MOSL: MARUTI SUZUKI (Buy)-In-line performance-demand outlook uncertain
Maruti Suzuki: In-line performance; demand outlook uncertain
(MSIL IN, Mkt Cap USD25.4b, CMP INR5806, TP INR6950, 20% Upside, Buy)
- In-line EBIT margin: Net realization increased 7% YoY (+4.6% QoQ) to ~INR489.8k (our estimate: ~INR475k). Net sales were down ~12% YoY (-8% QoQ) to ~INR197.2b (our estimate: ~INR191.3b) due to ~18% YoY volume decline. EBIT margin shrank 5pp YoY (-110bp QoQ) to 5.7% (our estimate: 5.9%) owing to higher depreciation, although the impact of operating deleverage was offset by lower RM cost and favorable FX. Higher other income and lower tax restricted the PAT decline to ~27% YoY to ~INR14.4b (our estimate: ~INR13.8b).
- Earnings call highlights: (a) Retails were down ~17% YoY, with the decline similar in urban as well as rural. Inventory is over one month at dealer level. (b) Demand environment is uncertain, making it difficult to provide guidance. Inquiries have dropped, although efforts are being undertaken to generate footfalls. (c) Average discounts at ~INR16.9k (v/s ~INR15.1k in 4QFY19/1QFY19). (d) Commodity cost benefit, favorable FX and cost reduction contributed ~40bp in 1QFY20. (e) MSIL is not completely exiting diesel - it is evaluating the 1.5ltr diesel engine. The focus is on CNG and hybrids to offset the impact from diesel.
- Valuation and view: We cut our FY20/21 consol. EPS estimate by ~5% to factor in our forecast of lower volumes and higher depreciation. Valuations at 25.6x/20.2x FY20/21E consol. EPS are on downcycle earnings, where EPS CAGR is estimated at just ~4% over FY17-21. While near-term demand headwinds persist, MSIL is best placed in the entire OEM space to tackle them, particularly with regard to BS6 transition due to limited price inflation in ~80% of its portfolio. MSIL is likely to recover the fastest once current headwinds recede due to its strong product portfolio, increased localization, reducing FX exposure and capex-light business. Maintain Buy.
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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