Stock Market Update on Maruti Suzuki for 1QFY2012

Stock Market Update on Maruti Suzuki for 1QFY2012 with an Accumulate recommendation and a Target Price of `1322 (12 months)

Maruti Suzuki (Maruti) reported an in-line operating performance for 1QFY2012; however, net profit came in significantly higher than our estimates, driven by a sharp jump in other income on account of long-term capital gains (~`40cr) and high treasury yields on investments. We broadly maintain our volume and earnings estimates and continue to maintain our Accumulate rating on the stock.

Muted top-line performance on flat volumes, other income boosts bottom line: For 1QFY2012, Maruti reported 3.6% yoy (down 15.5% qoq) growth in net sales to `8,529cr, in-line with our estimates, aided by a 4% yoy increase in average net realisation, led by better product mix (higher contribution of diesel vehicles) and price increases. Volume growth remained sluggish and posted a 0.6% yoy decline (18% qoq), impacted largely by the demand slowdown in the small car segment and production loss due to a 13-day strike at Manesar plant. EBITDA margin was in-line with our estimates at 9.5% (almost flat yoy), but it was down by 46bp qoq. Raw-material costs rose by 81bp yoy (70bp qoq) to 80.4% of sales, while royalty and selling and distribution expenses declined by 50bp yoy each, thus benefitting the margin. Net profit increased by 18% yoy (down 16.8% qoq) to `549cr, 22.6% ahead of our estimates, led by higher-than-expected other income.

Outlook and valuation: We continue to remain positive on the long-term volume growth in the passenger car industry, led by sustainable economic growth and low penetration levels in the country. However, considering the near-term macro headwinds, we remain cautious on short-term volume growth in the passenger car industry. We expect Maruti to post a ~9% volume CAGR over FY2011–13E, leading to a ~13% revenue CAGR. At `1,178, Maruti is trading at 13.1x and 11.6x its FY2012E and FY2013E earnings, respectively. We continue to maintain our Accumulate recommendation on the stock with a target price of `1,322, valuing it at 13x FY2013E earnings.

Stock Market Flash on Bajaj Auto for 1QFY2012.

Y/E March (` cr)	1QFY12	1QFY11	% chg (yoy)	Angel Est	% diff
Net Sales (incl. oth. opr. inc.)	4,777	3,890	22.8	4,913	(2.8)
EBITDA	911	777	17.2	972	(6.3)
EBITDA margin (%)	19.1	20.0	(91)bps	19.8	(71)bps
Reported PAT	711	590	20.5	734	(3.1)

Source: Company, Angel Research

Review

·         Lower than expected top-line performance – Bajaj Auto (BAL) reported slightly lower than expected top-line growth of 22.8% yoy (13.7% qoq)  to  `4,777cr driven by 17.7% yoy (15.3% qoq) jump in volumes. The variance in the top-line growth from our expectation was due to lower average net realizations which declined by 1.8% qoq despite price hikes of ~2% taken during the quarter. On a yoy basis however, average net realizations grew by 4.3% to `41,973. Among the product-mix, Pulsar and Discover contributed ~65% of motor-cycle sales during 1QFY2012. BAL’s export revenue recorded a strong ~40% yoy growth during the quarter to `1,688cr owing to 31.9% yoy increase in exports volumes. Other operating income too posted a robust 24.6% yoy growth to `190cr aiding the top-line performance.

·         Operating performance hit by raw-material cost pressures – BAL’s EBITDA margins for 1QFY2012 came in 71bp below our estimate at 19.1% registering a fall of 91bp yoy (145bp qoq). This was as a result of increase in raw material costs which increased by 150bp yoy (210bp qoq). However, decline in staff cost and other expenditure restricted further contraction in EBITDA margins to a certain extent. Overall, operating profit during the quarter witnessed a 17.2% yoy (5.7% qoq) growth to `911cr.

·         Net Profit up 20.5% yoy and 5.2% qoq – The company reported marginally lower than expected net profit growth of 20.5% yoy (5.2% qoq) to `711cr against our estimate of `734cr, largely because of lower than expected operating performance. Further, the bottom-line performance was also aided by lower than expected tax outgo.  

Outlook

At current levels, the stock is trading at 12.9x FY2013E earnings of `110. We shall update our estimates and release a detailed result update post the earnings conference call with management.

Volume Performance: 1QFY2012

Y/E March (unit)	1QFY12	1QFY11	% chg	FY2011	FY2010	% chg
Total Volume	1,092,815	928,336	17.7	3,823,954	2,851,518	34.1
Motorcycles	963,051	828,418	16.3	3,387,043	2,506,845	35.1
Scooters	-	-	-	27	3,737	-
Total 2 Wheelers	963,051	828,418	16.3	3,387,070	2,510,582	34.9
Three Wheelers	129,764	99,918	29.9	436,884	340,936	28.1
Exports (Inc Above )	427,364	323,899	31.9	1,203,718	890,006	35.2

Source: Company, Angel Research

Standalone Performance: 1QFY2012

Y/E March (` cr)	1QFY12	1QFY11	% chg	FY2011	FY2010	% chg
Net Sales (include Other Op. Inc.)	4,777	3,890	22.8	16,609	11,921	39.3
Consumption of RM	3,290	2,643	24.5	11,230	7,651	46.8
(% of Sales)	68.9	67.9		67.6	64.2
Staff Costs	139	126	9.9	477	399	19.4
(% of Sales)	2.9	3.2		2.9	3.4
Purchases of TG	176	125	40.9	568	420	35.4
(% of Sales)	3.7	3.2		3.4	3.5
Other Expenses	261	219	19.5	948	859	10.5
(% of Sales)	5.5	5.6		5.7	7.2
Total Expenditure	3,866	3,113	24.2	13,224	9,328	41.8
Operating Profit	911	777	17.2	3,385	2,593	30.6
OPM	19.1	20.0		20.4	21.7
Interest	0	1	-	2	6	(71.7)
Depreciation	31	32	(3.7)	123	136	(10.0)
Other Income	73	82	(10.5)	366	123	198.6
PBT (excl. Extr. Items)	953	826	15.4	3,626	2,573	41.0
Extr. Income/(Expense)	-	-	-	(725)	162	-
PBT (incl. Extr. Items)	953	826	15.4	4,351	2,411	80.4
(% of Sales)	19.9	21.2		26.2	20.2
Provision for Taxation	242	236	2.5	1,011	708	42.9
(% of PBT)	25.4	28.6		23.2	29.3
PAT	711	590	20.5	3,340	1,704	96.0
PATM	14.9	15.2		20.1	14.3
Equity capital (cr)	289.4	289.4		289.4	144.7
EPS (`)	24.6	20.4	20.5	115.4	58.9	96.0

Source: Company, Angel Research

Key Financials

Y/E March (`Cr)	FY2010	FY2011	FY2012E	FY2013E
Net sales	11,921	16,609	19,743	22,737
% chg	35.3	39.3	18.9	15.2
Adj. net profit	1,784	2,750	2,871	3,183
% chg	132.0	54.1	4.4	10.9
OPM (%)	20.2	19.7	19.2	19.3
Adj. EPS (`)	61.7	95.0	99.2	110.0
P/E (x)	24.0	14.9	14.3	12.9
P/BV (x)	14.0	8.3	6.7	5.3
RoE (%)	74.4	70.2	52.2	46.0
RoCE (%)	58.8	66.2	63.2	59.3
EV/Sales (x)	3.1	2.1	1.7	1.4
EV/EBITDA (x)	15.9	10.9	9.1	7.5

  

 

Source: Company, Angel Research