Maruti Suzuki
BSE SENSEX
34,465
S&P CNX
10,564
20 April 2018
Update
| Sector:
Automobiles
CMP: INR9,039
TP: INR10,560(+17%)
Upgrade cycle to continue led by higher volumes and margins
Buy
More of the same: increasing share, margins & growth
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
MSIL IN
302.1
10000 / 6183
-2/10/27
2,741.8
41.7
4231.0
43.8
Financials Snapshot (INR b)
2018E 2019E 2020E
Y/E Mar
Sales
794.6 933.2 1,093.6
EBITDA
123.8 149.4 189.8
Adj. PAT
81.4 103.6 134.7
Cons.Adj.EPS(INR)
275.1 349.0 452.3
EPS Gr. (%)
10.6 26.9
29.6
BV/Sh. (INR)
1,365 1,575 1,859
RoE (%)
19.7 21.8
24.0
RoCE (%)
27.8 30.2
33.1
P/E (x)
33.0 26.0
20.1
P/CE (x)
24.8 20.1
16.1
Shareholding pattern (%)
As On
Dec-17 Sep-17 Dec-16
Promoter
56.2
56.2
56.2
DII
11.0
11.5
12.4
FII
25.8
25.3
24.5
Others
7.0
7.0
6.9
FII Includes depository receipts
Stock Performance (1-year)
Maruti Suzuki
Sensex - Rebased
10,000
9,000
8,000
7,000
6,000
Demand recovery getting broad based, led by rural markets:
We see demand
recovery from rural areas as model like Alto witnessed ~5.6% growth in FY18
following six years of de-growth (except FY15). Coupled with rural recovery,
this is a reflection of first-time buyers making a comeback. MSIL would be the
biggest beneficiary of rural market recovery due to (a) its unparalleled reach,
(b) large part of its dealer addition being targeted at rural markets, and (c) over
35% of volumes coming from rural markets.
Expanding market reach would aid faster than industry growth:
MSIL is
targeting ~4k sales outlets (~2.8k in FY18E, implying 12.8% CAGR in FY18-20E)
and ~5k workshops (~3.3k in FY18) by 2020. To support dealer viability, it is
also investing in land parcels for leasing it to dealers on long-term leases. MSIL
should grow much faster than the industry, led by ~13% CAGR in distribution
network and continued healthy growth with existing dealers due to favorable
product lifecycle.
Upgrading customer experience through Nexa, Arena and True value:
MSIL
has taken initiatives to strengthen its distribution moat by transforming the
entire network on the pillars of design, technology and experience. It is
converting the existing mainstream dealerships to the Arena format, migrating
the pre-owned car network to the new True Value format, and is building the
Nexa service network for Nexa customers.
Timely capacity addition to ensure double digit growth:
We believe MSIL has
headroom to squeeze more production from its existing operations, as visible
in March 2018 annualized production of ~2.07m units as well as addition of
~60k units from phase 2 of Gujarat plant from January 2019. While this implies
producible capacity of 2.13m units for FY19, considering maintenance
shutdowns and other holiday, we believe it should be able to attain our volume
estimate of ~2m for FY19 (~12.5% growth). We estimate volume CAGR of 13%
in FY18-20 (v/s 11.6% CAGR in FY16-18) given increase in producible capacity.
Lower royalty, localization at Gujarat plant to drive margin expansion:
We
expect MSIL’s EBIT margin to improve by 220bp to ~14.3% in FY20 due to (a)
continued mix improvement, (b) discount reduction, (c) lower royalty, (d)
ramp-up at Gujarat plant, and (e) benefits of operating leverage.
Valuation:
We believe earnings upgrade cycle for MSIL to continue, driven by
higher volumes and margins. Our FY19/20 consol. EPS is higher by 5%/13%
than the consensus, led by higher margins. The stock trades at 26x/20.1x
FY19/20E consol. EPS. Maintain
Buy
with a 1yr TP of INR10,525 (~25x Mar-20
core EPS + ~INR1,544 cash/share). Over 3 years, we estimate total return of
15.3% CAGR with TP of ~INR14,213 (~25x Mar-22 core EPS + INR2,323
cash/share + INR330 of cumulative dividend).
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Research analyst: Deep Shah
(Deep.S@MotilalOswal.com); +91 22 61291533/
Suneeta Kamath
(Suneeta.Kamath@MotilalOswal.com); +91 22 61291534
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.