Investshoppe Research
Safe Haven
Maruti Suzuki
CMP: Rs 815
Maruti Suzuki India Ltd. (MSI) has been the leader of the Indian car market for about two decades. Its manufacturing plant, located in Gurgaon, has an installed capacity of 3,50,000 units per annum, with a capability to produce about half a million vehicles. Maruti produces cars with world-class contemporary Japanese Technology, suitably adapted to Indian conditions and Indian car users. It also provides users with a range of cars to suit different needs. The company has a portfolio of 11 brands, including Maruti 800, Omni, Premium small car Zen, International brands Alto and WagonR, off-roader Gypsy, mid size Esteem, Luxury car Baleno, the MPV, Versa, Swift and Luxury SUV Grand Vitara XL7. Maruti has also spread its wing in auto related service businesses. These were aimed at enhancing customer experience while building long term relationship. The company’s service businesses including sale and purchase of pre owned cars (True Value), lease and fleet management service for corporates (N2N), Maruti Finance and Maruti Insurance are enabling the company to offer one-stop shop for the customers. December Quarter Results: Maruti’s Q3 net profit went down 54.4% at Rs 213.57 crore from Rs 467.04 crore, YoY.The company's standalone net sales declined by 2.8% at Rs 4625.81 crore from Rs 4759.43 crore, YoY. Its OPM was at 6.4% versus 14.68%. Profit was down on lower volumes, high material cost and adverse forex moves. Forex loss stood at Rs 61 crore. The company has created provision of Rs 55 crore post excise duty cut on December 7. Highlights
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Margins slump on account of dual pressure from high input prices and low volumes. Q3FY09 saw volumes decline by 14% YoY to 173494 units vs 201737, whereas exports grew 6.4% YoY. Provision of 55 Cr made as inventory valuation loss post 4% cenvat cut to give customers benefit of reduction on rate of excise duty. Other income gone up from 85Cr to 177Cr High depreciation up 2X at 177.49 vs 86.73. Other expenditure gone up by 43% at Rs.556 Cr vs Rs.387 Cr since Maruti has used Diesel as fuel instead of gas at its new plant in Manesar since Q4FY08. Sharp appreciation of Japanese yen will also impact profitability due to imports of auto grade steel from Japan Sale of A1 and A2 were affected due to increasing competition but sale of A3 like SX4 and Esteem grew by 53% in quarter.
Promising Future • • • • • • • Better placed compared to peers with 50% market share in cars and MPV's. Will launch Splash and Ritz this year to generate consumer interest. Benefit of lower steel and aluminium prices to creep in from 2010. Strong balance sheet with net cash of Rs 32 bn ( 22% of market cap) Multinational competitors like Honda Siel and Renault may scale down production for market share gains. Adverse macroeconomic environment and muted growth limit outperformance for Maruti. Yet, fall in raw material prices and improvement in realisations from a better mix will soften the overall impact on margins going fwd.
Latest News Maruti 800, Omni to be phased out of 11 metros by 2010: Maruti 800 and Omni models will not be available for sale in 11 metros including Delhi, Mumbai, Chennai and Kolkata starting 2010 when Euro IV norms kick in. The cities where these vehicles will not be sold are already seeing a significant decline in the sale of the Maruti 800 and the Omni. When Euro IV is extended throughout the country, which would happen in 2015 or 2016, these will have to be phased out as making these cars Euro IV compliant would be too costly and not worthwhile.
Investshoppe India Ltd
Safe Haven – Maruti Suzuki
Investshoppe Research
Maruti Suzuki has no plans to slash car prices post Nano launch: MSI Chairman RC Bhargava has said that Nano will marginally impact the sales of Maruti 800 and added that the company has no plan to slash Alto price or other car’s prices to compete with Nano. Maruti to roll out Ritz by May to counter NANO: Seen as a counter attack to Tata Motors’ recently unveiled Tata Nano, automobile major Maruti Suzuki is aggressively working towards launching new cars and improvising the existing ones. Maruti is likely to launch Maruti Splash or Ritz in the second week of May. Ritz will mount a 1.2 litre (KB series) petrol or 1.3-litre diesel engine and will be priced at around Rs 4-5.5 lakh. It will be positioned above WagonR but closer to Swift. Swift's petrol version may also be replaced by the 1.2-litre KB engine when Euro IV norms kick-in. Valuations With a dominant position in the domestic and exports increasing up steadily and the increase in second hand cars market, we expect the company to grow at a CAGR of 20%. The stock is currently trading at 10.6x FY 09E earnings that make it very attractive at these levels. We recommend Buy the stock with a one year price target of Rs. 1016 (13x FY09E EPS).
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Safe Haven: These are stocks which have low downside risk combined with a potential to generate decent returns. This mainly includes the stocks of the companies which are well established and have a proven track record. Investor Profile – Passive, Conservative Long Term Investors who wish to enjoy good Capital Appreciation with minimal chance of losing money. Regular day to day monitoring is not essential. Once in a quarter, review is usually sufficient. Force Multiplier: These are stocks which are potential multi baggers. This mainly includes companies which are on a growth trajectory and are emerging blue chips. Investor Profile – Active, Aggressive Long Term Investors who wish to go for enormous capital appreciation with a calculated risk. Regular day to day monitoring is not essential. However, stock performances and news flow should be reviewed at least once a month. Fruit Bearing: These are stocks which provide a good dividend yield at the current levels. They may or may not have a great upside potential but would certainly not have any significant downside risk Investor Profile – Investors with minimal risk appetite who wish to have regular inflow of tax free funds. Punter’s Delight: These are stocks which generally provide speculative gains in a very short period of time. This mainly includes news based and buzzing stocks. Investor Profile – Traders, Short term Speculators who wish to enjoy short term gains and are ready to take risk attached with these stocks.
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Investshoppe India Ltd
Safe Haven – Maruti Suzuki