January 28, 2019 ICICI Securities Ltd | Retail Equity Research Result Update Muted growth to limit valuation multiples… Maruti Suzuki (MSIL) reported a dismal Q3FY19 performance Total operating income in Q3FY19 was at | 19,668 crore, up 2.0% YoY. ASP for the quarter came in at | 4.42 lakh/unit, up 0.5% YoY. However, discounting was aggressive at | 24,300/unit, up 30% QoQ Volumes for Q3FY19 were at 428,643 units, down 0.6% YoY. Of this, domestic volumes grew 1.3% YoY to 405,597 units while exports were down 25.0% YoY to 23,046 units. MSIL had to push extra 90,000 units at the retail level due to higher channel inventory with consequent inventory levels now normalising at December 2018 end EBITDA in Q3FY19 was at | 1,931 crore with corresponding EBITDA margins at 9.8%. EBITDA margins came in subdued primarily tracking higher raw material costs, adverse foreign exchange rate as well as higher sales & marketing expenses including launch cost of new Ertiga. Employee costs came in higher tracking execution of new wage bill as well as one-time actuarial valuation (~| 48 crore) PAT in Q3FY19 was at | 1,489 crore, down 17.0% YoY New facelifts to help revive sales, retain market leadership! In the recent past, MSIL has launched two new facelifts of its top selling models i.e. Ertiga and WagonR. MSIL has come out with a refreshed version loaded with all new age technology and consumer friendly features bundled at the right price thereby giving strong competition to upcoming models in the marketplace in the similar segment. We expect this to help Maruti retain its market leadership with the company already outperforming the industry in 9MFY19. Total domestic sales growth for MSIL was at 7.2% vs. 4.4% for the industry, leading to 165 bps gain in market share to 51.65% as of December 2018 vs. 50% as of FY18. Maruti still remains the preferred choice for first time buyers and is poised to benefit from low penetration of passenger vehicles domestically. The company commands strong support from its nationwide dealer network of ~3000 dealers with rural slate at ~39%.+. Single digit volume growth, P/E multiple’s mean reversion to follow! Purely considering the financials, past study of volume growth and one year forward P/E multiple at MSIL throws up an interesting insight. MSIL has never commanded one year forward P/E multiples significantly higher than 20x while clocking volume growth at <10%. It exactly symbolises the present times wherein the company is expected to post overall volume growth of 6.2% in FY19E & 7.2% in FY20E. This is expected to lead its one year forward P/E multiple to revert back to its mean. Capital efficiency to the core, healthy B/S, retain HOLD! MSIL has a capital efficiency business model wherein it realises ~3x asset turnover, operates with negative working capital cycle as well as realises ~13-15% EBITDA margins thereby realising core RoIC at ~50%+. It also has a debt free, cash rich B/S with surplus cash at ~| 34,000 crore. Going forward, however, the demand scenario is expected to be subdued, amid customers postponing their purchase and increasing penetration of shared mobility. It is also expected to be muted given peaking penetration of PVs in metro cities, which have high purchasing power. We expect volume growth to be muted at MSIL with FY18-20E overall volume CAGR growth pegged at 6.7%. Consequent net sales & PAT CAGR is expected at 8.0% & 5.5%, respectively. We value MSIL at | 6000 i.e. 21x P/E on FY20E EPS of | 284 and maintain our HOLD rating on the stock. We draw comfort from healthy cash flow generation at MSIL with average CFO yield at ~6% and consequent FCF yield at ~4%. Rating matrix Rating : Hold Target : | 6000 Target Period : 12 months Potential Upside : -8% What’s Changed? Target Changed from | 7250 to | 6000 EPS FY19E Changed from | 291 to | 250 EPS FY20E Changed from | 330 to | 284 Rating Unchanged Quarterly Performance (| Crore) Q3FY19 Q3FY18 YoY (%) Q1FY18 QoQ (%) Revenue 19,668.3 19,283.2 2.0 22,433.2 -12.3 EBITDA 1,931.1 3,037.8 -36.4 3,431.3 -43.7 EBITDA (%) 9.8 15.8 -594 bps 15.3 -548 bps Reported PAT 1,489.3 1,799.0 -17.2 2,240.4 -33.5 Key Financials | Crore FY17 FY18 FY19E FY20E Revenue 68,035 79,763 86,851 93,113 EBITDA 10,353.0 12,061.5 11,602.8 13,250.2 Net Profit 7,337.7 7,721.8 7,561.0 8,592.6 EPS (|) 242.9 255.6 250.3 284.4 Valuation summary FY17 FY18 FY19E FY20E P/E (x) 26.8 25.5 26.0 22.9 Target P/E (x) 24.7 23.5 24.0 21.1 EV/EBITDA (x) 16.4 13.5 13.8 11.8 P/BV (x) 5.4 4.7 4.2 3.8 RoNW (%) 20.3 18.5 16.3 16.6 RoCE (%) 20.3 21.1 17.8 18.8 Stock data Particular Amount Market Capitalization (| Crore) | 196956.2 Crore Total Debt | 110.8 Crore Cash & Investment | 34153.1 Crore EV | 162913.9 Crore 52 week H/L (|) 9923 / 6502 Equity capital (| crore) | 151 Crore Face value (|) | 5 Price performance (%) 1M 3M 6M 12M M&M Ltd -13.3 -6.8 -24.9 -9.8 Maruti Suzuki India -13.5 -3.1 -33.3 -29.8 Tata Motors 0.4 4.8 -32.8 -56.7 Maruti Suzuki India (MARUTI) | 6520 Research Analyst Shashank Kanodia, CFA [email protected]Jaimin Desai [email protected]
12
Embed
Maruti Suzuki India (MARUTI) | 6520content.icicidirect.com/mailimages/IDirect_MarutiSuzuki_Q3FY19.pdf · Six models (Ignis, Dzire, Brezza, Swift, Ertiga and WagonR) have been shifted
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
January 28, 2019
ICICI Securities Ltd | Retail Equity Research
Result Update
Muted growth to limit valuation multiples…
Maruti Suzuki (MSIL) reported a dismal Q3FY19 performance
Total operating income in Q3FY19 was at | 19,668 crore, up 2.0%
YoY. ASP for the quarter came in at | 4.42 lakh/unit, up 0.5% YoY.
However, discounting was aggressive at | 24,300/unit, up 30% QoQ
Volumes for Q3FY19 were at 428,643 units, down 0.6% YoY. Of this,
domestic volumes grew 1.3% YoY to 405,597 units while exports
were down 25.0% YoY to 23,046 units. MSIL had to push extra
90,000 units at the retail level due to higher channel inventory with
consequent inventory levels now normalising at December 2018 end
EBITDA in Q3FY19 was at | 1,931 crore with corresponding EBITDA
margins at 9.8%. EBITDA margins came in subdued primarily
tracking higher raw material costs, adverse foreign exchange rate as
well as higher sales & marketing expenses including launch cost of
new Ertiga. Employee costs came in higher tracking execution of
new wage bill as well as one-time actuarial valuation (~| 48 crore)
PAT in Q3FY19 was at | 1,489 crore, down 17.0% YoY
New facelifts to help revive sales, retain market leadership!
In the recent past, MSIL has launched two new facelifts of its top selling
models i.e. Ertiga and WagonR. MSIL has come out with a refreshed
version loaded with all new age technology and consumer friendly
features bundled at the right price thereby giving strong competition to
upcoming models in the marketplace in the similar segment. We expect
this to help Maruti retain its market leadership with the company already
outperforming the industry in 9MFY19. Total domestic sales growth for
MSIL was at 7.2% vs. 4.4% for the industry, leading to 165 bps gain in
market share to 51.65% as of December 2018 vs. 50% as of FY18. Maruti
still remains the preferred choice for first time buyers and is poised to
benefit from low penetration of passenger vehicles domestically. The
company commands strong support from its nationwide dealer network
of ~3000 dealers with rural slate at ~39%.+.
Single digit volume growth, P/E multiple’s mean reversion to follow!
Purely considering the financials, past study of volume growth and one
year forward P/E multiple at MSIL throws up an interesting insight. MSIL
has never commanded one year forward P/E multiples significantly higher
than 20x while clocking volume growth at <10%. It exactly symbolises
the present times wherein the company is expected to post overall
volume growth of 6.2% in FY19E & 7.2% in FY20E. This is expected to
lead its one year forward P/E multiple to revert back to its mean.
Capital efficiency to the core, healthy B/S, retain HOLD!
MSIL has a capital efficiency business model wherein it realises ~3x asset
turnover, operates with negative working capital cycle as well as realises
~13-15% EBITDA margins thereby realising core RoIC at ~50%+. It also
has a debt free, cash rich B/S with surplus cash at ~| 34,000 crore. Going
forward, however, the demand scenario is expected to be subdued, amid
customers postponing their purchase and increasing penetration of
shared mobility. It is also expected to be muted given peaking penetration
of PVs in metro cities, which have high purchasing power. We expect
volume growth to be muted at MSIL with FY18-20E overall volume CAGR
growth pegged at 6.7%. Consequent net sales & PAT CAGR is expected at
8.0% & 5.5%, respectively. We value MSIL at | 6000 i.e. 21x P/E on FY20E
EPS of | 284 and maintain our HOLD rating on the stock. We draw
comfort from healthy cash flow generation at MSIL with average CFO
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICI Direct Research
Key events
Date Event
Feb-10 Largest recall in Maruti's history for 1 lakh A-star's for faulty parts. Maruti plans to double petrol capacity and investments to ~| 2,500 crore
Jul-10 Q1FY10 marks the change in royalty rates for Maruti from 3.3% to 5.9%, market disappointed
Mar-11 Auto stocks rebound as Union Budget witnesses no change of excise duties. Manesar workers go on strike for first time in May for two weeks
Aug-11 Labour trouble again brews up, production halted. Maruti Q2FY12 skids due to labour problems and high forex impacts as JPY unfavourable
Jan-12 Maruti witnesses strong valuation based bargain hunting as management expects worst to be over
Apr-12 Maruti launches the much awaited MPV product "Ertiga". Maruti announces merger with SPIL to consolidate business on the diesel side
Jul-12 Maruti stock tumbles as workers in Manersar facility turn violent, causes tragic death of HR manager Awanish Kumar Dev
Aug-12 Management lifts lockout post violence receding; production starts albeit slowly
Apr-13 Yen moving beyond 100 vis-à-vis US$ aids Q4FY13 profits as EBIDTA margins rise to 10.4%
Oct-13 Localisation and cost reduction initiatives Maruti surprise on Q2FY14 financials as margins surprise
Jan-14 MSIL board approves Gujarat plant expansion by way of 100% subsidiary of Suzuki Motor Corporation; institutional investors perturbed; stock falls
Mar-14 Management alleviates concerns of minority shareholders and removes uncertainty over the "mark-up" issue
Oct-14 Maruti launches a new product in the sedan segment "Ciaz"
Apr-15 MSIL reports bumper margins of 15.9% in Q4FY15. Announces dividend of | 25 per share
May-15 Maruti Suzuki 'Swift' completed 10 years of debut. The company has sold over 1.3 million car over the last 10 years
Jun-15 Company launches Celerio's diesel variant at |4.65 lakh
Jul-15 Maruti opens booking for premium crossover S-CROSS which is likely to to sold through its NEXA (premium) showrooms
Oct-15 Maruti launches its premium hatchback Baleno to be sold through its NEXA (premium) showrooms
Source: Company, ICICI Direct Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Suzuki Motor Corp 30-Sep-18 56.2 169.8 0.0
2 Life Insurance Corporation of India 30-Sep-18 6.6 19.8 2.4
ICICI Securities Ltd | Retail Equity Research Page 12
ANALYST CERTIFICATION
We /I Shashank Kanodia, CFA MBA (Capital Markets), and Jaimin Desai, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the
preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
Terms & conditions and other disclosures:
ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities
Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities Limited Sebi Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of
ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund
management, etc. (“associates”), the details in respect of which are available on www.icicibank.com
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.
Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.
ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months.
ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in
respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned
in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any
compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts
and their relatives have any material conflict of interest at the time of publication of this report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month
preceding the publication of the research report.
Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and