Re: {LONGTERMINVESTORS} Maruti Suzuki ....Thread

 Stock Update

Maruti Suzuki India
Reco: Buy 
PT: Rs4,700
CMP: Rs3,869

Margins surprise positively; maintain Buy with revised PT of Rs4,700

 

Key points

• MSIL springs margin surprise in Q4FY2016: Maruti Suzuki India Ltd (MSIL) surprised the Street by reporting a strong operating performance in Q4FY2016. Contrary to the Street's expectations of sequentially similar margins, due to the effect of the appreciation of yen and subdued volumes, MSIL surprised positively by reporting 100-basis point (BPS) expansion in the margins, sequentially. The operating profit margin (OPM) was 60-80BPS above the consensus estimates. With discount reduction on the back of strong demand for new products coupled with cost control measures, the company posted better-than-anticipated margins.
• MSIL to continue outgrowing industry growth in FY2017: MSIL is aiming to outpace the industry growth in FY2017 on the back of strong demand for the recent launches (Baleno and Vitara Brezza which have strong order backlogs), launches in the new segment (Ignis in the compact utility vehicle space) and further expansion of the distribution network particularly in rural areas. MSIL would also be a beneficiary of the consumer shift towards the petrol segment (MSIL's 70% volumes are petrol driven as against the industry average of 55%).
• Increasing estimates; maintain Buy: MSIL has demonstrated a robust margin performance despite challenging passenger vehicle industry and currency woes. We expect MSIL to outpace the passenger vehicle industry in FY2017 on the back of sustained strong demand for recent launches and strong product pipeline. Also, MSIL's yen exposure is likely to reduce given the increased localisation initiatives and royalty on future models which would be denominated in Indian Rupee. Also, we expect the discounting/vehicle to tread down given the increased proportion of new launches (recent launches have order backlog of about five to six months) and new launches in the upcoming festive season which would have no discounting. Further, MSIL has guided for a lower tax rate going ahead (tax rate estimated at 26-27% as against the current rate of 30%) due to higher other income recognition under the new IFRS rules. We have marginally raised our estimates by about 6% for both FY2017 and FY2018, given the robust operating performance. We have maintained our Buy rating on the stock with a revised price target of Rs4,700.

 

 

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