Promotersimages.moneycontrol.com/static-mcnews/2020/05/Maruti... · 2020-05-17 · Maruti’s Q4FY20 revenue and EBITDA missed our estimates. Revenue was `182bn (down 15% YoY), due

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Missed estimates, Core strength remains intact

While coronavirus outbreak continues to dampen near term PVs demand, we maintain our thesis that Maruti Suzuki (MSIL) is best positioned to tap the long term potential of the domestic PV market with (1) network strength, (2) strong rural presence and 3) product positioning (continued market dominance in the entry-level car segment). Also, the strong balance sheet will help tide over the COVID-led disruption and provide financial capability to support dealers, vendors, and staff.

Maruti’s Q4FY20 revenue and EBITDA missed our estimates. Revenue was ̀ 182bn (down 15% YoY), due to a 16% de-growth in volume, which was offset by a 1% increase in net ASP. EBITDA stood 8.5% (-205bps YoY, -165bps QoQ, versus our estimate of 8.9%), dragged by a negative operating leverage and a high advertisement cost.

However, we expect rural economy to witness better traction from 2QFY21 onwards, as it remained least impacted from COVID-led disruption and healthy Rabi output, it should benefit MSIL, which derives about 40% volume from the rural markets.

We expect a potential earning recovery in FY22, driven by a 13% volume growth and a 250bps margin expansion on a low base. Given the long-term volume and margin levers in place (beyond FY21), we expect the company to continue to command high multiple. We recommend to Accumulate, with a TP of `5,570 (based on 24x FY22E).

Rural recovery and low base to support growth in FY22 While the timing is debatable given Covid-19 uncertainty and weak macro-economic conditions, we believe MSIL’s volume can continue to grow at 5-6% CAGR in the medium-to-long term While the lockdown is being lifted in a phased manner starting 20th Apr’20, we believe it would take at least 3-4 months for both demand and supply side to normalize. We expect MSIL to experience volume recovery from 3QFY20 onwards, due to 1) traction in entry/compact segment (preference back to personal mobility, from shared or public transport), 2) the start of the festival season demand, 3) recovery in rural demand, and 4) low base. Q4FY20 Result (` Mn)

Particulars Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%)

Revenue 1,81,987 2,14,594 (15.2) 2,07,068 (12.1) Total Expense 1,66,523 1,91,960 (13.3) 1,86,047 (10.5)

EBITDA 15,464 22,634 (31.7) 21,021 (26.4)

Depreciation 8,230 8,102 1.6 8,580 (4.1)

EBIT 7,234 14,532 (50.2) 12,441 (41.9)

Other Income 8,804 8,677 1.5 7,840 12.3

Interest 283 88 221.6 217 30.4

EBT 15,755 23,121 (31.9) 20,064 (21.5)

Tax 2,838 5,165 (45.1) 4,416 (35.7)

RPAT 12,917 17,956 (28.1) 15,648 (17.5)

APAT 12,917 17,956 (28.1) 15,648 (17.5)

(bps) (bps) Gross Margin (%) 29.7 28.1 159 27.5 222

EBITDA Margin (%) 8.5 10.5 (205) 10.2 (165)

NPM (%) 7.1 8.4 (127) 7.6 (46)

Tax Rate (%) 18.0 22.3 (433) 22.0 (400)

EBIT Margin (%) 4.0 6.8 (280) 6.0 (203)

CMP ` 5,036

Target / Upside ` 5,570 / 11%

BSE Sensex 31,998

NSE Nifty 9,384

Scrip Details

Equity / FV ` 1,510mn / ` 5

Market Cap ` 1,521bn

US$ 20bn

52-week High/Low ` 7,759/` 4,001

Avg. Volume (no) 16,04,300

NSE Symbol MARUTI

Bloomberg Code MSIL IN

Shareholding Pattern Mar'20(%)

Promoters 56.2

MF/Banks/FIs 15.0

FIIs 23.4

Public / Others 5.3

Valuation (x)

FY20A FY21E FY22E

P/E 26.9 32.9 21.7

EV/EBITDA 20.6 22.9 15.3

ROE (%) 11.9 9.2 13.0

RoACE (%) 12.0 9.1 12.7

Estimates (` mn)

FY20A FY21E FY22E

Revenue 7,56,106 7,06,907 8,14,957

EBITDA 73,026 65,405 96,770

PAT 56,506 46,226 70,105

EPS (`) 187.1 153.0 232.1

Analyst: Abhishek Jain Tel: +9122 40969739

E-mail: [email protected]

Associate: Kripashankar Maurya Tel: +91 22 4096 9741

[email protected]

Maruti Suzuki

ACCUMULATE

May 13, 2020

May 13, 2020 2

Near term margin to remain under pressure, recovery expected from FY22 We expect MSIL’s EBITDA margin to remain under pressure in FY21, due to (1) a weak product mix (higher mix of entry-level cars and lower mix of SUV segment), with low visibility of product launches in the SUV segment, (2) low capacity utilization and 3) absence of diesel variants. We expect recovery in margin from FY22, driven by operating leverage, commodity tailwinds and cost cutting measures. Products suitable for the current income levels in India In our view, Maruti offers strong visibility for sustained volume growth, due to its product positioning, which is suited for the current income levels in India. Maruti's cars offer high fuel efficiency, low maintenance cost (cost of spares), and the best resale value. India is still in the early stage of penetration for cars, and affordability is a key driver of buying decisions, especially after the Covid-19 pandemic. Maruti’s unmatched distribution, leadership in PCs/UVs, and scale-driven supply chain efficiency are likely to help it sustain ahead-of-industry growth. Superior scale and distribution network enable Maruti to cater a wider customer base than peers.

Conference Call Highlights Management believe near term demand is quite uncertain, due to Covid-19,

and said it is difficult to predict recovery of the economy and consumer sentiment. Initial trend suggests that demand is only for past bookings. Until date, 1100 showroom has been re-opened across India and delivered 2,500 cars.

However, enquires have increased for low budget cars. There will be a change in trend as people will prefer personal transport to public transport. For the industry, the first time buyer constitutes 45-47% of overall demand and for MSIL it is slightly higher.

Although near term demand will continue to be weak as the COVID-led disruption has been unprecedented for the business and economy, car buying is a discretionary purchase and depends on sentiment. Any positive news can be favorable for the PV industry.

The ramp-up of plant operations for OEMs will depend on supplies from ancillaries. The company has 400 Tier 1 suppliers and 3000 Tier 2 suppliers, which are spread in nine states. The company is hopeful to ramp up production after resolving supply issue. The Manesar plant started production from 12th May while the Gurgaon plant is likely to open from next week. However, resumption of the Gujarat plant is uncertain, due to the large number of Covid cases.

The discount was Rs.19,051/unit in 4QFY20, compared to Rs.33,000/unit in Q3FY20 and Rs.15,124/unit in 4QFY19. The management said it is difficult to predict whether the discounts will decrease or increase in the next few months.

The Q4FY20 margins were impacted by: 1) weaker product mix, 2) increase in discounts, 3) sales promotion expenses, and 4) negative operating leverage.

The rural: urban ratio was 38:62 and broad customer profile is salaried about 45% (50:50 government and private)/business 35%, self-employed 11-12%, and other 8-9%.

Royalty was 5.4% for Q4FY20, and for full year it was 5.3%.

All treasury investment was in AAA portfolio, no write off was required. The fall in interest rate may lead to other income in FY21.

Capex for FY20 was `32.48bn and the company expects to spend `27bn in FY21.

May 13, 2020 3

Actual vs DART Estimates

Particulars (` mn) Actual Dart Estimates Variance (%) Comments

Revenue 1,81,987 1,82,587 (5)

EBIDTA 15,464 16,257 (11) Weaker product mix

EBIDTA Margin (%) 8.5 8.9 67bps

PAT 12,917 10,771 (11) Higher other income and lower tax

Source: Company, DART

Change in Estimates

Particulars (` mn) FY21E FY22E New Previous % Cng New Previous % Cng

Volumes (in mn) 1.4 1.5 (4.2) 1.61 1.68 (4.3)

Net sales 7,06,907 7,44,683 (5.1) 8,14,957 8,54,738 (4.7)

EBITDA 65,405 75,610 (13.5) 96,770 1,03,657 (6.6)

EBITDA margin (%) 9.3 10.2 (90.1) 11.9 12.1 (25.3)

APAT 46,226 53,444 (13.5) 70,105 70,907 (1.1)

EPS 153 177 (13.5) 232 235 (1.1)

Source: Company, DART

Assumption Table

(in units) FY18 FY19 FY20E FY21E FY22E

Domestic sales 16,53,500 17,41,940 14,60,885 13,32,935 15,07,238 % YoY 14 5 (16) (9) 13 Export sales 1,26,074 1,08,749 1,02,171 91,954 1,05,747 % YoY 2 (14) (6) (10) 15 Total sales 17,79,574 18,50,689 15,63,056 14,24,888 16,12,985 % YoY 13 4.0 (16) (8.8) 13

Source: DART, Company

Volume fell due to lockdown for Covi-19 MSIL’s PV market share jumped to 53.3%

Source: Company, DART Source: Company, DART

May 13, 2020 4

Net revenue fallen 15% YoY Net ASP improved YoY but down QoQ


Disc. remained high YoY but down QoQ EBITDA margin contracted QoQ/YoY


EBIT margin continue to under pressure Forex movement remain unfavorable


May 13, 2020 5

Annual Charts

Sharp recovery expected from FY22 MSIL Volume (4% CAGR over FY20-22E)


PV Penetration still at lower level/1000 people Rural contribution continue to be strong


MSIL Dealership Network UP, MP & Bihar will be next driving states


10

17

20

24

28

32

35

35

33

36

39

38

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5

15

25

35

45

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

YTD

MSIL share of rural (%)

May 13, 2020 6

Recovery in northern region to support growth S-Presso and XL6 pulling up the Bar


Margin to improve on better utilization EBIT margin trend


Raw material prices soften 1 year forward P/E


May 13, 2020 7

Profit and Loss Account

(` Mn) FY19A FY20A FY21E FY22E

Revenue 8,60,203 7,56,106 7,06,907 8,14,957

Total Expense 7,50,210 6,83,080 6,41,502 7,18,188

COGS 6,02,542 5,31,566 4,90,594 5,56,618

Employees Cost 32,549 33,839 35,205 36,965

Other expenses 1,15,119 1,17,675 1,15,703 1,24,605

EBIDTA 1,09,993 73,026 65,405 96,770

Depreciation 30,189 35,257 34,915 36,628

EBIT 79,804 37,769 30,489 60,142

Interest 758 1,329 117 0

Other Income 25,610 34,208 31,677 33,960

Exc. / E.O. items 0 0 0 0

EBT 1,04,656 70,648 62,050 94,102

Tax 29,650 14,142 15,823 23,997

RPAT 75,006 56,506 46,226 70,105

Minority Interest 0 0 0 0

Profit/Loss share of associates 0 0 0 0

APAT 75,006 56,506 46,226 70,105

Balance Sheet


Sources of Funds

Equity Capital 1,510 1,510 1,510 1,510

Minority Interest 0 0 0 0

Reserves & Surplus 4,59,905 4,82,860 5,15,220 5,63,595

Net Worth 4,61,415 4,84,370 5,16,730 5,65,105

Total Debt 1,496 1,063 1,063 1,063

Net Deferred Tax Liability 8,090 7,444 7,944 8,444

Total Capital Employed 4,71,001 4,92,877 5,25,737 5,74,612

Applications of Funds

Net Block 1,54,078 1,52,129 1,55,588 1,63,960

CWIP 16,081 13,374 14,374 15,374

Investments 3,14,695 3,52,488 3,92,488 4,32,488

Current Assets, Loans & Advances 1,40,185 1,01,236 1,18,289 1,37,183

Inventories 33,257 32,149 29,051 33,491

Receivables 23,104 21,270 23,241 22,328

Cash and Bank Balances 1,789 4,869 11,907 23,113

Loans and Advances 5,126 5,246 14,138 16,299

Other Current Assets 26,454 25,514 25,764 25,764

Less: Current Liabilities & Provisions 1,54,038 1,26,350 1,55,002 1,74,393

Payables 96,330 74,914 98,422 1,12,155

Other Current Liabilities 57,708 51,436 56,580 62,238

sub total

Net Current Assets (13,853) (25,114) (36,713) (37,210)

Total Assets 4,71,001 4,92,877 5,25,737 5,74,612

E – Estimates

May 13, 2020 8

Important Ratios

Particulars FY19A FY20A FY21E FY22E

(A) Margins (%)

Gross Profit Margin 30.0 29.7 30.6 31.7

EBIDTA Margin 12.8 9.7 9.3 11.9

EBIT Margin 9.3 5.0 4.3 7.4

Tax rate 28.3 20.0 25.5 25.5

Net Profit Margin 8.7 7.5 6.5 8.6

(B) As Percentage of Net Sales (%)

COGS 70.0 70.3 69.4 68.3

Employee 3.8 4.5 5.0 4.5

Other 13.4 15.6 16.4 15.3

(C) Measure of Financial Status

Gross Debt / Equity 0.0 0.0 0.0 0.0

Interest Coverage 105.3 28.4 260.7 0.0

Inventory days 14 16 15 15

Debtors days 10 10 12 10

Average Cost of Debt 58.2 103.9 11.0 0.0

Payable days 41 36 51 50

Working Capital days (6) (12) (19) (17)

FA T/O 5.6 5.0 4.5 5.0

(D) Measures of Investment

AEPS (`) 248.3 187.1 153.0 232.1

CEPS (`) 348.2 303.8 268.6 353.3

DPS (`) 80.0 60.0 45.9 71.9

Dividend Payout (%) 32.2 32.1 30.0 31.0

BVPS (`) 1527.5 1603.4 1710.6 1870.7

RoANW (%) 17.1 11.9 9.2 13.0

RoACE (%) 16.9 12.0 9.1 12.7

RoAIC (%) 17.9 7.9 6.1 11.3

(E) Valuation Ratios

CMP (`) 5036 5036 5036 5036

P/E 20.3 26.9 32.9 21.7

Mcap (` Mn) 15,21,305 15,21,305 15,21,305 15,21,305

MCap/ Sales 1.8 2.0 2.2 1.9

EV 14,70,557 15,05,311 14,96,273 14,83,068

EV/Sales 1.7 2.0 2.1 1.8

EV/EBITDA 13.4 20.6 22.9 15.3

P/BV 3.3 3.1 2.9 2.7

Dividend Yield (%) 1.6 1.2 0.9 1.4

(F) Growth Rate (%)

Revenue 7.8 (12.1) (6.5) 15.3

EBITDA (8.8) (33.6) (10.4) 48.0

EBIT (14.2) (52.7) (19.3) 97.3

PBT (4.9) (32.5) (12.2) 51.7

APAT (2.9) (24.7) (18.2) 51.7

EPS (2.9) (24.7) (18.2) 51.7

Cash Flow


CFO 89,602 34,051 1,02,281 1,20,939

CFI (57,747) (4,639) (81,374) (88,000)

CFF (27,694) (31,000) (16,115) (25,255)

FCFF 44,103 3,450 62,907 74,939

Opening Cash 7,438 1,789 4,869 11,907

Closing Cash 1,789 4,869 11,907 23,113

E – Estimates

DART RATING MATRIX

Total Return Expectation (12 Months)

Buy > 20%

Accumulate 10 to 20%

Reduce 0 to 10%

Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)

Jan-19 Reduce 7,065 6,513

Apr-19 Accumulate 7,770 6,905

Jun-19 Accumulate 7,770 6,989

Jul-19 Accumulate 6,692 5,806

Oct-19 Reduce 7,420 7,391

Jan-20 BUY 7,942 6,997

Mar-20 Accumulate 5,694 5,079

Mar-20 Accumulate 5,694 4,328

Apr-20 Accumulate 5,282 4,698

*Price as on recommendation date

DART Team

Purvag Shah Managing Director [email protected] +9122 4096 9747

Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709

Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735

Yomika Agarwal VP - Equity Sales [email protected] +9122 4096 9772

Ashwani Kandoi AVP - Equity Sales [email protected] +9122 4096 9725

Lekha Nahar Manager - Equity Sales [email protected] +9122 4096 9740

Equity Trading Designation E-mail

P. Sridhar SVP and Head of Sales Trading [email protected] +9122 4096 9728

Chandrakant Ware VP - Sales Trading [email protected] +9122 4096 9707

Shirish Thakkar VP - Head Domestic Derivatives Sales Trading [email protected] +9122 4096 9702

Kartik Mehta Asia Head Derivatives [email protected] +9122 4096 9715

Dinesh Mehta Co- Head Asia Derivatives [email protected] +9122 4096 9765

Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705

3,810

4,640

5,470

6,300

7,130

7,960

Nov-1

8

Dec-1

8

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Feb-1

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Ap

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Jun

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Jul-1

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Nov-1

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Dec-1

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b-2

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(Rs) MSIL Target Price

Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013

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Promotersimages.moneycontrol.com/static-mcnews/2020/05/Maruti... · 2020-05-17 · Maruti’s Q4FY20 revenue and EBITDA missed our estimates. Revenue was `182bn (down 15% YoY), due

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