MOSL: MARUTI SUZUKI (Buy)-In-line op. performance-lower other income puts brakes on PAT

Maruti Suzuki: In-line op. performance; lower other income puts brakes on PAT

(MSIL IN, Mkt Cap USD41.3b, CMP INR9397, TP INR10805, 15% Upside, Buy)

• Lower other income mars in-line operating performance: Revenue increased 28% YoY to INR224.6b (in-line), led by 24% growth in volumes and a 3% increase in realizations to INR458k (est. of INR459k). Higher discounts (+30bp QoQ), higher commodity cost and FX impact led to gross margin contraction of ~110bp QoQ to ~31%. EBITDA margin of 14.9% (est. of 15.2%) expanded 70bp QoQ (+160bp YoY) due to benefit of operating leverage. EBITDA grew ~44% YoY (+11% QoQ) to ~INR33.5b (est. of INR34.2b). Lower other income and higher tax restricted adj. PAT growth to 27% YoY to ~INR19.7b (est. of INR23b).
• Earnings call highlights: (a) Retails in rural markets grew 15% in 1QFY19; continue outperforming urban markets. (b) Footfalls grew ~15% and bookings grew ~13% in 1QFY19. (c) Waiting period for petrol variant of Baleno (2-4 weeks), Dzire (2-4 weeks), Swift (4 weeks) and Brezza (~4 months) has reduced due to higher production. (d) It is not looking to take price hike, 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) Other income had MTM loss of ~INR4.5b due to 80bp increase in G-Sec rate.
• Valuation and view: We have cut our FY19/20 consol. EPS by 5-8% to factor in weakness in the INR, higher commodity prices and lower other income. The stock trades at 30.2x/23x FY19E/20E EPS. Maintain Buy with a TP of INR10,805 (~25x Jun-20E Consol EPS).