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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