIL IN, Mkt Cap USD41.7b, CMP INR9039, TP INR10560, 17% Upside, Buy)

• Demand recovery getting broad based, led by rural markets: We see demand recovery from rural areas as model like Alto witnessed ~5.6% growth in FY18 following six years of de-growth (except FY15). Coupled with rural recovery, this is a reflection of first-time buyers making a comeback. MSIL would be the biggest beneficiary of rural market recovery due to (a) its unparalleled reach, (b) large part of its dealer addition being targeted at rural markets, and (c) over 35% of volumes coming from rural markets.
• Expanding market reach would aid faster than industry growth: MSIL is targeting ~4k sales outlets (~2.8k in FY18E, implying 12.8% CAGR in FY18-20E) and ~5k workshops (~3.3k in FY18) by 2020. To support dealer viability, it is also investing in land parcels for leasing it to dealers on long-term leases. MSIL should grow much faster than the industry, led by ~13% CAGR in distribution network and continued healthy growth with existing dealers due to favorable product lifecycle.
• Upgrading customer experience through Nexa, Arena and True value: MSIL has taken initiatives to strengthen its distribution moat by transforming the entire network on the pillars of design, technology and experience. It is converting the existing mainstream dealerships to the Arena format, migrating the pre-owned car network to the new True Value format, and is building the Nexa service network for Nexa customers.