initiate coverage on Maruti Suzuki India Ltd - Ventura1

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

st

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.

- 2 of 18 -

Tuesday 1

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October, 2013


 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


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)


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


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


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


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


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


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


- 6 of 18 -

-20%

10000 0

-30% Q1FY13

Q2FY13

Q3FY13

Q4FY13

Hatchback

Q1FY14

YTDFY14

Y-o-Y (RHS)


Tuesday 1

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October, 2013


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


Competitive Price Range- MUV 25000

` Lacs

Nos.

1000% 800%

20000

600%

15000

400% 10000

200%

MUV


- 7 of 18 -

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


Tuesday 1

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October, 2013


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


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 %


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


Tuesday 1

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October, 2013


Competitive Price Rang- Sedan

Volume Growth


-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


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%


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


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


 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


- 11 of 18 -

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October, 2013


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


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


FY12

FY15E

Petrol

- 12 of 18 -

FY14E


Capacity to witness a CAGR of 19.9% 2000000

0

Diesel


Tuesday 1

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October, 2013


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%


- 13 of 18 -

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%


Tuesday 1

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October, 2013


 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)


- 14 of 18 -

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October, 2013


 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


- 15 of 18 -

Tuesday 1

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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 (%)


 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


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


EV/EBITDA 80000 70000 60000 50000

40000 30000 20000 10000 0 Jul-03

Jul-05

Jul-07

EV

5.5X

7X


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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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