14 December 2020
Update | Sector:Maruti Suzuki
Automobiles
Maruti Suzuki
BSE SENSEX
S&P CNX
46,253
13,558
CMP: INR7,694
TP: INR8,150 (+6%)
Buy
Cautious optimism on demand outlook
Lower discounts, operating leverage and price hikes to dilute raw
material cost inflation
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
MSIL IN
302
2324.1 / 31.8
8007 / 4002
6/2/-6
8245
43.6
We met the management of Maruti Suzuki (MSIL) to get an update on the
evolving demand scenario, supply-side issues, cost headwinds, etc. The
management is cautiously optimistic about demand. However, cost headwinds
are material and the company is looking to dilute it through lower discounts,
operating leverage, and price rises.
Financials & valuations (INR b)
Y/E MARCH
FY20 FY21E FY22E
Sales
756
679
858
EBITDA
73.0
62.3 103.7
Adj. PAT
56.5
51.4
81.6
EBIT Margin (%)
5.0
4.5
8.1
Cons. Adj. EPS (INR) 188.0 171.4 273.8
EPS Gr. (%)
-25.8
-8.8
59.8
BV/Sh. (INR)
1,603 1,701 1,899
Ratios
RoE (%)
11.7
10.0
14.2
RoCE (%)
14.6
12.5
18.2
Payout (%)
52
43
27
Valuations
P/E (x)
40.9
44.9
28.1
P/BV (x)
4.8
4.5
4.1
Div. Yield (%)
1.0
0.8
0.8
FCF Yield (%)
0.0
1.8
2.6
Outlook cautiously optimistic; pent-up demand to be met by 3Q
Festive season (32 days) was strong, with some models sold out. Growth
was good across the industry.
There is optimism at this point due to strong festive sales and good
momentum post that. Dealer inventory is low (from 130k units at the end of
Mar’20 v/s 80k units at the end of Oct’20 and estimated 58k units or less
than two weeks at the end of Nov’20).
There is a reasonable case for optimism, but is a little early to call out, so it
is cautiously optimistic for the remainder of FY21.
Pent-up demand is almost over as reflected in new bookings (old bookings
are almost over now). In a media interview (link), Mr. Shashank Srivastava,
Executive Director, MSIL, said retail demand during Apr-Nov’20 declined
~15%. It expects pent-up demand to be fully met by 3QFY21 and expects 4Q
to be purely new demand. Hence, 4QFY21 is critical to see sustenance in
demand.
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-20
56.4
16.8
21.9
5.0
Jun-20 Sep-19
56.3
56.2
17.1
15.0
21.5
5.2
23.4
5.3
Rural and first-time buyers still driving demand
FII Includes depository receipts
Stock Performance (1-year)
Maruti Suzuki
Sensex - Rebased
9,000
7,600
Demand recovery has been good and driven by: a) first-time buyers and
second car sales (due to the COVID-19 pandemic), b) pent-up demand, and
c) rural markets aided by government stimulus.
Retail demand has been strong in rural markets, led by hatchbacks. SUVs
continue to do very well.
Demand is driven by first-time buyers (~50% of total) and additional car
buyers (~28%), whereas replacement demand (~22%) continues to be weak.
SUV segment a focus area for MSIL; diesel demand strong in SUV
6,200
4,800
3,400
The fast growing SUV segment is very important for MSIL. It plans to grow in
the SUV segment by: a) bringing in more models, b) ushering in technology,
and c) filling the gaps from entry to mid-sized SUV segment. MSIL is
committed to opportunities in the SUV market and will launch many new
models in the coming years.
Diesel remains relevant in the SUV segment. MSIL is closely evaluating a re-
entry. As per the management, even under BS-VI there is good demand for
diesel SUVs.
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com)
Vipul Agrawal – Research Analyst
(Vipul.Agrawal@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.