MOSL: MARUTI SUZUKI (Buy)-In-line-mix dilutes impact of higher discounts; FX impact to come in 2H
Maruti Suzuki: In-line; mix dilutes impact of higher discounts; FX impact to come in 2H
(MSIL IN, Mkt Cap USD27.7b, CMP INR6725, TP INR8484, 26% Upside, Buy)
- Mix dilutes impact of higher discounts: Adj. revenue grew 2% YoY to INR222.3b (in-line) in 2QFY19, led by a 3.7% increase in realizations to INR458.6k (our estimate: ~INR455.6k). Volumes, however, declined 1.5% YoY in the quarter. Adj. EBITDA margin came in at 14.5% (our estimate: 14.2%, -40bp QoQ, -240bp YoY), as the impact of higher discounts (+80bp QoQ) was offset by mix. Management indicated that there was only ~45bp QoQ impact from FX. Adj. PAT declined ~15% YoY to INR21b (our estimate: INR20.1b). 1HFY19 revenue/EBITDA/PAT grew 13.7%/9.5%/0.9%, implying residual growth of 7.3%/-1.1%/-0.6% in 2HFY19.
- Earnings call highlights: (a) Committed to double-digit growth in FY19, but sees challenges in the form of higher fuel prices and an increase in insurance cost. Retails in rural grew 13% in 1HFY19, but urban volumes were flat. (b) Expect impact of RM (steel-led) and FX (indirect imports) in 2HFY19. (c) Expect localization at Gujarat plant to increase from FY20 and reach levels similar to that of the Haryana plant by FY21. (d) 82% of volumes are financed and currently seeing no issues in availability of finance for customers or to dealers. (e) Expect exports to be under pressure; management believes that it will difficult to meet the FY19 exports target. (f) One-off income of INR2b pertaining to FY18 for recovery of engineering services fee from Suzuki.
- Valuation and view: We cut our FY19/20 consol. EPS by 4-6% to factor in lower volumes and a higher tax rate. The stock trades at 25.3x/20.1x FY19E/20E EPS. Maintain Buy with a TP of INR8,484 (22.5x Sep’20E EPS).
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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