Maruti Suzuki's (MSIL) 4QFY13 operating results (pre SPIL merger) were significantly better than our expectations with EBITDA margins at 10.6% compared to our estimate of 9.7%. Driven by better than expected operating performance, PAT stood at Rs.11.4bn vs. our est. of Rs.7.8bn. We expect EBITDA margins to significantly improve further from current levels in FY14E largely driven by favorable Fx ( management indicated that it has hedged 30% of its total Yen exposure at 95 Yen/$ compared to 90 Yen/$ seen in 4QFY13) and merger of SPIL. Management also cited some traction in demand in recent months and discounts trending lower from current levels. We continue to remain positive on the stock and maintain Buy rating with revised target price of Rs.1,946.
- Operating performance beats estimates: Revenues (pre SPIL merger) stood at Rs.126bn compared to our estimate of Rs.127bn largely in line with our estimates. While domestic realization remained flat QoQ as expected, export realizations registered a drop of 9% QoQ. Driven by better than expected operating performance, PAT stood at Rs.11.4bn compared to our estimate of Rs.7.8bn.
- Management interaction: Key highlights: 1.) Sales of diesel vehicles stood at 112k units (36% of domestic volumes) in 4Q compared to 107k in 3QFY13. 2.) While for the domestic PV industry, Diesel penetration stood at 58% for FY13E, for MSIL it was 37%. Management indicated that lower penetration for MSIL vs. Industry left enough headroom for absorbing its incremental diesel capacity 2.) The current annual diesel engine capacity stood at 400k (300k SPIL and 100k sourced from FIAT). The incremental capacity of 150k engines is likely to come on stream by 2HFY14E taking the total capacity to 550k by the end FY14E 3.) Driven by favorable Fx and localization program, overall imports now stand at 19.5% (8% direct and 11% indirect) vs. 26% in FY13 4.) Export revenues stood at Rs.15.3bn (12% of revenues) and export realization for the quarter registered a drop of 9% QoQ 4.) Discount for the quarter, was lower by ~Rs.1,500 at Rs.10,500 compared to Rs.12,000 in 3QFY13 5.) Revenue/EBITA/PAT for SPIL for FY13 stood at Rs.60bn/Rs.7bn/Rs.920mn respectively 6.) Management has incurred overall capex of Rs.27bn for FY13E and has guided for overall capex of Rs.30bn for FY13E.
- Valuations and Recommendations: At the CMP of Rs1,673, the stock trades at 14.3x FY14E EPS of Rs117 and 12.3x FY15E EPS of Rs12.3. We continue to maintain Buy rating on the stock with a revised target price of Rs1,946 (based on 16x Sept 2014 Core EPS + Cash per share of Rs.323 + Rs.7 of subsidiaries).