TU1216 Maruti Suzuki India Ltd 100128

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					                                   4                                                                                                                                             MARUTI SUZUKI INDIA LTD
                                                                                                                                                                                             RESEARCH
 EQUITY RESEARCH                                                                                                                                                                                          January 28, 2010

Results Review                                                                                                                      Maruti Suzuki India Limited                                                               Hold
Share Data                                                                                                                          Providing impetus; keeping up the growth pace
Market Cap                                                                                      Rs. 400.4 bn
                                                                                                                                    In line with our estimates, Maruti Suzuki India Limited (MSIL) reported net
Price                                                                                           Rs. 1,386.00
                                                                                                                                    sales of Rs. 73.3 bn, a 60.6% yoy, on account of a 48.7% volume growth and
BSE Sensex                                                                                              16,306.87
                                                                                                                                    an 8% realization gain. The EBITDA margins were better-than-expected at
Reuters                                                                                                 MRTI.BO
                                                                                                                                    15.5% in Q3’10 as against 7.7% in Q3’09 primarily due to lower commodity
Bloomberg                                                                                                    MSIL IN
Avg. Volume (52 Week)                                                                                            0.2 mn             prices and improved operating leverage. In the near-to-medium term, we
52-Week High/Low                                                                  Rs. 1,740.0 / 512.1                               expect MSIL to have robust sales volume by capitalizing the opportunities in
Shares Outstanding                                                                                      288.9 mn                    the auto market through its new launches, capacity expansion plans and
                                                                                                                                    exploring new markets. Our revised target price of Rs. 1,550 suggests a
Valuation Ratios (Consolidated)
                                                                                                                                    potential upside of ~12% from the current levels. Thus, we maintain Hold
Year to 31 March                                                  2010E                                          2011E
                                                                                                                                    rating on the stock.
EPS (Rs.)                                                                   85.9                                   98.5
+/- (%)                                                           102.3%                                         14.7% Sustainable growth in domestic volumes: In Q3’10, MSIL’s total volumes
PER (x)                                                              16.1x                                        14.1x grew by 37.8% yoy to 218,910 units. In the near-to-medium term, MSIL’s
EV/ Sales (x)                                                               1.4x                                          1.2x new launches and strong market positioning (~50% market share) places it
EV/ EBITDA (x)                                                              9.8x                                          8.5x well to capitalize on the opportunities arising in the domestic auto market out

Shareholding Pattern (%)                                                                                                            of lower penetration, increasing per capita income, rising sub-urban demand,
Promoter                                                                                                            54.2            and cheap auto finance. In addition, with MSIL reaching one-million-unit-
FIIs                                                                                                                21.8            mark by March 2010, it plans to undertake huge capacity addition of ~25%
Institutions                                                                                                        17.4            by April 2012 from the current capacity of 1 mn units/year. This expansion
Public & Others                                                                                                      6.7            would help MSIL meet the growing demand in the auto sector in the medium
Holding >1% (Non-Promoter)                                                                                                          term. However, its main segment (A2 segment contributing ~ 70% to the total
LIC of India                                                                                                              8.4
                                                                                                                                    revenue) would feel the heat of increasing competition from the existing
HSBC Global Investment Funds                                                                                              4.6
ICICI Prudential Life Insurance                                                                                           2.1       players as well as from entry of various foreign players into the A2 segment.
LIC of India Market Plus                                                                                                  1.5       Redefining the scope of exports: In Q3’10, MSIL exports increased
LIC India Money Plus                                                                                                      1.3
                                                                                                                                    167.3% yoy to 39,116 units primarily due to the “scrappage" incentive
Relative Performance                                                                                                                scheme of Europe. In coming quarters, the Company plans to offset the
                                                                                                                                    expected slowdown due to withdrawal of the “scrappage" incentive scheme
1,800
                                                                                                                                    by exploring new markets in Middle East, South America, South East Asia
1,500
                                                                                                                                    and Africa. MSIL’s A-star proved to be a huge success in European markets
1,200
 900                                                                                                                                during Q3’10. Recently, the Company has sent a batch of 500 units of Ritz to
 600                                                                                                                                Indonesia. Thus, we expect a muted growth in the export numbers in the
 300                                                                                                                                fourth quarter, however a gradual pick up in FY11.
                                                May-09
                          Mar-09




                                                                                                        Nov-09
        Jan-09

                 Feb-09


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                                                         Jun-09
                                                                   Jul-09

                                                                             Aug-09

                                                                                      Sep-09
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                                                                                                                 Dec-09

                                                                                                                           Jan-10




                                                                                                                                    Key Figures (Standalone)
                                                                                                                                    Quarterly Data         Q3'09     Q2'10       Q3'10    YoY% QoQ%         9M'09     9M'10    YoY%
                                                                                                                                    (Figures in Rs. mn, except per share data)
                          MSIL                           Rebased BSE SENSEX
                                                                                                                                    Net Sales            45,676     70,496   73,338      60.6%    4.0%    141,049   207,236   46.9%
                                                                                                                                    Adj. EBITDA            3,518     9,161   11,339      222.3%   23.8%    13,490    29,709   120.2%
                                                                                                                                    Adj. Net Profit        2,117     5,700       6,875   224.7%   20.6%     9,875    19,688   99.4%

                                                                                                                                    Margins(%)

                                                                                                                                    EBITDA                  7.7%     13.0%       15.5%   7.76%    2.5%       9.6%     14.3%    4.8%
                                                                                                                                    NPM                     4.6%      8.1%        9.4%   4.74%    1.3%       7.0%      9.5%    2.5%
                                                                                                                                    Per Share Data (Rs.)
                                                                                                                                    Adj. EPS                 7.3      19.7        23.8   224.7%   20.6%      34.2      68.1   99.4%
                                                                        Please see the end of the report for disclaimer and disclosures.                                                                      -1-
        4                                                              MARUTI SUZUKI INDIA LTD
                                                                                   RESEARCH
EQUITY RESEARCH                                                                             January 28, 2010


                                     Pressure on margins: Going forward, despite reporting a healthy EBITDA
                                     margins of 15.5% in Q3’10, we still maintain our view that the Company
                                     would face pressure on its margins due to hardening of commodity prices,
                                     introduction of BS IV technology in large volume models and increasing
                                     competition in the A2 segment. Thus, we expect the margins for FY10 and
                                     FY11 to be 14.2% and 14.6%, respectively as against 15.5% in Q3’10.

                                     Result Highlights
                                     In Q3’10, net sales increased 60.6% yoy to Rs. 73.3 bn on account of
                                     increase in volumes and realizations. The volumes increased primarily on the
                                     back of recovering domestic economy and cheap auto finance. The net
                                     realization was up by 8% yoy on account of better product mix.

                                     Following were the key operating highlights for the quarter;
                                          • MSIL’s total sales volume grew by 48.7% yoy. The domestic
                                             volumes increased 37.8% yoy to 218,910 units and export volumes
                                             increased 167.3% yoy to 39,116 units.
                                          • The net sales increased 60.6% yoy to Rs. 73.3 bn.
                                          • The net realizations improved 8% to Rs. 284,226.
                                          • The raw material cost percentage of net sales decreased 394 bps
                                             yoy to 76.2% mainly due to lower commodity prices, favorable
                                             product mix and price variance.
                                          • The staff cost percentage of net sales decreased 61 bps yoy to
                                             1.8% in Q3’10.
                                          • Thus, the EBITDA margins stood at 15.5% in Q3’10 as against 7.7%
                                             in Q3’09 primarily due to robust sales, lower commodity prices and
                                             improved operating leverage.
                                          • The Company reported net profit of Rs. 6.9 bn in Q3’10 as against
                                             Rs. 2.1 bn in Q3’09. The net profit margin stood at 9.4% as against
                                             4.6% in Q3’09.
                                     Segment performance
                                          • The A1 segment’s volume remained almost flat at 8,738 units. The
                                             segment contributed a mere 4% to the total volume.
                                          • The A2 segment’s volume was up by a stupendous 38.6% yoy to
                                             159,678 units. It contributed 72.9% to the total volume.
                                          • The A3 segment’s volume also increased by a huge 41.7% yoy to
                                             25,388 units. It contributed 11.6% to the total volume.
                                          • The C segment’s volume witnessed an increase of 57% yoy to
                                             24,426 units. Its contribution to the total volume increased to 11.2%.
                                          • The MUV segment’s volume declined by 58.3% yoy to 680 units. It
                                             contribution declined to 0.3% to the total volume.



                  Please see the end of the report for disclaimer and disclosures.             -2-
        4                                                                       MARUTI SUZUKI INDIA LTD
                                                                                            RESEARCH
EQUITY RESEARCH                                                                                      January 28, 2010


                                     Key Events
                                        • In January, MSIL launched an all-new spacious family car Eeco.
                                        • In January, MSIL unveiled a concept car, named Concept R-III.

                                     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    276,929    314,434   374,630    22.1%
                                     Adj. EBITDA               27,837     18,675     39,444     45,841    55,381    43.7%

                                     Adj. Net Profit           17,899     12,275     24,832     28,479    35,514    42.5%

                                     Margins(%)

                                     EBITDA                     15.4%       9.1%      14.2%      14.6%     14.8%
                                     NPM                         9.9%       6.0%       9.0%       9.1%      9.5%

                                     Per Share Data (Rs.)
                                     Adj. EPS                   62.0        42.5      85.9       98.5      122.9    42.5%
                                     PER (x)                    22.4x       32.6x     16.1x      14.1x      11.3x



                                     Valuation
                                     We hold a positive outlook towards the auto sector in the near-to-medium
                                     term on the back of low penetration, increasing per capita income and easy
                                     availability of funds. Moreover, we expect MSIL to take advantage of this
                                     opportunity through its strong market positioning, new launches and capacity
                                     expansion plans underway. However, we expect the increasing competition
                                     in the A2 segment may serve as a spoilsport.
                                     Our DCF valuation, assuming a 12.8% of WACC and a 5% of terminal
                                     growth rate, gives a target price (TP) of Rs. 1,550, which provides for a
                                     limited upside potential of 11.8% from the CMP of Rs. 1,386. Hence, we
                                     maintain our Hold rating on the stock.

                                     Sensitivity of Our Fair Value Estimate
                                                                                              WACC
                                          Terminal growth




                                                            1,550       11.8%       12.3%      12.8%      13.3%     13.8%
                                                            4.00%       1,642       1,549      1,467      1,394     1,328
                                                            4.50%       1,696       1,595      1,506      1,427     1,357
                                                            5.00%       1,758       1,647      1,550      1,465     1,389
                                                            5.50%       1,830       1,707      1,600      1,507     1,425
                                                            6.00%       1,914       1,776      1,657      1,555     1,466




                  Please see the end of the report for disclaimer and disclosures.                       -3-
            4                                                                      MARUTI SUZUKI INDIA LTD
                                                                                               RESEARCH
 EQUITY RESEARCH                                                                                         January 28, 2010


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