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MOSL: Morning India (3/April/17)-1. EcoScope; 2. Maruti Suzuki; 3. Automobiles; 4. Utilities

​MOrning India (3/April/17): 1. EcoScope; 2. Maruti Suzuki; 3. Automobiles; 4. Utilities

Today’s top research idea

• ​Maruti Suzuki: Gujarat plant adds much needed capacity for growth; Gradual ramp-up to have impact of 80-100bp on EBIT margins in 1HFY18
  
• Gujarat plant would add ~13%/23% to total MSIL capacity in FY18E/FY20E, but volume contribution would be at ~8%/14% for FY18E/FY19E due to slower ramp-up with utilization at ~40% in 1HFY18 but ramping up to almost 100% by 4QFY18.
  
• There would be a transitory impact on MSIL’s margins of 80-100bp on EBIT margins in 1HFY18 due to (1) negative operating leverage, (2) higher inward freight, and (3) higher depreciation.
  
• Also, 4QFY17 would see pre-operative costs (estimated impact of ~INR1.5b or ~80bp in 4QFY17E).
  
• We estimate impact on EBIT margins of 80-100bp in 1HFY18 (~40bp for FY18E), but no material impact in FY19E.
  
• However, Gujarat plant would have superior profitability on full ramp-up due to a) sales tax incentives, b) lower lead distance, c) lower wage cost, and d) better efficiency.