MULTI COMMODITY EXCHANGE OF INDIA LTD : RISING FROM ASHES !!!

Scrip Code: 534091 / MCX

CMP:  Rs. 529.50; Strongly Accumulate at every dips.

Medium to Long term Target – Rs. 800.00; STOP LOSS – Rs. 487.14; Market Cap: Rs. 2,700.36 Cr; 52 Week High/Low: Rs. 1536.05 / Rs. 238.15

Total Shares: 5,09,98,369 shares; Promoters : 1,32,59,575 shares –26.00 %; Total Public holding : 3,77,38,794 shares – 74.00 %; Book Value: Rs. 226.82; Face Value: Rs. 10.00; EPS: Rs. 47.00; Div: 240.00 % ; P/E: 11.26 times; Ind P/E: 33.35; EV/EBITDA: 7.46.

Total Debt: ZERO; Enterprise Value: Rs. 2,625.23 Cr.

Multi Commodity Exchange Of India Ltd: MCX was incorporated as a private limited company on April 19, 2002 in Mumbai, India. Multi Commodity Exchange of India Ltd (MCX) is a state-of-the-art electronic commodity futures exchange. The demutualised Exchange has permanent recognition from the Government of India to facilitate online trading, and clearing and settlement operation for commodity futures across the country. MCX came with an IPO with a sale of 64,27,378 shares by its then shareholders with an objective to achieve the benefits of listings on the Stock Exchange. The IPO was priced at Rs. 1,032.00 per share raising Rs. 663 Cr and got listed on March 09, 2012. MCX holds a market share of over 86 % as on March 31, 2012 of the Indian commodity futures market. The Exchange has more than 2,710 registered members operating through over 3,46,000 including CTCL trading terminals spread over 1,577 cities and towns across India. MCX was the third largest commodity futures exchange in the world, in terms of the number of contracts traded in 2011. The exchange is the world's largest exchange in Silver and Gold, second largest in Natural Gas and the third largest in Crude Oil with respect to the number of futures contract traded. MCX was the first exchange in India to initiate evening sessions to synchronise with the trading hours of global exchanges in London, New York and other major international markets. It was the first exchange in India to offer futures trading in steel, crude oil, and almond. Among international alliances, MCX have formed strategic alliances with a number of exchanges such as the London Metal Exchange, the New York Mercantile Exchange, the LIFFE Administration and Management (under renewal), the Baltic Exchange Limited, Shanghai Futures Exchange and Taiwan Futures Exchange. MCX holds 5 % in Dubai Gold and Commodity Exchange and the book value of this investment was Rs. 2.185 Cr as of December 31, 2011; 100 % in MCX Clearing Corporation Ltd; 5 % in MCX SX; 26 % in MCX-SX Clearing Corporation Ltd; 51 % in SME Exchange of India Ltd with initial investment of Rs. 5,10,000. MCXIL is compared with Bombay Stock Exchange of India Ltd, National Stock Exchange of India Ltd, United Stock Exchange of India Ltd, Calcutta Stock Exchange , National Commodity and Derivatives Exchange, National Multi-Commodity Exchange of India Ltd, Financial Technologies (India) Ltd in India and Globally compared with Ichiyoshi Securities Co Ltd of Japan, Osaka Securities Exchange also from Japan, CME group, Intercontinental Exchange Inc, Nasdaq OMX Group/THE, CBOE Holdings Inc, London Stock Exchange Group, TMX Group Inc, Deutsche Boerse AG, Bolsas Y Mercados Espanoles, ASX Ltd, Singapore Exchange Ltd, Hong Kong Exchange & Clearing House Ltd, Bursa Malaysia BHD.
                                                

Investment Rationale:

Multi Commodity Exchange of India (MCX) is a state-of-the-art electronic commodity futures exchange, with nearly monopolistic market share of around 90.50 % in commodity market in India. MCX enjoys a competitive edge, and has its own Economic Moat (A competitive advantage is, that one company has over the other companies in the same industry – by Warren Buffett) and is expanding its moats which is a very strong sign of as a future Multi-bagger given that its has an strong technology support for its trading platform supplied by its then promoter, Financial Technologies India (FTECH), which is a leading developer of exchange related software and technology in India. Technology for the exchange industry is difficult to replicate, and this provides the MCX as a company with a competitive advantage. Exchanges require constant technology upgrades and support, necessitated by regulatory regime and market forces. MCX is able to obtain speedy and efficient technology solutions from FTECH. MCX’s current technology infrastructure is sufficient to handle daily trading volumes of up to 10,000,000 in a day. Indian commodities exchanges are highly regulated, and the current regulatory environment, foreign institutional investors (FIIs), banks and mutual funds cannot trade on commodity exchanges. Growth potential in the economy like India's remains huge over the next decade, which is expected to drive the demand for commodities. The increase in physical market volumes consequently increases the hedging requirements for industry players, influencing derivative trading volumes. Penetration remains low - Globally, futures Gold volumes are 70-80x that of physical trade as against 17-18x in India, 20x in Crude as against 7x in India, 100x in Aluminum as against 8-9x in India. MCX has agreements with financial information service agencies to provide real time data-feed on trading prices, trading volume and other information on the Exchange and on the spot market. The company currently has such arrangements with the following entities: Bloomberg Finance L.P.; NewsWire 18 Private Limited; IQN Data Solutions Private Limited; Reuters India Private Limited; Interactive Data (Europe) Limited and TickerPlant Limited. 

 "In order to raise from its own Ashes 
                                                           A Phoenix First Must Burn "


                                                                                        - Octavia E Butler.

Just as the Phoenix bird raises from its ashes, MCX will also raise from the ashes. Recently, MCX stock prices faced extreme pressure in its prices on brouses and its prices went down from Rs. 1300 to Rs. 238 levels in months, due to Rs. 5,500 Cr National Spot Exchange Limited trade settlement scam. NSEL is a subsidiary of MCX’s parent company Financial Technology India Ltd, and as a promoter of MCX, after this scam, FTIL is forced to reduce their stake in MCX from 26 % to merely 2 % of paid up equity capital of MCX within the end of January 2014. The commodity regulator Forward Market Commission recently declared that Financial Technology, Jignesh Shah along with Joseph Messy, unfit as a promoter to run any exchanges in India due to NSEL Scam. From the reports of FMC Jignesh shah resigned from MCX as a Vice Chairman and also resigned as a shareholder director from the MCX. Last month of November 2013, the parent company sold its entire stake in Singapore Mercantile exchange to Intercontinental Exchange Group Inc for $ 150 million. The stake sale of 24 % would mean a additional pressure for a short time bring prices of MCX coming down, but since the change of guard of the company is huge positive and this will further strengthen the fundamentals of the company. MCX is a good business and it looks like its internal problems are getting sorted out, it is already being punished quite a lot. Also the fact remains that the impact of the securities transaction tax (STT) will probably going to impact MCX’s earnings, but still it’s a good long term opportunity. On 13 January 2014, MCX received approval of Institutional shareholders to raise funds through issue of shares in a form of rights issue to its existing 22 institutional shareholders of MCX-SX on basis of 1:1 at Rs. 10 per share on a proportionate basis. These domestic financial Institutional Investor includes IFCI, Union Bank of India and Punjab National Bank together holding 88.53 % of the undiluted shares. The process is expected to be completed by Mid-March. The exchange is expected to garner between Rs. 500 - Rs. 600 Cr through this issue. This rights issue will also result in the Financial Technologies group's effective stake in the exchange coming down from 70.9 % to 56.4 %, this is because most of its stake is held as a convertible warrants, for which no additional securities will be issued through the rights issue. MCX- SX's Net worth (Share capital + Reserves and Surplus) has come down from Rs. 274.6 Cr to Rs. 185.8 cr between March 2013 and September 2013. At this rate, the company's net worth could breach the stipulation of a minimum Net Worth of Rs. 100 Cr by SEBI. Apart from a successful rights issue, the exchange's net worth can also get boost if the FTIL group find takers for its warrants which are then converted into equity shares. Also MCX-SX have commenced trading in Interest Rate Futures (IRF) contracts in the currency derivatives segment from 20 january 2014.

Outlook and Valuation:

Multi Commodity exchange of India (MCX), India’s biggest commodity bourse, has an average daily turnover of about Rs. 240 billion or 77 % of the country’s exchange commodities volumes. MCX has its market leadership and has early mover advantage, edge in innovation with technology support from FTIL and is sticky liquidity. The exchange, with eight years of operating history and is in a growth phase with structural levers in place for an upward trajectory in volume over the long term. Until a new player poses a stiff competition or institutions are permitted to participate on CommEx, it is expected that MCX’s commission yields to stabilise. Comparing this company with its global peers, MCX valuations are at highly discounts with matured exchanges in developed nations and at 35 % ‐ 50 % discount to valuations of listed CommExes in developing markets. Currently CME Group Inc trades at a PE of 27.71x; Intercontinentale Exchange Group Inc trades at a PE of 29.48x; NASDAQ OMX Group Inc trades at a PE of 20.75x; CBOE Holdings Inc trades at a PE of 27.49x; MarketAxess Holdings trades at a PE of 34.27x; NYSE Euronext trades at a PE of 21.91x and MCX trades at 9 times.. Hence this discount is temporary in nature due to problems faced by its parent company and requlatory issues, and once these issues are solved these discounts will get narrowed down. Adding that there are possibilities of opening of option trading or participation by FIIs, MFs, Banks etc and possibilities of revision invariable fee structure for technology cost sharing with FTIL and also cannot rule out the possibilities of scale up in valuation of MCX-SX upside. It is expected that, MCX will sustain its market leadership which is steamed up from its technological edge and future readiness. MCX's volumes have grown at a CAGR of 47 % over FY07-FY12. Future potential remains exciting given the likelihood of new products and participants with the FCRA Bill, with its 20 lakhs client accounts as compared with 1.9 Cr – 2 CR Demat accounts, the industry has only scratched the surface with respect to potential volumes. MCX, with its technology as a backbone and readiness to latch on to new opportunities and also with the policy to maintain 50 % payout ratio is a key valuation positive. The valuation of MCX’s standalone business at 20x FY15E EPS of Rs. 37.60 gives us the standalone valuation of MCX at Rs. 752 per share; the valuation of the stake in MCX-SX (incl. warrants) contributes additional Rs. 110 per share to MCX. It is expected that MCX to have volumes growth of 15 % CAGR over FY12-15 and a PAT CAGR of 13 % over this period. Also, the ROE should sustain its level in the high 20's.  In my view MCX could report FY14E EPS of Rs. 66.50/share and for FY 15E of Rs. 76.50/share. The stock should go to the price of Rs. 862.00, and conservatively keeping the target of Rs. 800 and recommend to Accumulate on the stock at every dips.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	526.20	493.50	339.10	361.00
NET PROFIT (₹ Cr)	286.20	280.00	168.80	191.80
EPS (₹)	56.10	54.90	33.10	37.60
PE (x)	24.90	12.60	21.00	18.40
P/BV (x)	7.20	3.10	2.90	2.70
EV/EBITDA (x)	17.70	8.20	14.20	12.80
ROE (%)	31.00	26.00	14.20	15.10
ROCE (%)	24.80	24.80	13.60	14.60

I would buy MCX for Medium to Long term for target of Rs. 800. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 487.14 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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NEW APPEARENCE OF YOUR BLOG !!!

Hello My Reader Friends,

From a modest beginning in 2007, and now looking at a future filled with significant possibilities. It has been an interesting transformation journey for BHAVIKK SHAH's BLOG over the last 6 years. With a strong determination to help investor friends, the blog has been growing faster with many new readers joining in.

Today, BHAVIKK SHAH's BLOG has grown to a reader base of more than 355 proud members, with more than 600 views of the RoCE presentation... with all the readers recommendations and love and support towards the blog over these years and going on....I felt that it is now appropriate moment to announce u that with the beinging of the New Year ur most credible web blog has also changed, it has made a slight change in its appearence.....YES !!!

Yours most visited BHAVIKK SHAH's BLOG has changed its Appearence - 

FROM - 2013  TO 2014

                                                      

From Orange to Lemon Yellow with all its main features and links intact - I hope u will like the new looks of the blog - kindly drop in ur views to help you better, Do visit the links on the BLOG mentioned just below the title WHAT's THE NEWS !!! - it will update u on world economics in matter of secs, Just give a look !!!!!

As always, the Blog looks forward for all your support and patronage in the same manner that this blog have received in the past ..........

WISHING U ALL A VERY HAPPY LOHRI , MAKAR SANKRANTI AND A VERY HAPPY PONGAL !!! 

Wishing u all a great success and prosperity , have a great day ahead

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BHAVIKK SHAH

www.bhavikkshah.blogspot.in

Mumbai

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CERA SANITARYWARE LTD : ADVANTAGE OF BRAND RECALL !!!

Scrip Code: 532443 / CERA

CMP:  Rs. 705.35; Buy at current levels and on Declines.

Short term Target : Rs. 740.00; Medium to Long term Target: Rs. 800; STOP LOSS – Rs. 648.92; Market Cap: Rs. 892.61 Cr; 52 Week High/Low: Rs. 745.00 / Rs. 386.05

Total Shares: 1,26,54,874 shares; Promoters : 70,56,180 shares –55.76 %; Total Public holding : 55,98,694 shares – 44.24 %; Book Value: Rs. 141.85; Face Value: Rs. 5.00; EPS: Rs. 37.72; Div: 80.00 % ; P/E: 18.69 times; Ind. P/E: 14.57; EV/EBITDA: 10.20.

Total Debt: 54.94 Cr; Enterprise Value: Rs. 910.38 Cr.

CERA SANITARYWARE LIMITED: Cera Sanitaryware Limited was incorporated in 1980, and is headquartered in Kadi, India. The company was formerly known as Madhusudan Oils and Fats Limited and changed its name to Cera Sanitaryware Limited in November 2002. Cera Sanitaryware Limited manufactures and sells sanitary ware and faucet ware products in India. The company offers sanitary ware products, including EWC’s, kids range products, wash basins, urinals, cisterns, seat covers, sensors, and bath accessories; special needs products consisting of cranes, shower chairs, wall mounted and U shaped rails, wall mounted inverted rails, and corner and wall mounted grab bars; and faucets, such as fittings, basin mixers, showers, bath tub spouts, flush valves and cocks, angle cocks, taps, and accessories. It also provides wellness products comprising steam shower rooms, shower rooms and cubicles, shower partitions, indoor swimming pools, bath tubs, shower panels, and pressure pumps; kitchen sinks and mirrors; and personal care products comprising hand dryers, perfume sprayers with remote control, automatic soap dispensers, and hair dryers, as well as wall and floor tiles. Cera has emerged as the third largest player in the sanitary ware industry in India. The company enjoys 24 % market share in the organised segment. It has installed manufacturing capacity of 2.7 mn pieces p.a. in sanitary ware and 2,500 pieces per day in faucet ware in Kadi (Gujarat). As of May 2013, Cera has 1,000 distributors - dealers, 10,000 retailers and 12 major stock points across India. CERA’s subsidiary includes Madhusudan Industries Ltd; Madhusudan Holdings Ltd; Madhusudan Fiscal Ltd; Vikram Investment Co. Ltd; Cera Foundation; Swadeshi Fan Ind. Ltd. The company is locally compared with Kisan mouldings Ltd, HSIL, Kajaria Ceramics Ltd, Somany Ceramics Ltd, Bell Ceramics Ltd, Everest Industries Ltd, NITCO Ltd, Asian Granito India Ltd, Regency Ceramics Ltd, Responsive Industries Ltd and globally compared with Asahi-Seiki Manufacturing Company Ltd of Japan, Onex Corporaion of Japan, Sapura Industrial Berhad of Malaysia, Nansin Company Ltd of Japan, Masonite International Corp of USA, Owens Corning of USA, Nci Building Systems Inc of New York, Masco Corp of USA.

Investment Rationale:

Cera Style Studio : Indiranagar, Bengaluru

Cera Sanitaryware incorporated in the year 1998 is a pioneer in the sanitary ware segment in India. It’s also the first sanitary ware company to use natural gas, for its commercial needs, Cera has been on the forefront of launching a new and versatile colour range and introducing the bath suite concept. It also launched innovative designs and water-saving products. Cera Sanitaryware Ltd was awarded as Power Brand for 2012, this award is instituted by IIPM Think Tank and Planman Media in association with the Indian Council for Market Research. Cera launched India’s very first twin-flush model, which reduces the water needs of households considerably. Cera’s WCs are designed to flush in just 4 liters of water is another notable innovation by the company. The Sanitary ware industry is around Rs. 1,050 crore in India and is going through a metamorphosis, with several foreign brands eyeing India as a potential market and developers and traders looking at China as a source for cheaper Sanitaryware. Some of the foreign brands have commenced production in India, while some are establishing offices in India, apart from those who have already got well-established in this country in the past few years. Added to this is innumerable small scale industries located mainly in Gujarat, manufacturing low-end Sanitaryware. The Company’s brand CERA, with its impeccable legacy of over three decades, continues to grow, much above the industry rate, despite the competition from peer brands-both domestic and international. The Company’s well entrenched and loyal distribution network, nation-wide sales and service teams, immaculate product quality and continuous advertising and promotional activities through television, print, OOH and POP have helped place CERA in an enviable platform in the minds of the customers. The Company’s brand extension to other related categories like showers, faucets, PVC cisterns and seat covers, etc. has also helped in accelerating the growth. During the year 2012-13, the Company forayed into tiles in a modest way and launched digital wall and floor tiles, vitrified tiles in both soluble salt and double charge and also regular porcelain tiles. Management is optimistic on such brand extensions and are positive that this will continue in the coming years as well, which will help CERA to establish itself as a total home solutions brand. The industry structure remains unchanged with domestic and International brands continuing their efforts to gain the larger share of the pie of Indian market. Some of them have even set up their manufacturing bases. CERA has launched a wide range of bath suite concept. Cera Sanitaryware sells its products through Cera Bath Studios, which provides consumers, architects and interior designers a full view of ranges of wash basins, shower panels, shower cubicles, bath tubs, shower temples, whirlpools, cp fittings etc. Cera Bath Studios has pan-India presence, are located at Ahmedabad, Bangalore, Chandigarh, Kolkata, Cochin and Hyderabad, Mumbai. Manufacturing Unit Cera Sanitaryware manufacturing facilities are located at Kadi, Gujarat.The achieving the growth in the rapidly changing retail market in the country, Cera, has launched its one of a kind Cera Bath Studios in Ahmadabad, Bangalore, Chandigarh, Kolkata, Cochin and Hyderabad, Mumbai. With the opening of the Cera Bath Studios, the discerning consumers, architects and interior designers can have full view of the Cera’s premium ranges of WC’s, Wash Basins, Shower Panels, Shower Cubicles, Bath Tubs, Shower Temples, Whirlpools, CP fittings etc. Cera Bath Studios will complement its existing network of 600 dealers and 5000 retailers. Several Bathrooms are displayed live, so that the customers can get a feel of Cera’s vast range of products.

Outlook and Valuation:

Cera Sanitaryware Ltd is a pioneer of the first sanitary ware segments in India launching innovative designs & water saving products. Cera has added other products like kitchen sinks, mirrors and sensor products to its range under Bathware. India accounted for 8 % of the world's sanitary ware production. The market size is estimated to be Rs. 1050 Cr. The branded segment accounts for a larger share of 60 % and is growing at a rate of 15 % - 17 %, whereas the market share of the non-branded segment has shrunk to 40 %, growing at a slower pace of 8 % - 9 %. The organized sector, comprising nine units, reported a production of 108,000 TPA against a total capacity of 118,000 TPA; the 250 units in the unorganized sector produced about 180,000 TPA against a total capacity of 220,000 TPA. The outlook for the tile industry appears to be positive over the medium term. This optimism stems from the likelihood of robust demand over the medium term. The real estate market is expected to grow at CAGR 15 % to 16 % over 2010 to 2015. Estimates suggests a shortage of an approximate 2.5 crore housing units in the middle and low income groups at the beginning of the Eleventh Plan. It is also expected that the medium housing segment will record around 25 % CAGR while luxury housing will experience a 33 % CAGR during 2009-13. The residence owners are looking for value-added products and the retail market is expected to grow from present 5 % to 10.4 % by 2012. The CAGR of company during last Five years has remained much more than industry growth rate. Together, the CERA Style Studios and CERA Style Galleries have made a great impact in improving the retail experience for prospective customers, institutional buyers and influencers of CERA. The growth also reflects CERA’s focused endeavors to retain its status as complete bathroom solutions provider to its customer base across India. The strategic planning in terms of product optimization and leveraging on Cera’s strong brand image with well supported penetrating distribution network continues to drive company’s high growth and carving out new standards for itself. CERA has expanded its production capacity to 2.7 million pieces per annum from 2.0 million pieces. Cera's entry into the Faucet ware business is a positive as it provides a significant scalable opportunity. Cera's faucet business is expected to grow at 29 % CAGR and is expected to be profitable durning FY13-15. The Company has also added other products like kitchen sinks, mirrors and sensor products to its range under Bathware. The CERA Style Galleries opened in several cities in collaboration with CERA dealers have been a success, with many more dealers coming forward for opening such Galleries. Already 50 CERA Style Galleries are functional all over the country. Together, the CERA Style Studios and CERA Style Galleries have made a great impact in improving the retail experience for prospective customers, institutional buyers and influencers of CERA. At the current market price of Rs. 705.35, the stock is trading at a PE of 16.99 x FY14E and 13.30 x FY15E respectively. The company can post Earnings per share (EPS) of Rs. 41.50 in FY14E and Rs. 53.00 in FY15E. CERA’s Net sales and PAT are expected to grow at a CAGR of 30 % and 24 % over 2012 to 2015E. CERA is confident of sustaining its growth in coming years with its business strategies of continuously upgrading product basket, leveraging on strong brand image, optimizing product potential capacity utilization and distribution network with all backed up by well structured sales & marketing plans. One can buy CERA with a target price of Rs. 740.00 for shorter term and for Medium to Long term investment it should be Rs. 800.00.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	320.90	489.30	646.30	790.00
NET PROFIT (₹ Cr)	30.80	43.40	52.60	67.00
EPS (₹)	24.30	34.30	41.50	53.00
PE (x)	23.70	16.80	13.30	10.40
P/BV (x)	5.20	4.10	3.10	2.40
EV/EBITDA (x)	13.30	9.50	7.60	5.90
ROE (%)	24.50	27.30	26.00	26.20
ROCE (%)	28.80	32.70	29.80	32.00

I would buy CERA SANITARYWARE LTD for the short term would be Rs. 740 and for the Medium to Long term for target of Rs. 800. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 648.92 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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MARUTI SUZUKI INDIA LTD: WILL ZOOM ZOOM UPWARDS !!!

Scrip Code: 532500 / MARUTI

CMP:  Rs. 1768.40; Buy at current levels.
Medium to Long term Target: Rs. 1850.00; STOP LOSS – Rs. 1626.92; Market Cap: Rs. 53,419.83 Cr; 52 Week High/Low: Rs. 1830.00 / Rs. 1215.00

Total Shares: 30,20,80,060 shares; Promoters : 16,97,88,440 shares – 56.21 %; Total Public holding : 13,22,91,620 shares – 43.79 %; Book Value: Rs. 615.03; Face Value: Rs. 5.00; EPS: Rs. 100.73; Div: 160.00 % ; P/E: 17.55 times; Ind. P/E: 19.43; EV/EBITDA: 8.70.

Total Debt: 1,389.20 Cr; Enterprise Value: Rs. 54,554.64 Cr.

MARUTI SUZUKI INDIA LTD: The Company was founded in 1981 and is based in New Delhi, India. The company was formerly known as Maruti Udyog Limited and changed its name to Maruti Suzuki India Limited in 2007. The company is the subsidiary of Suzuki Motor Corporation. Maruti Suzuki India Limited manufactures, purchases, and sells motor vehicles and spare parts primarily in India. The company offers 15 brands and approximately 200 variants of passenger cars, multi utility vehicles, and multipurpose vehicles. The Company’s portfolio includes the Maruti 800, Alto 800, Alto K10, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, Omni, Eeco, Kizashi, Grand Vitara, Gypsy, Ertiga and Stingray. It is also involved in the facilitation of pre-owned car sales, fleet management, and car financing. In addition, the company provides motor insurance products, accessories, auto card, and driving school services. It exports its products worldwide. The company operates through a sales network of 1,204 outlets in 874 cities; and 2,965 service outlets in 1,423 cities in India. The other activities of the Company consist of facilitation of pre-owned car sales, fleet management and car financing. The Company’s services include Finance, Insurance, Maruti Genuine Accessories, Maruti Genuine Parts, Maruti Driving School and Autocard. The Company’s subsidiaries include Maruti Insurance Business Agency Limited, Maruti Insurance Distribution Services Limited, True Value Solutions Limited, Maruti Insurance Agency Network Limited, Maruti Insurance Agency Solutions Limited, Maruti Insurance Agency Services Limited, Maruti Insurance Logistic Limited and Maruti Insurance Broker Limited. The company is locally compared with Mahindra & Mahindra ltd, Ashok Leylamd Ltd, Hindustan Motors Ltd, TVS Motors Company, TATA Motors Ltd, SML Isuzu Ltd, Eicher Motors Ltd, LML Ltd, Hero Motocorp Ltd, Bajaj Auto ltd and globally compared with Bayerische Motoren Werke Ag (BMW) of Germany, Hyundai Motor Co of South Korea, Audi Ag of Germany, Renault Sa of France, AB Volvo  of Sweden, Suzuki Motor Corp of Japan, Mitsubishi Corp of Japan, Daimler AG of Germany, Honda Motor Co of Japan, General Motors of USA, Ford Motor Co of USA, Toyota Motor Corp of Japan , Volkswagen AG of Germany, Nissan Motor Co Ltd of Japan and DRB-Hicom Berhad of Malaysia. 

Investment Rationale:

Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a subsidiary of Suzuki Motor Corporation, Japan. Maruti Suzuki has been the leader of the Indian car market for over two and a half decades. The company has two manufacturing facilities located at Gurgaon and Manesar, south of New Delhi, India. Both the facilities have a combined capability to produce over a 15 lakhs vehicles annually. The company plans to expand its manufacturing capacity to 17.5 lakhs by 2014. Maruti Suzuki India Limited announced the launch of the CNG variant of Ertiga, 7-seater utility vehicle coinciding with Environment month in June 2013. The capital investment proposed for this year by the company is approximately Rs. 3,500 Cr. Suzuki Japan has decided that India will now be responsible for the export markets of Africa, the Middle East and its neighboring countries. The Company will continue to introduce new range of products and variants in automobiles to meet growing customers’ expectations. The company will take initiative step to introduce alternate fuel options like LPG and CNG in the company’s vehicles. In the long term, the company will focus on enhancing the capability in the field of EV-HEV (Electric Vehicle – Hybrid Electric Vehicle) and other environment friendly initiatives. Maruti Suzuki’s Q2FY14 operating performance was ahead of market estimates, with EBITDA for the quarter at Rs. 1,320 Cr. On account of higher export realisation which was up 8 % YoY, increased localisation of raw materials and favourable currency benefit, material cost was down 260 bps QoQ. Management indicated cost cutting initiatives are likely to compensate higher discounting in the market. The company maintained their volume guidance of flat growth in the domestic market for FY14E with exports also likely to be flattish. Management maintained its guidance of flat growth in the domestic market for FY14E, with export volumes also likely to be flattish. Growth during the festive season of Navratri and Onam has improved by 5-6% YoY. Diesel accounted for 30% of overall volumes in Q2FY14 as against 34% in Q1FY14. Rural sales accounted for 32-33% of the volumes in Q2FY14, with the growth in H1FY14 pegged at 24%. Discount/vehicle increased by 30% QoQ to Rs. 17,500 mainly on account of higher discounts on petrol vehicle and the full impact of diesel vehicle discounting started in the month of June’13. At the same time, management indicated that the indirect imports are likely to cost more as they need to be compensated for depreciation in Rupee in Q3FY14 with a quarter lag; vendor imports in Q2FY14 reflected Q1FY14 rates of Rs. 55/$. And higher export realisation which stood at Rs. 61/$ v/s Rs. 55/$ in Q1FY14. This was slightly negated by 60 bps increase in other expenses on account of higher royalty payment as well as higher discounts which stood at Rs. 17,500/ vehicle v/s 13,500/ vehicle. At the same time, employee cost increased by Rs. 77 Cr majority attributed to one-time impact of hikes/incentives to employees, as a result, EBITDA margins improved by a whopping 1.2 % QoQ to 12.6 %. EBITDA for the quarter came in at Rs. 1,320. The positive surprise on EBITDA front percolated down to PAT level which came in Rs. 670 Cr. As looking at the Bank of Japan's balance sheet expansion with weak current account and with a big outbound in FDI and with an unwind of a massive post GFC Capital inflows, it is expected that japanese yen could be around 106 to $1 in Q1 and around 109 in Q2 and a 112 in Q3 and in Q4 of around 115, this means if yen touches 120 to $1 then Maruti will zoom. as conviction in Abenomics deepens and local househols, domestic institutions and foreign real money investors embark on a structural shift in portfolio allocations, it will benefit both local equities and USD/JPY making YEN to zoom.

Outlook and Valuation:

Maruti Suzuki is India’s largest passenger vehicle company with a market share close to 40% which offers 15 models with over 200 variants across the Industry segments like Passenger cars, Utility vehicles and Vans. The contribution of automotive sector in the gross domestic product (GDP) is expected to double, reaching a turnover worth US$ 145 billion in 2016, with special focus on export of small cars, MUVs, two & three wheelers and auto components, as per the Automotive Mission Plan (AMP) 2006-2016. The favourable Indian market conditions are acting as a catalyst for luxury and premium carmakers, which are receiving impetus from new launches. India is emerging as an export hub for sports utility vehicles (SUVs). Global automobile majors are looking to leverage India's cost-competitive manufacturing practices and are assessing opportunities to export SUVs to Europe, South Africa and Southeast Asia too. India is also one of the key markets for hybrid and electric medium heavy- duty trucks and buses. Ford Motor Company is staking big on Asia-Pacific (APAC) markets, especially India and China. Ford will export Figo and EcoSport models out of India. The Indian plants would support the market here, as well as other global markets. The production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021, as per data published by Automotive Component Manufacturers Association of India (ACMA). Maruti Suzuki India Ltd’s Japanese Yen-denominated imported content (direct + indirect) stands at 18 % of net sales. The company has targeted a savings of 150-200 bps every year by increasing localisation and thereby, bringing the imported content down to 14-15 % of net sales by FY15E end. For FY14, it is assumed that a cross-currency rate of INR/JPY to be at 0.62 v/s 0.66 in FY13. As a result of both the above reasons, it is expected that the gross margins can improve by 250 bps YoY in FY14E. The company can witness earnings CAGR of 20.90 % with strong EBITDA margins of 11-12 % over the next few quarters with the increased discounts being offset by a stable currency. Maruti is the best play on the recovery in the macroeconomic situation and is expected a rebound in volumes in FY15E by around 13.00 %. At current price of Rs. 1768.40, the stock is trading at P/E of 18.81 x on FY14E estimates & 16.19 x on FY15E estimates. In my view Maruti Suzuki India Ltd could post EPS of Rs. 94 for FY14E & Rs. 109.20 for FY15E and one can ACCUMULATE the stock and would advise investors to use declines in the stock to buy with a long term view with a target price of Rs. 1850.00 for Medium to Long term investment.

SOTP Valuation :-

Standalone Business FY15E	Value Per Share (in ₹.)
EPS FY15E (₹./sh)	109.20
Multiple (x)	16.80
Standalone Business Value (₹./sh)	1834.56
Investmetn per Share (₹./sh)	18.00
TOTAL	1852.56

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	34,705.90	42,612.60	44,254.70	51,966.10
NET PROFIT (₹ Cr)	1,635.10	2,392.10	2,838.50	3,298.30
EPS (₹)	56.60	79.20	94.00	109.20
PE (x)	26.40	18.90	15.90	13.70
P/BV (x)	2.90	2.50	2.20	1.90
EV/EBITDA (x)	16.90	10.80	8.60	7.00
ROE (%)	11.30	14.20	14.30	14.60
ROCE (%)	10.70	13.60	13.50	13.80

I would buy MARUTI SUZUKI INDIA LTD for Medium to Long term for target of Rs. 1850. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 1626.92 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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