MOSL: MARUTI SUZUKI (Buy)-Margins hurt by several headwinds-Inventory under control
MARUTI SUZUKI: Margins hurt by several headwinds; Inventory under control
(MSIL IN, Mkt Cap USD29.7b, CMP INR6903, TP INR8047, 17% Upside, Buy)
- Margins below estimates at 10.5%: Revenues grew 1.4% YoY to INR214.6b (v/s est. of INR207.5b), led by 2.1% increase in realizations to INR468.1k (v/s est. of INR452.6k); but, volumes declined 0.7%. EBITDA margins at 10.5% (v/s est. of 12.1%, +70bp QoQ, -370bp YoY) were impacted by (a) inventory de-stocking, (b) fixed cost/depreciation at Gujarat's new line & engine plant, (c) forex, and (d) conversion cost inflation. These headwinds were more than offset by lower discounts, price increases and lower staff costs. Higher other income and lower tax restricted adj. PAT decline to 13% YoY to INR17.9b (v/s est. of INR16.1b). FY19 revenue/EBITDA/PAT grew 7.8%/-12.3%/-6.8%.
- Earnings call highlights: (a) FY20 is expected to be an unpredictable year due to several regulations. The company is expected to grow faster than the SIAM's growth outlook of 3-5% growth in FY20, (b) FY19 retail volumes in rural markets grew over 10% while urban demand declined 2%, (c) Average discounts at ~INR15k/unit (v/s ~INR24k/unit in 3QFY19 and ~INR14k/unit in 4QFY18), (d) Channel Inventory at normal level of 25-28 days, (e) Currently ~40% models on INR royalty, expect INR-based royalty for all models by 2022, (f) Capex guidance of ~INR45b (same as FY19).
- Valuation and view: We have cut our FY20/21 consol. EPS by 2.5%/4% as we have trimmed our volume estimates by 2%/4%. Margin estimates have been cut by 60bp each in FY20/21, but we increase our other income estimate. The stock trades at 24.9x/20.6x FY20E/21E consol. EPS. Maintain Buy with a TP of INR8,047 (23x June’21 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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