Oct 1, 2013 ... Maruti Suzuki India Ltd. (MSIL), a subsidiary of Suzuki Motor Corporation, Japan.
(with a 54.2% stake), is the largest passenger car (PV) ...
Maruti Suzuki India Ltd. BUY
Index Details Sensex
19,517
Nifty
5,780
BSE 100
5,765
Industry
Automobile
Scrip Details Mkt Cap (` cr)
41,687
BVPS (`)
629.9
O/s Shares (Cr) Av Vol (Lacs) 52 Week H/L
30.2 0.6 1773/1217
Div Yield (%)
0.6
FVPS (`)
5.0
Shareholding Pattern Shareholders
%
Promoters
56.2
DIIs
13.1
FIIs
22.0
Public
8.7
Total
100.0
Maruti Suzuki vs. Sensex
CMP `1,380
FY15 PE 12.4x
We initiate coverage on Maruti Suzuki India Ltd (MSIL) as a BUY with a Price Objective of `1,664. At the CMP of `1,380, the stock is trading at 15.3x and 12.4x its estimated earnings for FY14E & FY15E respectively, representing a potential upside of ~21% over a period of 18 months. We are particularly enthused by the fact that MSIL over the last two years, despite challenging times like the Manesar plant lock out and intense competition across segments, has been able to maintain market share across all segments. We strongly believe that when the auto revival resumes MSIL would be best placed to benefit from this. In the near term, we expect new models in the compact & hatchback (WagonR Stingray & Swift Sport) and SUV segment (XA Alpha) to drive sales growth. In addition, diesel engine capacity expansion and SPIL merger coupled with increasing localization initiatives (on the input side) will enhance scale of operations and improve operating margins. We forecast revenues and earnings to grow at a CAGR of 8.2% and 18.3% to `51,048 and `3,350.2 crore, respectively over FY14-15E. Despite challenging times, MSIL is well placed to sustain
market share Although MSIL (with its 1.1% growth to 4,37,056 units YTD in FY14) seems to have bucked the prevailing recessionary trend in the PV segment, we have to bear in mind that this growth was due to the low base effect (due to plant lock out at Manesar) in the last fiscal. However, we could expect an improved performance going forth as the monsoon has been satisfactory and elections are around the corner. We expect the launch of new models, WagonR Stingray, Swift Sport and SUV XA Alpha to drive sales. Overall we expect volume to grow at a CAGR of 5% to 12,93,284 units over the period FY13-15E. Sales are expected to grow at a CAGR of 8.2% to `51,048 crore while earnings are expected to ramp up to `3,350.2 crore (18.3% CAGR) over the forecast period.
Key Financials (` in Cr) Net Y/E Mar EBITDA Revenue 2012 35,587.1 2,513.0 2013 43,588.0 4,229.8 2014E 46,104.1 4,744.0 2015E 51,048.6 5,712.2 - 1 of 18 -
PAT
EPS
1,635.2 2,392.3 2,724.5 3,350.2
56.6 79.2 90.2 110.9
EPS Growth (%) -28.6 39.9 13.9 23.0
RONW (%) 10.8 12.9 13.0 13.9
ROCE (%) 21.6 25.9 25.6 26.8
P/E (x) 24.4 17.4 15.3 12.4
Tuesday 1
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EV/EBITDA (x) 16.7 9.9 8.8 7.3
October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
STOCK POINTER
Target Price `1,664
Increased localization and other measures to boost margins The merger of diesel engine manufacturing facility Suzuki Powertrain India Ltd. (SPIL) with itself, expansion of diesel engine capacity and thrust towards increased localization should help boost margins besides lower exposure to the currency fluctuations (through lowered imports). We expect margins to improve by 150 bps to 11.2% by FY15E. Further the new R&D centre at Rohtak, apart from being a valuable contributor to new technological advancement, should provide significant tax savings which should improve PAT margins. We expect PAT margins to improve to 6.6% by FY15E from the current 5.5% clocked in FY13.
Valuation We initiate coverage on MSIL as a BUY with a Price Objective of `1,664 (target PE 15x) representing a potential upside of ~21% over a period of 18 months. At the CMP of `1,380, the stock is trading at 15.3x and 12.4x its estimated earnings for FY14E and FY15E respectively. Improved product mix along with increased localization and operational synergies of the SPIL merger should enable MSIL to boost revenue and profitability going forward. Accordingly we expect sales and earnings to grow at a CAGR of 8.2% & 18.3%, respectively to `51,048.6 crore & `3,350.2 crore by FY15.
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Tuesday 1
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October, 2013
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Company Background Maruti Suzuki India Ltd. (MSIL), a subsidiary of Suzuki Motor Corporation, Japan (with a 54.2% stake), is the largest passenger car (PV) company in India, accounting for 40% of the domestic passenger car market. MSIL derives ~64% of its domestic sales volume from the small car segment and has a dominant position in the segment with a market share of ~61%. The company operates from two facilities in India (Gurgaon and Manesar) and is in the process of expanding its manufacturing capacity to 1.8 mn units (1.26 mn units in FY13) by FY15. Currently, exports account for ~8% of its overall sales volume and MSIL is striving hard to expand its market in the non European countries (thereby reducing its dependency on the deteriorating European markets).
Key Investment Highlights Despite challenging times, MSIL is well placed to sustain market share Given the tightening liquidity, heavy inflation, and economic slowdown, the Indian PV industry (sales volumes down 9.3%) is facing one of its most challenging times. The immediate future is also expected to continue to remain under stress as there seems to be no trigger to revive demand (barring for a good monsoon).
PV Industry trend Nos.
12
800000
10
700000
8
600000 500000
6
400000
4
300000
(%)
900000
2
200000
0
100000
-2 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13
0
PV Sales
GDP (%) RHS
Inflation Rate (RHS)
Interest Rate (RHS)
Source: MSIL, Ventura Research
Although MSIL (with its 1.1% growth to 4,37,056 units YTD in FY14) seems to have bucked the prevailing recessionary trend in the PV segment, we have to bear in mind that this growth was due to the low base effect (due to plant lock out at Manesar) in the last fiscal. However we could expect an improved performance going forth as the monsoon has been satisfactory and elections are around the corner. We expect the launch of new models, WagonR Stingray, Swift Sport and SUV XA Alpha to drive sales. - 3 of 18 -
Tuesday 1
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October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Overall we expect volume to grow at a CAGR of 5% to 12,93,284 units over the period FY13-15E. Sales are expected to grow at a CAGR of 8.2% to ` 51,048 crore while earnings are expected to ramp up to ` 3,350.2 crore (18.3% CAGR) over the forecast period. Sales Trend & PAT Margin 60000
10.0% 9.0%
50000
8.0% 7.0%
40000
6.0%
30000
5.0% 4.0%
20000
3.0% 2.0%
10000
1.0%
0
0.0% FY09
FY10
FY11
FY12
Sales
FY13
FY14E FY15E
PAT Margins (RHS)
Source: MSIL, Ventura Research
Depreciating INR is bullish for MSIL’s exports Another positive factor which could drive growth is the fact that with the depreciation of the INR export markets are looking very rosy. With the mood in the domestic vehicle market being quite gloomy, we believe that the logical step to drive growth would be to increase exports which in recent times have seen a sharp deceleration. Besides improving the top line, the sharp fall in the currency value should also help improve profitability of MSIL’s exports. Export Trend & % of Sales Nos.
14.0% 12.0%
10.0% 8.0%
6.0% 4.0%
2.0%
Export Volume
YTDFY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
0.0% Q1FY12
45000 40000 35000 30000 25000 20000 15000 10000 5000 0
% of Sales (RHS)
Source: MSIL, Ventura Research - 4 of 18 -
Tuesday 1
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October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Maintains market share in an otherwise crowded market One of the highlights of MSIL’s performance has been the fact that barring for the UV segment (where it has lost market share marginally), it has been able to maintain its dominant market share across segments and even improve it further. The segment wise performance of MSIL is enumerated below.
WagonR Stingray to propel compact segment market share further MSIL’s robust growth (of 11.9% to 1,63,274 units YTD in FY14) in the compact segment has enabled it to gain market share by a huge 900 bps to 76% in YTDFY14. Competitors have ceded market share to Alto 800 and Wagon R, which account for 44% and 30% share respectively of the overall compact segment. We expect further gains in market share to come through the recently launched WagonR Stingray (August’13). The full-fledged effect of the same will be visible in H2FY14. Market Share - Compact Segment 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Market Share (%)
+9% Market Share Increased
+4%
-12%
-1%
Nano
Spark
Eon
Alto 800 A Star
FY13YTD
Estilo
Wagon R
FY14YTD
Source: MSIL, Ventura Research
Competitive Price Range-Compact 8
Volume Growth
` Lacs
180000
15%
Nos.
7
160000
10%
6
140000
5%
5
120000
0%
4
100000
-5%
80000
-10%
60000
-15%
40000
-20%
20000
-25%
3 2 1
Source: MSIL, Ventura Research - 5 of 18 -
Stingray
Punto
Nano-diesel
Eon
Spark
Estilo
WagonR
A-Star
Alto
Nano
0
0
-30%
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Compact Sales
Q1FY14
YTDFY14
Y-o-Y (RHS)
Source: MSIL, Ventura Research Tuesday 1
st
October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Swift Sport to drive growth in the Hatchback segment One of the most fiercely contested segments is the hatchback category where a flurry of models has been launched by new incumbents. Although, MSIL’s hatchback segment has reported a de-growth of ~4% to 90,969 units in YTDFY14, MSIL through the launch of model extensions and diesel variants has been able to ward of this competitive threat (with its Swift portfolio gaining an encouraging 500 bps to take its market share to 27%). We believe further gains in market share are possible post the launch of Swift Sport. Market Share - Hathback Segment 30%
Market Share (%)
+4% Market Share Increased
25% 20% +3%
15%
-1%
-2%
10%
-4%
+1%
5%
-3%
+1%
0% +1%
0%
0%
0%
FY13YTD
Micra
i10
Beat
Brio
Ritz
Swift
Polo
Punto
i20
Liva
Sail U-Va
Figo
Indica eV2
Santro xing
0%
FY14YTD
Source: MSIL, Ventura Research
Competitive Price Range- Hatchback ` Lacs
100000
50%
Nos.
90000
40%
80000
30%
70000
60000
20%
50000
10%
40000
0%
30000
-10%
20000
Santro Indica eV2 Figo Sail U-Va Swift Liva i20 Punto Polo Ritz Brio Beat micra i10 Swift Sport New Beat New i10 i30 Fiesta Ford B max Panda Up 2WD Brio Diesel Sandero
9 8 7 6 5 4 3 2 1 0
Volume Growth
Source: MSIL, Ventura Research
- 6 of 18 -
-20%
10000 0
-30% Q1FY13
Q2FY13
Q3FY13
Q4FY13
Hatchback
Q1FY14
YTDFY14
Y-o-Y (RHS)
Source: MSIL, Ventura Research
Tuesday 1
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October, 2013
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MUV segment demand to remain subdued This segment (consisting of Ertiga, Gypsy, Omni, & Eeco) has witnessed de-growth of 22.3% on YTD basis in FY14 to 61,947 units. Despite the fact that competitors have been launching new vehicles in the MUV segment, MSIL has been able to defend its market share at 39% in YTDFY14. The contributor to the volume growth was the satisfactory performance by Ertiga, which has sustained its market share at 15% in the MUV segment with a sale of 23,549 units YTD in FY14, whereas the nearest competitor Innova has shown significant decline in the market share by 300 bps to 14% over the same period. Market Share - MUV Segment 30%
Market Share (%)
Marginal Market Share loss of 1%
+3%
25% 20%
-3%
15% 10%
+7%
-3%
-2%
-3%
FY14YTD
Innova
Tavera
Enjoy
Gypsy
Eeco
Aria
Thar
Sumo
Xylo
Bolero
0%
Omni
0%
0%
Ertiga
+2%
Venture
5%
FY13YTD
Source: MSIL, Ventura Research
Competitive Price Range- MUV 25000
` Lacs
Nos.
1000% 800%
20000
600%
15000
400% 10000
200%
MUV
Source: MSIL, Ventura Research
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YTDFY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Q1FY13
Q4FY12
Q3FY12
Q2FY12
-200% Q1FY12
Lodgy
0%
0 Nissan Note
Fiat 500L
Minicat
Aria AT
H-1 Wagon
Hexa Space
Enjoy
Ertiga
Gypsy
Thar
venture
Eeco
Aria
Omni
Innova
Xylo
Tavera
Sumo
5000 Bolero
20 18 16 14 12 10 8 6 4 2 0
Volume Growth
YoY
Source: MSIL, Ventura Research
Tuesday 1
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October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
SUV foray – new growth opportunity MSIL is conspicuous by its absence in the fast growing SUV segment. Leveraging on its strong brand equity and the recent excitement around SUVs, MSIL is slated to launch a new model XA Alpha which would mark its entry into this segment. XA Alpha’s positioning “under 4 metres” (in line with the new excise norms), in our opinion, holds promise and should help spearhead growth.
Competitive Price Range-SUV 30
UV industry Volume Trend
`Lacs
60000
100%
Nos
25
50000
80%
20
40000
60%
15
30000
40%
20000
20%
10000
0%
10
5
UV
Source: MSIL, Ventura Research
Jun-13
Aug-13
Apr-13
Feb-13
Dec-12
Oct-12
Jun-12
Aug-12
Apr-12
Feb-12
Dec-11
Oct-11
Jun-11
-20% Aug-11
0
Terrano XV
XUV500
Tiguan 2WD
Rush
Vista Xtreme
Endeavour
Tuscon
Santa Fe
Trax
TrailBlazer
Quanto
XA Alpha
EcoSport
Vitara
Rexton
XUV500
Duster
Scorpio
Dicor
Storme
0
YoY %
Source: MSIL, Ventura Research
Dzire to maintain growth trend in Midsized sedan category MSIL’s Midsized sedan segment (25% YTD growth in FY14) has so far managed to buck the overall slowdown. The growth has been primarily driven by the mounting demand for the Dzire model, which has helped it increase its market share to 46%. This is despite the fact that Honda’s new model Amaze has been a runaway success. Going forth, we expect this growth trend to be maintained. Market Share – Sedan Segment +4% Market Share Increased
Market Share (%)
+17% -4%
-5%
-1%
-5%
Verna
SX4
Dzire
Linea
Sunny
Etios
Manza+Indigo
FY13YTD
Verito
-1%
-1%
City
-4%
Amaze
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
FY14YTD
Source: MSIL, Ventura Research - 8 of 18 -
Tuesday 1
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October, 2013
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Competitive Price Rang- Sedan
Volume Growth
Source: MSIL, Ventura Research
-20% -40%
Sedan-Midsize
YTDFY14
Q1FY14
Q4FY13
Q3FY13
-60% Q2FY13
Sylphy
Fluence
City
Civic
Accord
Fiat Viaggio
Toyota Vios
SX4
Linea
Sunny
Manza
Etios
Dzire
Chevlt Sail
Amaze
Indigo eCS
Verna
Verito
0
20% 0%
Q1FY13
5
40%
Q4FY12
10
60%
Q3FY12
15
80%
Q2FY12
20
Nos.
Q1FY12
90000 80000 70000 60000 50000 40000 30000 20000 10000 0
25 ` Lacs
YoY
Source: MSIL, Ventura Research
MSIL all set to take on impending competition In a slowing market, new model launches from all the incumbents is expected to further intensify competition. While the loss of market share for the dominant player is obvious, we are not worried with regards to MSIL’s ability to hold its own. In the past MSIL has deftly demonstrated its ability to defend its market share through a combination of launch of two new products aimed at pre-empting competition, new model variants and product extensions have kept its brand portfolio fresh and reinvigorated carefully chosen product pricing and positioning strategies support of a country wide dealer network and customer service centres Testimony to the above is its current performance where it has not only maintained market share but even gained some in extremely competitive segments.
Market Share YTDFY14
Others 19%
Tata 6%
Toyota 5%
Honda 5%
Hyundai 15%
Source: MSIL, Ventura Research - 9 of 18 -
Others 17%
MSIL 40%
M&M 10%
Market Share YTDFY13
Tata 11%
Toyota 7% M&M 10% Honda 2% Hyundai 15%
MSIL 38%
Source: MSIL, Ventura Research Tuesday 1
st
October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Upcoming launches in the PV segment Company TATA TATA Maruti
Segment Compact Compact Compact
Brand Nano Facelift Nano Facelift WaganR Stingray
Fiat Maruti Cheverolet Hyundai Hyundai Ford Ford Fiat Volkswagon Honda Ranault
Hatchback Hatchback Hatchback Hatchback Hatchback Hatchback Hatchback Hatchback Hatchback Hatchback Hatchback
Grande Punto Evo Swift Sports Beat Facelift i10 Facelift i30 Fiesta Ford B max Fiat Panda Volkswagen Up 2WD Brio Facelift Renault Sandero
End'13 CY13 Oct-13 Sep-13 Oct-13 Oct-13 Nov-13 Nov-13 Nov-13 May-14 Jan-14
Petrol/ Diesel Petrol/ Diesel Petrol/Diesel Diesel Petrol/Diesel Petrol/Diesel Petrol/Diesel Diesel Petrol/ Diesel Diesel Both
6 -7L 5-6L 3.5-5L 4-7L 6.5-8L 5-7L 6-7L 5.5- 7L 3.5- 5L 5- 6.5L 5.5- 7.5L
Hyundai Hyundai TATA TATA Fiat Nissan Ranault
MUV MUV MUV MUV MUV MUV MUV
H-1 Wagon Hexa Space Aria AT Minicat Fiat 500L Nissan Note Renault Lodgy
Sep-13 Jan-14 Oct-13 Feb-14 Nov-13 Feb-14 Nov-13
Diesel Gasoline-GDI
12-15L 7-9L 15-19L 6.5-8L 8- 10L 8-10L 7-9.5L
Maruti Cheverolet Cheverolet Hyundai Hyundai Ford Toyota Kirloskar Toyota Kirloskar TATA M&M Volkswagon Nissan
SUV SUV SUV SUV SUV SUV SUV SUV SUV SUV SUV SUV
XA Alpha Trax TrailBlazer Tuscon Santa Fe Endeavour Facelift Fortuner 2.5L Facelift Rush Vista D-90 Xtreme XUV500-Compact Tiguan 2WD Terrano XV
CY14 Nov-13 Jan-14 Oct-13 Dec-13 May-14 Nov-13 Nov-13 Dec-13 Oct-13 Aug-13 Oct'13
Diesel Petrol/Diesel Diesel Diesel Diesel Diesel Diesel Petrol/Diesel
Toyota Vios Fiat Viaggio Accord Facelift Honda City Facelift Honda New Civic Nissan Sylphy Renault New Fluence
Oct-13 Apr-14 Nov-13 Nov-13 Jan-14 Jan-14 Dec-13
Petrol/Diesel Petrol Petrol Diesel Diesel Petrol Petrol
Toyota Kirloskar. Sedan Fiat Sedan Honda Sedan Honda Sedan Honda Sedan Nissan . Sedan Ranault Sedan Source: MSIL, Ventura Research
- 10 of 18 -
Launch Date Sep-13 Sep-13 Aug-13
Variant CNG Diesel Petrol
Price Range (INR) 1.5-2.5L 2.5-3.5L 4-5L
Diesel Petrol Petrol
10L 7-10L 17-20L 18-20L 22-26L 17-22L 20-22L 8-10L 6-8L 6-7.5L 18- 25L 8.90L
Diesel Diesel Diesel
Tuesday 1
7.5-10L 8-10L 18- 23L 8.5-11L 12.5-15L 12-16L 13-16L
st
October, 2013
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Increased localization and other measures to boost margins The merger of diesel engine manufacturing facility Suzuki Powertrain India Ltd. (SPIL) with itself, expansion of diesel engine capacity, and thrust towards increased localization should help boost margins besides lower exposure to the currency fluctuations (through lowered imports). We expect margins to improve by 150 bps to 11.2% by FY15E. Further the new R&D centre at Rohtak, apart from being a valuable contributor to new technological advancement, should provide significant tax savings which should improve PAT margins. We expect PAT margins to improve to 6.6% by FY15E from the current 5.5% clocked in FY13.
Merger with SPIL will lead to improved Operating Margins The strategic move to merge SPIL, the diesel engine manufacturing facility, besides being cash neutral, should help fully reflect the diesel vehicle profitability and improve operating margins. This is already evident in the Q1FY14 results in which the margins have surged by ~420 bps.
Effects of Merger with SPIL (% of Sales) Parameter Material Cost Employee Cost Other Expenses Operating Income EBITDA Depreciation Non-Operating Income PBT PAT
Q1FY14 (Post Merger) 73.7 2.9 14.1 2.4 11.7 4.8 2.0 8.5 6.3
Q1FY13 (Pre Merger) 79.7 2.2 13.1 2.4 7.5 3.2 1.1 5.0 4.0
Change bps 600 -70 -100 0 420 -160 90 350 230
Source: MSIL, Ventura Research
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Tuesday 1
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October, 2013
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Expansion of diesel engine capacity to further improve margins through lowered outsourcing In the past, MSIL had a severe handicap of its portfolio being skewed sharply in favour of petrol engines. To meet the growing demand for diesel vehicles MSIL was outsourcing ~1 lac engines per annum from Fiat India. However, with the two phase expansion of diesel engine manufacturing facility on the verge of completion, the need for outsourcing will be eliminated leading to better margins through captive sourcing.
Diesel vehicle sales projection
Blended Portfolio of Petrol & Diesel Capacity 2000000
Nos.
600000
Nos.
1800000
500000
1600000 1400000
400000
1200000
1000000
300000
800000 600000
200000
400000 200000
100000
0 FY08
FY09
FY10
FY11
Petrol
FY12
FY13 FY14E FY15E
FY11
Diesel
Source: MSIL, Ventura Research
FY12
FY13
FY15E
Petrol & Diesel- Industry product mix (%) 100%
Nos.
90%
1800000
80%
1600000
34%
35%
36% 48%
70%
1400000
58%
54%
42%
46%
FY13
Q1FY14
60%
1200000
50%
1000000
40%
800000
30%
600000
20%
400000
10%
200000
0%
0
66%
FY11
FY12
FY13
FY14E
65%
64% 52%
FY09 FY10
FY10
FY11
Source: MSIL, Ventura Research
FY12
FY15E
Petrol
- 12 of 18 -
FY14E
Source: MSIL, Ventura Research
Capacity to witness a CAGR of 19.9% 2000000
0
Diesel
Source: MSIL, Ventura Research
Tuesday 1
st
October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Increased localization to help improve cost efficiency and lower exposure to currency fluctuations The recent plunge in the value of the rupee could easily disrupt any business, which is reliant on import of critical components. The proactive management had already initiated several measures to step up local sourcing and replace imports. We expect the imports to gradually be lowered by 8-10% over the next 2- 3 years from the current 19.5%. There is also the possibility that MSIL would lower its imports even further given the unprecedented sharp fall in the value of the INR.
Localization & Margins trend 30.0%
11.4%
12.0% 10.0% 9.0%
20.0%
7.1% 26.0%
3.6
INR-JPY
11.0%
10.4%
9.7%
25.0%
INR-JPY 3.1 2.6
8.0% 19.5%
15.0%
7.0% 17.5%
15.5%
5.0% 10.0%
2.1
6.0% 4.0%
1.6 1.1
3.0%
Source: MSIL, Ventura Research
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Aug-13
Feb-13
Aug-12
Feb-12
Feb-11
Aug-11
Feb-10
Aug-10
Aug-09
Feb-09
Feb-08
Aug-08
Feb-07
EBIDTA (%) RHS
0.6 Aug-07
% Localization
FY15E
Feb-06
FY14E
Aug-06
FY13
Aug-05
2.0% FY12
Feb-05
5.0%
Source: MSIL, Ventura Research
Tuesday 1
st
October, 2013
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Focus on R&D – Move towards next generation technology The Swift, Dzire and Ertiga models are largely a product of the company’s R&D initiative. And their good styling characteristics and next generation engines developed at the R&D centres has resulted in the runaway success of these models. In order to keep abreast of technological & design advancements, MSIL is setting up a state of the art R&D centre at Rohtak. The centre is expected to be commissioned by FY16. Apart from contributing to the above, this centre along with MAT & deferred tax benefits is expected to help keep the effective tax rate ~22%. Weighted Tax Benefit u/s 35(2AB) of Income Tax Act, 1961 700
` Crore
600
31%
35% 30%
26% 24%
500
20%
22%
22%
400
20%
300
15%
200 100
25%
416
372
515
545
603
10%
173
5%
0
0% FY10
FY11
FY12
R&D Expenditure
FY13
FY14E
FY15E
Tax Rate (RHS)
Source: MSIL, Ventura Research
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October, 2013
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Financial Performance MSIL operating revenues in Q1FY14 witnessed de-growth of 5% YoY to `10,237 crore led by a fall in total volumes (which were down 10% YoY). Inspite of this, cheaper imports and increased local sourcing helped operating margins grow by 420 bps to 11.7%. Further merger of SPIL and the beneficial currency effect helped earnings grow by 49% bound to `.631.5 crore.
Quarterly Financial Performance (` in crore) Particulars Income From Operations Growth % Total Expenditure EBIDTA EBDITA Margin % Depreciation EBIT (EX OI) Other Income EBIT EBIT Margin % Interest Exceptional items PBT PBT Margin % Provision for Tax PAT PAT Margin (%)
Q1FY14 10237.3 -5.0 9071.2 1166.1 11.7 480.2 685.9 204.3 890.2 8.7 44.2 0.0 846.0 8.3 214.5 631.5 6.2
Q1FY13 10778.2 9991.8 786.4 7.5 339.9 446.5 112.3 558.8 5.2 33.2 0.0 525.6 4.9 101.8 423.8 3.9
FY13 43587.9 22.5 39402.1 4185.8 9.6 1861.2 2324.6 856.2 3180.8 7.3 189.8 0.0 2991.0 6.9 598.9 2392.1 5.5
FY12 35587.1 33116.8 2470.3 6.9 1138.4 1331.9 869.5 2201.4 6.2 55.2 0.0 2146.2 6.0 511.0 1635.2 4.6
Source: MSIL, Ventura Research
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Financial Outlook On the back of sustained volume growth led by new launches, we expect revenues to grow at a CAGR of 8.2% over the forecasted period of FY13-15 to `51,048 crore. Operating profits are expected to post a CAGR of 16.2% over FY13-15 to `5,712.2 crore backed by the bump up in localization, resulting in lower input cost. Consequently, EBITDA margins are expected to grow by 150 bps to 11.2% in FY15E from the current 9.7% in FY13. In line with the improved profitability, earnings are expected to grow at a CAGR of 18.3% to `3,350.2 crore over the forecast period FY13-15.
Revenue and Profitability Trend 60000
`Crore
14.0% 12.0%
50000
10.0%
40000
8.0% 30000 6.0% 20000
4.0%
10000
2.0%
0
0.0% FY10
Revenue
FY11
FY12
FY13
EBITDA Margin RHS (%)
FY14E
FY15E
PAT Margin RHS (%)
Source: MSIL, Ventura Research
Valuation We initiate coverage on MSIL as a BUY with a Price Objective of `1,664 (target PE 15x) representing a potential upside of ~21% over a period of 18 months. At the CMP of `1,380, the stock is trading at 15.3x and 12.4x its estimated earnings for FY14E and FY15E respectively. Improved product mix along with increased localization and operational synergies of the SPIL merger should enable MSIL to boost revenue and profitability going forward. Accordingly we expect sales and earnings to grow at a CAGR of 8.2% & 18.3%, respectively to `51,048.6 crore & `3,350.2 crore by FY15.
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P/E 3,000 2,500 2,000
1,500 1,000
500 0 Jul-03 CMP
Jul-05 11X
Jul-07
Jul-09
Jul-11
Jul-13
14X
17X
20X
23X
Jul-11
Jul-13
Source: MSIL, Ventura Research
P/BV 3500 3000
2500 2000
1500 1000
500 0 Jul-03 CMP
Jul-05 2X
Jul-07 2.5X
Jul-09 3X
3.5X
4X
Jul-09
Jul-11
Jul-13
8.5X
10X
11.5X
Source: MSIL, Ventura Research
EV/EBITDA 80000 70000 60000 50000
40000 30000 20000 10000 0 Jul-03
Jul-05
Jul-07
EV
5.5X
7X
Source: MSIL, Ventura Research - 17 of 18 -
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Financials and Projections Y/E March, Fig in ` Cr
FY 2012 FY 2013 FY 2014e FY 2015e
% Chg. Total Expenditure % Chg. EBITDA EBITDA Margin %
FY 2012 FY 2013 FY 2014e FY 2015e
Per Share Data (Rs)
Profit & Loss Statement Net Sales
Y/E March, Fig in ` Cr
35587.1
43588.0
46104.1
51048.6
-2.8
22.5
5.8
10.7
EPS
56.6
79.2
90.2
110.9
Cash EPS
96.0
140.8
158.7
33074.1
39358.2
41360.1
45336.4
188.1
7.5
8.0
8.0
0.3
19.0
5.1
9.6
8.0
525.7
615.0
695.9
797.5
2513.0
4229.8
4744.0
5712.2
7.1
9.7
10.3
11.2
Debt / Equity (x)
0.0
0.0
0.0
0.0
Current Ratio (x)
DPS Book Value Capital, Liquidity, Returns Ratio
Other Income
826.8
812.4
876.1
964.3
1.1
0.9
1.0
1.2
PBDIT Depreciation
3339.8
5042.2
5620.1
6676.5
ROE (%)
10.8
12.9
13.0
13.9
1138.4
1861.2
2068.0
2332.9
ROCE (%)
21.6
25.9
25.6
26.8
55.2
189.8
59.1
48.4
Dividend Yield (%)
0.5
0.6
0.6
0.6
0.0
0.0
0.0
0.0
Valuation Ratio (x)
Interest Exceptional items PBT
2146.2
2991.2
3493.0
4295.1
Tax Provisions
511.0
598.9
768.5
944.9
Reported PAT
1635.2
2392.3
2724.5
3350.2
4.6
5.5
5.9
6.6
Raw Materials / Sales (%)
79.0
74.6
Manpower cost / Sales (%)
2.4
2.5
PAT Margin (%)
P/E
24.4
17.4
15.3
12.4
P/BV
2.6
2.2
2.0
1.7
EV/Sales
1.2
1.0
0.9
0.8
16.7
9.9
8.8
7.3
EV/EBIDTA
73.7
72.8
Efficiency Ratio (x)
2.5
2.5
Inventory (days)
18.4
19.0
19.0
19.0
Other opr Exp / Sales (%)
6.5
7.6
8.2
8.2
Debtors (days)
9.6
11.9
11.5
11.5
Tax Rate (%)
23.8
20.0
22.0
22.0
Creditors (days)
61.7
51.7
51.7
51.7
144.5
151.0
151.0
151.0
Cash Flow statement Profit After Tax
1635.2
2392.3
2724.5
3350.2
15042.9
18427.9
20871.5
23940.7
Depreciation
1138.4
1861.2
2068.0
2332.9
0.0
0.0
0.0
0.0
Working Capital Changes
1185.1
878.1
-1028.9
-732.9
Balance Sheet Share Capital Reserves & Surplus Minority Interest Total Loans
0.0
542.6
542.9
417.1
Others
264.9
329.5
348.5
385.9
Operating Cash Flow
Total Liabilities
15452.3
19451.0
21913.9
24894.8
Gross Block
14734.7
19800.7
24742.9
27742.9
Less: Acc. Depreciation
7214.0
10001.5
12069.5
Net Block Capital Work in Progress
7520.7 941.9
9799.2 1942.2
Investments & Lons
7514.4
Net Current Assets Deferred Tax Assets
-221.7 -303.0 0.0 15452.3
Other Long Term Liability
Misc Expenses Total Assets
136.2
126.2
827.6
993.3
4094.9
5257.8
4591.2
5943.6
Capital Expenditure
-2510.3
-6066.3
-3600.0
-3000.0
Change in Investment
-1040.7
-930.9
-750.0
-750.0
14402.4
Cash Flow from Investing
-3551.0
-6997.2
-4350.0
-3750.0
12673.4 600.0
13340.5 600.0
Proceeds from equity issue Inc/(Dec) in Debt
0.0 -364.5
6.5 352.8
0.0 -58.8
0.0 -174.2
9251.6
10001.6
10751.6
Dividend and DDT
-251.8
-280.9
-280.9
-280.9
-1133.3
-952.4
611.4
78.4
-339.7
-455.1
-408.7
-408.7
-408.7
Cash Flow from Financing Net Change in Cash
-616.3 -72.4
-1661.0
-98.6
1738.5
0.0
0.0
0.0
Opening Cash Balance
2508.5
2436.1
775.0
676.4
19451.0
21913.9
24894.8
Closing Cash Balance
2436.1
775.1
676.4
2414.9
Ventura Securities Limited Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai – 400079 This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation.
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