24 May 2012
Update
Maruti Suzuki
CMP: INR1,151
TP: INR1,415
Buy
11% petrol price hike may drag down FY13 volumes;
Headwinds persists; Downgrade estimates
The latest petrol price hike of ~INR7.5/ltr (~11%) is the steepest in last 4
years. Expect adverse impact on recovery in petrol vehicles demand, which
has already been weak for the last 12 months.
Widening of gap between petrol and diesel to INR32/ltr would further boost
diesel-ization, capacity for which is a constraint for Maruti.
Weak petrol vehicles demand would ensure discounts remain at all-time high
levels of 4QFY12.
Further, weaker INR will put pressure on profits of Maruti (MSIL, Mkt Cap
USD5.9b, CMP INR1,151, Buy). For every 1% JPY/INR change, MSIL’s EBITDA
margin changes by 15-20bp and EPS 2.5%.
We are downgrading our earnings estimates by 16%/11% for FY13/FY14 to
INR74.5/INR98.3 to factor in a) petrol price hike impact on volumes (10%
volume growth v/s 22% earlier), and b) weaker INR at 0.65/JPY.
Petrol price hike of ~INR7.5/ltr steepest in last 4 years, resulting in
widening differential against diesel
Petrol prices are up ~INR7.5/ltr (~11%) to INR73/ltr (Delhi) from 24 May.
Under-recovery in petrol is now reduced to INR1.5/ltr.
In last two years, petrol prices are up ~52%. The latest price hike of 11%,
steepest in last 4 years, would result in ~5% increase in total cost of
ownership.
Also, differential between petrol and diesel has further widened to INR32/ltr.
(While diesel price is not been increased, a hike is expected shortly, as under-
recovery currently stands at INR13.8/ltr.)
Because of further widening in differential, payback period on diesel vehicle
has further reduced from ~3 years to 2.5 years.
1

Maruti Suzuki
Petrol price hike of 11% has increased gap against diesel to
INR32/ltr
:
:
Petrol vehicles demand remains weak; to see further impact; discounts to
remain high
Petrol vehicles demand has been weak since 12 months due to significant price
hikes (~17.5% between Jan-11 to Apr-12). MSIL’s petrol vehicle volumes
declined ~14% in FY12.
The current increase in petrol price hike would further impact already weak
petrol demand. We were expecting Maruti’s petrol vehicles (~75% of volumes)
growth of ~10% in FY13 (on low base), which would be at risk.
Further, diesel capacity constraint at 400,000 units in FY13 (v/s ~240,000 units in
FY12) would restrict diesel vehicle sales.
Continuing weakness in petrol vehicle demand would result in discounts
remaining at all-time high levels of 4QFY12.
For Maruti, we would be reviewing our current FY13 volume growth assumption
of ~22%. Assuming no growth in petrol portfolio, MSIL’s FY13 overall volume
growth would be lower at 14%.
24 May 2012
2

Maruti Suzuki
MSIL’s discounts are near all-time high levels
Weaker INR – a big risk to our earnings, especially since USD/INR exposure
is largely unhedged
INR has depreciated ~14% against JPY since Apr-12.
MSIL’s initiatives to increase localization and reduce dependence on imports are
only expected to fully reflect over next 2-3 years.
The management indicated that it has already hedged ~40% of its FY13 JPY/USD
exposure (including vendor imports) and would be opportunistically looking to
take it to 50% of exposure. However, it has only partly hedged its 1QFY13
USD/INR exposure. As a hedging policy, it plans to keep its 50% of JPY/USD
exposure unhedged. Also, it has indirect natural hedge from EUR exports (~4%
of sales).
24 May 2012
3

Maruti Suzuki
JPY/INR currently are all-time low levels
Valuation and view
Maruti has underperformed the Sensex by 10% over the past 1 month, impacted
by weakening INR.
MSIL faces 3 key challenges in the near term: (1) increasing diesel engine
availability beyond 400,000 units in FY13 as diesel is the key volume driver, (2)
pushing petrol vehicle sales without increasing discounts, and (3) adverse
JPY/INR movement significantly impacting margins.
We are downgrading earnings estimates by 16%/11% for FY13/FY14 to
INR74.5/INR98.3 to factor in a) petrol price hike impact on volumes (10%
volume growth v/s 22% earlier), and b) weaker INR at 0.65/JPY.
The stock trades at 15.4x FY13 consol EPS of INR74.5 and 9.8x FY13 Cash EPS of
INR118. Maintain Buy with revised price target of INR1,415 (~12x FY13 CEPS).
24 May 2012
4

Maruti Suzuki
24 May 2012
5

Maruti Suzuki
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24 May 2012
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