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.
