maruti suzuki report

Ground Reality

28 March 2014

Maruti Suzuki

Strong revival in retail sales in MarchCelerio receives encouraging response; channel inventory to normalize

Our interactions with industry participants in the passenger vehicle space indicate strong pick-up in MSILs retail sales during March 2014. We estimate retail sales for the month at 130k units, nearly 2x the January-February

average of 70k units. The strong retail sales should normalize channel inventory. Celerio has received encouraging response. Waiting period for the AMT variant is 4-5 months. We expect 28% EPS CAGR on 13% volume CAGR (implying 3% CAGR over FY11-16), and

190bp margin expansion to 14% over FY14-16. Buy.

After weak January-February, conversions increase significantly Growth in inquiries has remained healthy over the last two months, particularly post the excise duty cut

announced in the interim budget. However, conversions remained weak, as consumers delayed purchasesin anticipation of better year-end deals.

Conversions have picked up significantly in March 2014. Higher discounts (marginally increased v/s February),excise duty reduction (marketed as available till June-end), announcement of price hikes effective April,coupled with Celerio launch have helped improve conversion rates.

We estimate retail sales for the month at 130k units, nearly 2x the January-February average of 70k units.

Celerio receives encouraging response, long waiting for AMT variant Celerio has received encouraging response, with a waiting period of 4-5 months for the AMT variant. Celerio

offers benefits of automatic cars, but at much lower price and mileage similar to manual transmission cars. Considering high acceptance of this technology from consumers, dealers expect MSIL to offer similar

technology in various other models. This would give MSIL a huge technology lead over competitors.

Strong retail sales to normalize channel inventory by March-end During January-February, MSIL added ~55k units in channel inventory. With strong retail sales, channel inventory would normalize to one month levels by the end of March. We estimate MSILs wholesale volumes for March 2014 at 115k units, down 5% YoY on 20% drop in exports.

Pure play on recovery in consumer sentiment; Buy Though short-term demand outlook remains cautious, given pent-up demand (FY14 being third consecutive

year of weak PV industry demand), any positive trigger for consumer sentiment could drive strong growth. Given its leadership position and three new launches (Celerio, Ciaz sedan in 2Q and compact SUV in 4Q) in

FY15, we expect MSIL to be a key beneficiary of this demand upturn. We estimate robust 28% EPS CAGR on 13% volume CAGR (implying 3% CAGR over FY11-16) and margin

expansion of 190bp over FY14-16 to 14%. The stock trades at 16x/12.4x FY15E/16E consolidated EPS ofINR123.1/INR156.1. Maintain Buy with a target price of INR2,500.

Jinesh Gandhi ([email protected]) + 91 22 3982 5416Chirag Jain ([email protected]) + 91 22 3982 5418

Investors are advised to refer through disclosures made at the end of the Research Report.

Maruti Suzuki: Financial & Valuation Summary (SPIL merger w.e.f 1/Apr/2012)Year Total Inc. PAT Con. EPS EPS Con. P/E P/CE P/BV EV/ RoE RoCE

End (INR m) (INR m) (INR) Gr. (%) (x) (x) (X) EBITDA (%) (%)

3/14E 440,641 28,813 96.7 20.6 20.0 11.6 2.8 9.7 13.7 17.4

3/15E 507,822 36,650 121.3 25.4 16.0 9.5 2.4 7.3 15.1 19.2

3/16E 583,812 47,165 156.1 28.7 12.4 7.8 2.1 5.4 16.7 21.2

228 March 2014

Automobiles: Maruti Suzuki

Market share in passenger cars at three-year high PV share improves 280bp in FY14 on strong rural demand

Domestic volumes stable; to improve, driven by Celerio launch Expect 13% volume CAGR on industry recovery, new launches

Celerio receives encouraging response Expect launch of premium car, Ciaz in 2QFY15

Celerio pricing outshines present automatic variantsModels Variant Delhi (Ex-Showroom) Difference over

(INR) Manual (INR)

A-Star (Lxi) Manual 388,911

A-Star (Lxi) Automatic 477,959 89,048

Celerio (LXi) Manual 390,000

Celerio (LXi) AMT 429,500 39,500

Grand i10 (Era) Manual 441,000

Grand i10 (Sportz) Automatic 574,000 133,000

Wagon R (Lxi) Manual 396,730

Source: Company, MOSL


328 March 2014


Discounts likely to peak out in 4QFY14 can be significant profitability driver on demand recovery

Margin expansion driven by favorable forex, localization drive Expect 28% EPS CAGR over FY14-16, on the back ofand operating leverage 28% CAGR over FY12-14

FCF of INR98b over FY14-16 despite high capex (INR b) Capital efficiency to improve despite cash build-up


428 March 2014


Domestic Brand-wise wholesales for February 14*...Model Body Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14

Maruti 97,955 107,890 90,522 77,821 77,002 75,145 76,018 90,399 96,062 85,510 86,391 96,569 99,758

Alto Hatch 25,030 27,356 19,847 16,411 20,077 18,206 17,124 23,620 22,574 23,024 23,823 23,362 24,623

Swift Hatch 19,534 19,654 16,531 14,353 17,236 10,461 14,152 16,839 19,047 15,734 16,788 19,027 19,099

WagonR Hatch 13,586 14,681 12,794 12,952 9,395 13,409 12,748 15,448 14,270 12,815 12,154 13,215 12,674

Dzire Compact Sedan 18,316 20,078 19,446 17,265 12,548 15,249 13,723 16,708 17,211 15,286 15,427 19,232 18,353

Omni MUV 5,033 5,575 4,874 4,210 3,930 4,214 4,860 5,375 6,547 5,477 5,590 6,093 6,733

Ritz Hatch 4,143 4,890 4,443 2,551 3,257 2,525 2,533 2,806 2,599 1,688 1,478 2,661 2,250

Eeco MUV 3,100 3,931 3,822 2,962 2,903 3,329 3,096 3,392 3,239 2,544 2,722 3,252 3,199

M800 Hatch 1,680 2,136 1,680 1,626 1,336 1,662 1,522 1,594 2,087 1,754 2,042 1,645 0

SX4 Sedan 215 903 601 503 314 322 348 378 262 200 271 191 228

Celerio 2,760 7,323

A-Star Hatch 1,015 874 606 438 506 310 625 399 448 447 267 343 45

Gypsy MUV 115 288 149 0 47 0 0 0 12 0 0 326 250

Ertiga MUV 5,842 6,200 5,168 4,306 4,950 4,562 4,563 2,657 7,224 5,840 4,924 4,437 4,981

Hyundai 34,002 33,858 32,403 32,102 30,591 25,965 26,464 30,601 36,002 33,501 28,345 33,405 34,005

i10 Hatch 8,182 8,686 8,194 8,469 8,174 6,735 6,017 3,260 3,575 4,094 3,975 4,116 4,041

Grand i10 Hatch 8,411 11,519 11,007 9,077 9,738 10,576

i20 Hatch 7,605 6,988 6,230 5,701 5,628 5,366 5,695 5,741 6,045 4,643 3,491 4,640 4,292

Santro Hatch 3,821 4,080 4,264 4,274 4,721 2,961 2,417 2,353 3,022 3,842 3,617 3,385 4,002

Verna Sedan 4,871 4,589 4,809 4,710 3,879 3,479 3,882 4,159 4,549 3,219 2,503 3,803 3,342

Eon Hatch 8,717 8,604 8,350 8,406 7,770 6,946 7,991 6,284 6,867 6,340 5,428 7,307 7,312

Elantra Sedan 470 546 410 462 391 437 418 358 389 269 218 353 300

Santa Fe SUV 66 50 39 50 14 26 30 21 29 74 25 54 130

Tata Motors*** 10,613 12,347 11,570 11,134 11,804 10,824 11,564 12,839 14,133 10,376 9,272 10,974 11,325

Indica+Vista Hatch 3,981 5,304 5,943 5,500 5,157 4,276 4,260 4,884 5,346 4,510 3,231 3,920 3,781

Indigo+Manza Sedan 2,283 2,092 2,027 2,413 2,468 2,218 2,420 2,778 3,478 2,345 2,752 2,293 2,749

Nano Hatch 1,505 1,507 948 1,014 2,003 2,052 2,081 2,104 2,120 1,055 554 2,250 2,496

Sumo(incl Grande) MUV 1,563 2,159 1,749 1,133 1,105 1,047 1,686 1,817 1,706 1,394 1,631 1,527 1,317

Safari SUV 1,082 1,078 762 910 814 598 601 850 1,115 839 895 837 804

Aria MUV 4 13 8 3 2 26 14 27 26 10 59 19 57

Venture MUV 195 194 133 161 255 607 502 379 342 223 150 128 121

M&M** 23,421 25,847 20,749 22,244 17,232 15,530 15,821 18,916 22,403 16,527 16,238 18,828 18,271

Bolero MUV 10,053 11,675 9,766 9,780 7,983 6,955 7,030 8,925 10,705 8,474 8,465 8,664 9,137

Scorpio SUV 3,906 4,658 4,437 5,165 3,628 3,256 3,356 4,345 5,230 3,594 3,418 4,413 4,503

Xylo MUV 1,871 2,117 1,547 1,719 1,212 1,070 1,085 1,275 1,394 1,014 806 980 879

Quanto Compact SUV 2,099 1,857 1,338 1,279 891 347 347 382 500 315 169 803 450

Verito Sedan 1,036 1,211 568 1,371 1,316 1,027 955 897 369 278 357 320 293

XUV500 SUV 3,472 3,187 2,253 2,144 1,377 2,045 2,225 2,159 3,226 2,262 2,391 3,522 2,878

Rexton SUV 476 452 345 262 174 147 132 126 137 57 67 126 131

Toyota 12,756 19,375 8,979 10,022 11,010 11,515 11,994 12,015 13,162 10,208 10,648 10,910 10,100

Innova MUV 6,496 8,422 3,192 4,216 4,964 4,677 5,075 4,650 6,099 4,412 4,918 4,987 4,890

Etios Sedan 2,797 4,742 2,501 2,109 2,125 2,680 2,590 3,189 2,886 2,263 2,804 2,808 2,371

Liva Hatch 1,698 3,895 1,832 1,934 1,951 2,097 2,578 2,272 2,151 1,945 1,616 1,501 1,227

Fortuner SUV 1,515 1,772 1,101 1,359 1,561 1,669 1,313 1,518 1,631 1,264 1,144 1,419 1,554

Corolla Sedan 206 544 353 368 383 344 395 333 352 288 156 113 11

Camry Sedan 36 31 22 43 43 43 31 28 2 81 42

528 March 2014


...Domestic Brand-wise wholesales for February 14* (continued from earlier page)Model Body Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14

Ford 4,490 5,271 4,003 4,002 7,145 7,883 8,008 10,640 9,163 7,909 5,871 6,706 6,799

Figo Hatch 3,804 4,381 3,336 3,469 2,504 2,679 2,248 3,515 2,806 2,775 1,862 2,354 3,099

Ford Classic Sedan 503 742 507 413 364 416 330 711 801 351 50 438 205

Ford Fiesta Sedan 63 98 101 53 233 16 19 154 410 211 1 0 0

Ecosport Compact SUV 4,002 4,715 5,372 6,203 5,113 4,392 3,905 3,912 3,490

Endeavour SUV 120 50 59 67 42 57 39 57 33 180 53 2 5

VW 5,810 6,506 4,566 5,116 5,356 4,739 4,805 4,519 4,828 4,206 3,034 4,106 3,512

Polo Hatch 3,627 3,001 2,500 3,056 3,200 2,433 2,908 2,869 2,655 2,447 1,856 2,669 2,174

Vento Sedan 1,909 3,055 1,779 1,653 1,945 1,872 1,732 1,585 2,049 1,637 1,050 1,294 1,191

Jetta Sedan 207 311 242 266 207 245 139 49 123 122 128 143 145

Honda 6,510 10,044 8,488 11,340 9,297 11,223 8,913 10,354 11,214 9,332 5,493 15,714 14,543

City Sedan 3,271 3,432 1,917 3,202 1,830 1,953 953 2,043 31 0 0 7,184 7,213

Amaze Compact Sedan 2,552 4,852 6,036 4,965 6,515 6,242 6,679 9,564 7,598 4,458 7,398 6,030

Brio Hatch 2,916 3,917 1,628 2,010 2,375 2,602 1,508 1,452 1,472 1,712 1,026 1,015 1,235

Others

GM Beat Hatch 2,293 3,006 1,986 1,506 2,081 2,479 2,926 2,826 2,679 2,151 2,073 1,778 2,415

GM Sail U-VA Hatch 560 1,040 967 824 509 453 331 1,543 614 399 510 459 353

GM Sail Sedan Sedan 1,486 2,232 2,469 2,027 998 789 841 1,281 1,223 707 772 758 521

GM Enjoy MPV MUV 691 2,173 2,578 2,235 2,200 613 1,965 1,206 1,088 1,098 941

Nissan Micra Hatch 608 468 335 846 1,989 829 1,562 1,594 1,183 754 518 1,270 355

Nissan Sunny Sedan 1,191 1,304 879 1,110 918 367 913 694 565 519 499 646 248

Nissan Terrano SUV 3,079 2,865 1,446 3,126 1,403

Nissan Evalia MUV 147 346 18 117 36 23 14 61 49 24 92 137 5

Renault Duster SUV 5,590 6,313 5,362 5,146 4,523 3,089 2,967 3,973 4,657 3,624 2,613 3,046 3,292

Renault Scala Sedan 620 1,026 545 670 772 371 340 405 410 232 708 151 213

Skoda Rapid Sedan 1,371 1,587 1,585 1,121 1,142 1,077 810 1,018 1,271 991 1,046 1,188 961

*Volumes of Nissan, renault, Skoda, GM, HM are not included in the above, **Excludes UV pick-ups, ***Excludes MPVs

628 March 2014


Financials and Valuation

728 March 2014


N O T E S

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Disclosure of Interest Statement Maruti Suzuki1. Analyst ownership of the stock None2. Group/Directors ownership of the stock None3. Broking relationship with company covered None4. Investment Banking relationship with company covered None

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