MOSL: MARUTI SUZUKI (Buy)-Operating performance in-line-lower other income dents PAT

Maruti Suzuki: Operating performance in-line; lower other income dents PAT

(MSIL IN, Mkt Cap USD44.1b, CMP INR9277, TP INR10972, 18% Upside, Buy)

• Revenue, EBITDA in-line; PAT below est.: Net sales grew 14.2% YoY to INR192.8b (in-line), driven by 11.3% growth in volumes and a 2.6% increase in realizations to INR447k (est. of INR446.8k). EBITDA margin of 15.8% (est. of 15.4%) expanded 110bp YoY (-110bp QoQ), as cost-reduction initiatives partially offset commodity cost inflation. EBIT margin expanded 120bp YoY (-160bp QoQ) to 12.2% (est. of 11.8%). Lower other income and a higher tax rate restricted PAT growth to 3% YoY to ~INR17.9b (est. of INR20.3b).
• Earnings call highlights: a) Growth from the rural markets remains healthy at 19%, outperforming urban demand growth in 9MFY18. b) Commodity price inflation impact of ~30bp in 3QFY18; more impact expected in 4QFY18. c) Discounts at INR17,900 per unit (v/s INR15,200 in 2QFY18 and INR19,048 in 3QFY17). d) Gujarat plant is fully ramped-up now, with ~20k/month production. Localization level at Gujarat plant would be at least 60-70% in 3-4 years (v/s 15% currently). e) Royalty rates revised downward for all new models (including new Dzire & Swift), starting from Ignis (Jan-17 onward). Benefit to reflect once Suzuki Motor’s board approves it. f) Converted 30 outlets to Arena format, with another 32 by Mar-18 and entire network over 2-3 years. g) Capacity in place for 10-12% growth in FY19.