Views on Maruti Suzuki 3QFY2014 results - Angel Broking

Views of Mr. Yaresh Kothari (Research Analyst – Auto & Auto Ancillary, Angel Broking) on Maruti Suzuki 3QFY2014 results:

Maruti Suzuki results beats estimates. However, Maruti Suzuki stock closed down 8% due to announcement of sourcing vehicles through a Suzuki subsidiary instead of in-house manufacturing

"Maruti Suzuki (MSIL) reported strong results for 3QFY2014, ahead of our estimates, driven largely by cost control measures, localization benefits and favorable currency movement. While the top-line was broadly in-line with our estimates; bottom-line at Rs. 681cr was higher than our estimates of Rs. 620cr due to better-than-expected EBITDA margins at 12.4%. Meanwhile, the company's board has approved Suzuki's (parent company) proposal to undertake expansion at Gujarat plant through a 100% Suzuki subsidiary. Accordingly, MSIL would enter into a contract with the new subsidiary company under which all production activities would be carried out and would be in accordance with the MSIL's requirements.

The top-line recorded a sequential growth of 4.1% to Rs. 10,894cr, in-line with our estimates of Rs. 10,928cr, driven by 4.6% qoq growth in volumes led by the festival demand. Net average realization declined marginally by 0.5% due to higher discounts (up ~11% qoq) and adverse product-mix. On a yoy basis though, top-line declined 2.7% yoy due to 4.4% yoy decline in volumes. Net average realization however improved 1.4% yoy despite sharp jump in average discounts (up ~60% yoy) led by better product-mix and price increases. While domestic revenues stood flat yoy (up 11.5% qoq); export revenues plunged 29.5% yoy (38.8% qoq) due to 38.6% yoy (41.3% qoq decline in export volumes. On the operating front, EBITDA margins surprised positively, as it stood flat sequentially at 12.4%, ahead of our expectations of 11.1%. The surprise was driven primarily on account of the cost reduction initiatives and localization benefits which negated the impact of unfavorable forex movement (lagged impact on vendors import). Additionally, lower distribution expenses due to lower exports (other expenditure down 4.8% sequentially) also aided the EBITDA margins. Driven by strong operating performance, net profit was ahead of our estimates.

While the company reported strong results, the announcement of sourcing vehicles through Suzuki's subsidiary to be set up in Gujarat weighed on the stock performance which led to a sharp decline of ~8% in the stock price during the day. We are surprised by the change in company's growth strategy for the future. The stock rating is currently under review."

Maruti Suzuki 3QFY2014 Result Review (CMP: Rs. 1,563/ TP: Under review/ Recommendation: Under review)

Source : Equity Bulls

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