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Maruti Suzuki India - Quarter falls short of high expectations - ICICI Securities

Posted On: 2020-10-30 08:24:42

Maruti Suzuki India's (MSIL) Q2FY21 results were a miss on consensus estimates as ASP's declined ~5% YoY at ~476k/vehicle, EBITDA margins grew only ~86bps to 10.3% even with tailwind of operating leverage (volumes rose ~16% YoY). Rising commodity costs (~120bps) and unfavourable FX (~50bps) offset margin gains of lower discounts (~180bps). As per management, pent-up demand remains the key driver of current growth and visibility of growth sustenance post festive remains low. Two key focus points for MSIL in H2 are: a) managing SUV customers' (still ~50% of SUV sales are diesel) expectations (e.g. higher power, torque) via just a petrol engine amidst new competitive launches (e.g. Kia, Nissan, Tata motors); and b) sustaining EBIT margins at ~6% amidst rising input costs. Stock remains expensive (46x Sep'22 core EPS of Rs123). Maintain SELL.

- Key highlights of the quarter: Revenues for Q2FY21 grew 10.4% YoY to ~Rs187bn while EBITDA margin improved by a marginal 86bps to 10.3%. ASP fell 5% YoY to ~Rs477k/vehicle, due to a) drop in diesel share (avg. pricing Rs100k/vehicle higher than petrol counterparts), b) increased downtrading within portfolio. EBIT was boosted with lower depreciation (down 17%). However, PAT was up just ~1% YoY dragged by lower other income (down 34.5% YoY) at Rs6bn.

- Key takeaways from earnings call: Management indicated: a) retails in Q2 at 320k units (up 4% YoY) with higher festive sales during Navratra (96.7k deliveries and 85k bookings); inventory levels during the month for October stood at 120k units; b) share of first-time buyers increased by 4% to 48% (43.4% last year) as used car market faces supply constraints; c) Gujarat plant is operating at near full capacity with 96.8k units sourced in Q2; d) share of demand from top-10 cities stood at 32- 33% against 36.1% in FY20; diesel vehicle share for industry (ex-MSIL) sales dipped stood at ~34%; e) in terms of financing - the company witnessed 80% finance penetration in Q2 and has benefitted 5-6% in sales from new innovative financing schemes introduced during the quarter; f) MSIL is expected to face margin pressure due to continued increase in commodity prices and MSIL does not want to increase prices in wake of weak demand; and g) royalty payment for Q2 stood at 5% against 5.3% in Q2FY20; export revenues for Q2FY21 were Rs10.1bn.

- Maintain SELL: We modestly increase our earnings estimates (5.3%/3.1% for FY21E/FY22E respectively) driven by lower depreciation charges. We factor in EPS CAGR (~11% FY 20-23E) as we rollover to Sep'22E and maintain multiple at 24x Sep'22E core EPS of Rs123 and add cash per share of Rs1,408 (earlier: Rs1,405) to arrive at our target price of Rs4,365 (earlier: Rs3,756). Maintain SELL.

Shares of MARUTI SUZUKI INDIA LTD. was last trading in BSE at Rs.6940 as compared to the previous close of Rs. 7114. The total number of shares traded during the day was 37995 in over 5615 trades.

The stock hit an intraday high of Rs. 7106.5 and intraday low of 6882.9. The net turnover during the day was Rs. 265037037.

Source: Equity Bulls

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