indiabulls_maruti_18may09

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MARUTI SUZUKI INDIA LTD

RESEARCH

EQUITY RESEARCH May 15, 2009

New production capacity to drive volume For Q409, Maruti Suzuki India Limited (MSIL) reported a sharp jump in

sales, up 30.9% yoy to Rs. 63 bn. The surge in sales was driven by a

robust volume growth of ~17% yoy and an improvement in net price

realisations. In the face of 4% cut in CENVAT, announced in December

2008, MSIL witnessed ~12% yoy (Rs. 266,582 per unit) growth in net

price realisations.

Despite a record volume achieved during the quarter, the net profit

reported by the Company declined substantially, mainly due to the losses

on account of forex fluctuations and higher raw material cost. For Q409,

the EBITDA margin declined ~500 bps yoy to 7%, and adj. net profit

margin declined ~400 bps yoy to 3.8%. Consequently, the adj. net income

plunged 35.3% yoy to Rs. 2.4 bn for the fourth quarter.

Capacity expansion plans; expanding presence in Diesel segment

The Company plans to make an investment of Rs.18 bn towards

production expansion.

MSIL is planning to increase its production capacity by an additional 2

lakh (both petrol and diesel) cars by FY11. The increased volumes will

cater largely to the compact-car segment, which has shown considerable

growth in the last few years and is expected to expand further.

Moreover, MSIL is expanding its presence in the Diesel segment, another

growing segment. To meet the increasing demand of the diesel variants in

its models, MSIL is increasing its production capacity by one lakh units

(part of Rs.18 bn capex plan). New capacity will help reduce the waiting

time of diesel models, which currently stands at around 3-5 months.

Maruti Suzuki India Limited Hold

Key Figures (Standalone)

Quarterly Data Q4'08 Q3'09 Q4'09 YoY% QoQ% 2008 2009 YoY%

(Figures in Rs. mn, except per share data)

Net Sales 48,174 45,676 63,084 30.9% 38.1% 180,208 205,579 14.1%

Adj. EBITDA 5,816 3,518 4,493 (22.7)% 27.7% 27,837 18,675 (32.9)%

Adj. Net Profit 3,759 2,117 2,431 (35.3)% 14.8% 17,899 12,275 (31.4)%

Margins(%)

EBITDA 12.0% 7.5% 7.0% 14.9% 8.8%

NPM 7.8% 4.5% 3.8% 9.6% 5.8%

Per Share Data (Rs.)

Adj. EPS 13.0 7.3 8.4 (35.3)% 14.9% 62.0 42.5 (31.4)%

RESULTS REVIEW

Share Data

Market Cap Rs. 244.9 bn

Price Rs. 847.55

BSE Sensex 12,173.42

Reuters MRTI.BO

Bloomberg MSIL IN

Avg. Volume (52 Week) 0.2 mn

52-Week High/Low Rs. 873 / 428.4

Shares Outstanding 288.9 mn

Valuation Ratios (Consolidated)

Year to 31 March 2010E 2011E

EPS (Rs.) 56.8 67.5

+/- (%) 33.8% 18.8%

PER (x) 14.9x 12.6x

EV/ Sales (x) 0.9x 0.8x

EV/ EBITDA (x) 8.8x 7.6x

Shareholding Pattern (%)

Promoter 54

FIIs 19

Institutions 22

Public & Others 5

Relative Performance

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MSIL Rebased BSE Index


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RESEARCH


Change in product mix; better price realisations

While the capacity expansion plans will allow the Company to tap thegrowing demand in the compact car segment, increasing contribution

from the higher priced cars should effect a further improvement in the

average price realisations of the Company.

Increased rural penetration and lower interest rates

During the first eight months of FY09, the domestic passenger cars

segment witnessed a substantial pressure on volumes, mainly due to the

firm interest rates and cautious approach adopted by private banks in

disbursing automobile loans. While domestic car sales fell in four out of

the first eight months in FY09, the cumulative sales in the domestic

market increased marginally by 1.3% (852,164 units) in AprilNovember

2008. However, the industry witnessed signs of recovery after the

government announced various rate cuts (CRR and repo rate) to infuse

more money in the economy, coupled with a 4% cut in CENVAT,

announced in December 2008.

Increasing production of high-pricebracket cars

Passenger car sales' volume

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Vehicles'000

Car SalesSource: CMIE

Domestic Volume Q4'08 Q1'09 Q2'09 Q3'09 Q4'09

A1- (Maruti 800) 17,568 16,649 12,137 8,521 12,076

Share in total volume 9.4% 9.2% 7.1% 5.4% 5.7%

A2- (Alto, Wagon-R, Zen, Swift, A-Star) 131,885 125,427 118,083 115,241 152,645Share in total volume 70.5% 69.6% 68.8% 72.5% 72.2%

A3- (Dzire, SX4, Baleno) 12,433 15,940 18,849 17,911 23,228Share in total volume 6.6% 8.9% 11.0% 11.3% 11.0%

C - (Omni, Versa) 24,170 20,761 20,209 15,557 21,421


MUV- (Grand Vitara, Gypsy) 1,129 1,316 2,428 1,630 2,115


Total Sales 187,185 180,093 171,706 158,860 211,485

Source: CMIE


3/5



RESEARCH


Higher demand from rural areas led to a 4% growth in passenger car

sales in April, the third consecutive month in a row. With healthyagriculture growth during the past few years and increasing selling prices

of agri-products, spending power of rural India has increased significantly.

On the whole, we believe that MSIL should be able to manage a healthy

~8% volume growth through FY10EFY12E, in the face of lower interest

rates and increased availability of finance, coupled with increasing rural

demand and MSILs production capacity.

Valuation

We have revised our estimates based on the current market scenario. We

expect a healthy volume growth on the back of increased rural penetration

and improving availability of finance. Accordingly, we estimate ~16.2%

revenue CAGR for FY09-FY12E.

Further, we expect the net price realisation to improve further on the back of

a shift in product mix, and the reduction in excise duty that was announced

in December 2008. Moreover, the commodity prices have eased and are

down from their peak in July 2008, which should help ease the pressure on

the Company's margin. On the whole we expect the EBITDA margin to

improve 8.8% in FY09 to 10.5%-11.0% in FY10E and FY11E. Accordingly,

we expect the Companys EPS to be Rs. 56-58 and Rs. 66-69 for FY10E

and FY11E, respectively.

At the CMP of Rs. 847.55, MSILs stock is trading at a P/E of 14.9x and

12.6x for its FY10E and FY11E earnings, respectively. We have valued

MSIL by using the DCF methodology. Assuming a 14.1% WACC and a 5%

terminal growth rate, we have arrived at a target price of Rs. 809. Our

valuation suggests that the stock is fairly valued at the CMP of Rs. 847.5;

hence, we reiterate our Hold rating.


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RESEARCH


As the DCF valuation is sensitive to the changes in the WACC and terminal

growth rate, we have performed a sensitivity analysis for the same.

Key Figures (Consolidated)

Year to March FY08 FY09 FY10E FY11E FY12E CAGR (%)

(Figures in Rs. mn, except per share data) (FY09-12E)

Net Sales 180,208 205,579 249,680 283,643 322,421 16.2%

Adj. EBITDA 27,837 18,675 27,092 31,217 36,682 25.2%

Adj. Net Profit 17,899 12,275 16,419 19,501 23,360 23.9%

Margins(%)

EBITDA 14.9% 8.8% 10.6% 10.8% 11.2%

NPM 9.6% 5.8% 6.4% 6.8% 7.1%

Per Share Data (Rs.)

Adj. EPS 62.0 42.5 56.8 67.5 80.8 23.9%

PER (x) 13.4x 20.0x 14.9x 12.6x 10.5x

809 13.1% 13.6% 14.1% 14.6% 15.1%

4.00% 853 813 777 745 715

4.50% 873 830 792 758 726

5.00% 895 850 809 772 739

5.50% 921 871 827 788 752

6.00% 950 896 848 806 768Source: Indiabulls Research

Sensitivity Analysis

Terminalgrowth

WACC


5/5

Indiabulls (H.O.), Plot No- 448-451, Udyog Vihar, Phase - V, Gurgaon - 122 001, Haryana. Ph: (0124) 3989555, 3989666 -5-


RESEARCH


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