Maruti Suzuki Ltd - Moneycontrol

Maruti Suzuki Ltd

RESULT UPDATE

30th April 2018

India Equity Institutional Research II

Result Update – Q4FY18

II 30th April, 2018

Page 2

Maruti Suzuki Ltd

Strong product portfolio to drive the growth

CMP

Target

Potential Upside

Market Cap (INR Mn)

Recommendation

Sector

INR 8,779

INR 9,593

9.3%

2,615,643

Accumulate

AUTO

Result highlights •Maruti Suzuki India Ltd’s (MSIL) net sales stood at INR 211,656 Mn which was up by 15.4% y-o-y and by 9.8% q-o-q. Growth in topline was aided by 11.4% y-o-y volume growth along with improvement in realization by 2.7% y-o-y and 1.5% q-o-q (realization of the company stood at record high). •EBIDTA stood at INR 30,150 Mn which was up by 18.4% y-o-y. EBIDTA margin stood at 14.2% against our estimate of 16%. Contraction in margins was majorly on account of increase in other expenses along with rise in input cost and higher employee cost. •PAT of the company for Q4FY18 came in at INR 18,821 Mn which was up by 10% y-o-y and 4.6% q-o-q. PAT margins declined to 8.9% mainly on account of increase tax rates. •Company has proposed dividend of INR 80/share for FY18 against INR 75/share declared last year. KEY FINANCIALS

MARKET DATA Shares outs (Mn)

302

EquityCap (INR Mn)

1510

Mkt Cap (INR Mn)

Particulars (INR Mn)

2651643

52 Wk H/L (INR)

10000/6342

Volume Avg (3m K)

567

Face Value (INR)

5

Bloomberg Code

MSIL IN

250 200 150 100 Apr-18

Oct-17

Apr-17

Oct-16

Apr-16

Oct-15

Apr-15

50

Sensex

MARKET INFO 34970

NIFTY

10692

FY18

FY19E

FY20E

Net Sales

575890.0

680850.0

EBITDA

88983.0

148517.0

798094.0

927679.1

1092016.7

120634.0

143790.3

180182.8

PAT

46400.1

122262.0

82118.0

95142.8

120708.5

EPS

182.0

397.5

260.9

306.8

391.4

OPM

15.45%

21.81%

15.12%

15.50%

16.50%

NPM

8.06%

17.96%

10.29%

10.26%

11.05%

Healthy product-mix and better utilization to aid top-line growth MSIL reported sales of 461,737 units in Q4FY18 displaying a healthy growth of 11.4% y-oy and 7.1% q-o-q. Full year sales stood at 17,79,574 units showcasing a growth 13.4% y-o-y which was majorly driven by company’s compact and UV segment which grew by 28% and 29.6% y-o-y respectively. Out of the above, domestic sales and exports grew by 14.5% y-o-y and 1.6% y-o-y respectively. In FY18, MSIL’s market share in passenger vehicles improved by ~2.5% to 50% and company successfully gained pioneer positions in UV and vans segment. Going forward we believe MSIL to outperform industry growth rate and report a CAGR of 11% over FY18-20E on the back of increase in demand for company’s mini and compact cars, also growth momentum in their UV’s is expected to continue in coming years. Company’s focus on its revolutionary brand “NEXA” by attracting first time buyers through superior comfort mix coupled with company’s new plan “Maruti Suzuki Arena” is likely to keep MSIL’s growth wheels going. Ramping up of Gujarat plant will also enable the company to increase their production. In FY18, production at Gujarat plant stood at 157,000 units and we expect manufacturing production for the same to increase to 225,000 units in FY19. We believe company’s focus on adding newer variants and timely refreshment of older models should drive the growth ahead. Along with increase in volumes, company has managed to improve their realization (in Q4FY18 MSIL’s realization stood at record high). Consequently, we believe top-line of the company to grow at a CAGR of 17% over FY18FY20E to INR 10,92,017 Mn.

300

SENSEX

FY17

Source: Company, KRChoksey Research

SHARE PRICE PERFORMANCE

Maruti Suzuki India Ltd

FY16

SHARE HOLDING PATTERN (%) Particulars

Mar 18

Dec 17

Sep 17

Promoters

56.21

56.21

56.21

FIIs

25.19

25.81

25.29

DIIs

11.46

11

11.46

Others

7.15

7

7.03

Total

100

100

100

ANALYST Raghav Garg, [email protected], +91-22-6696 5567 Udit Gajiwala, [email protected], +91-22-6696 5567

17% Revenue CAGR over FY 17 to FY 20E KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

22.2% EBIDTA CAGR over FY 17 to FY 20E +91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com



II 30th April, 2018

Page 3

Maruti Suzuki Ltd Surging input prices to keep margins range-bound: In Q4FY18, MSIL reported EBIDTA of INR 30,150 Mn showing a growth of 18.4% y-o-y. EBIDTA margins of the company contracted to 14.2% as compared to 15.8% in Q3FY18 on account of sharp increase in other expenses and rise in input cost. PAT for Q4FY18 stood at INR 18,821 Mn an increase of 10% y-o-y and 4.6% q-o-q. However PAT margins declined to 8.9% from 9.3% in Q3FY18 on the back of higher tax rates. Going forward we believe the operating margins will improve gradually due to company’s constant efforts on cost reduction, better product mix and stable other expenses. However, we believe rise in input cost would continue to be a headwind for the company thereby keeping margins range bound. Consequently, we expect EBIDTA margins to moderately increase from 15.1% in FY18 to 16.5% in FY20E. Further ,we expect EBIDTA to grow at CAGR of 22.2% from INR 120,634 Mn to INR 180,183 Mn over the same period. Valuations & Views: We strongly believe in MSIL’s growth story and we reckon that NEXA should continue to be a transformational brand for the company. Additionally, upward momentum in UV and Van segment coupled with rise in demand from rural markets should boost the volumes in coming years. However, near term hindrances like consistent discounts by peers to push sales combined with increase in input cost will keep the margins under pressure. Further, we expect company’s RPAT to grow at a CAGR of 21.2% to 120,708.5 Mn by FY20E. However net profit margins are expected to improve marginally from 10.3% to 11.1% due to higher tax rates. While the growth story remains intact, increase in production and improvement in realizations is likely to drive company’s earnings going forward. On the valuation front, we have assigned PE multiple of 24x on FY20E EPS of INR 399.7 to arrive at a target price of INR 9593/share indicating an upside of 9.3% from CMP of INR 8,779. We therefore maintain our “Accumulate” rating on the stock. Exhibit 1: Revenue (INR Mn)

1200000 1000000 800000 600000

443044

444506

508014

575890

680850

798094

927679

1092017

200000

360899

400000

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19E

FY20E

0 Source: Company, KRChoksey Research

Exhibit 2: Margins 25.0

21.8

20.0 15.0 9.8 10.0

11.7

13.5

15.5

15.1

15.5

16.5

10.3

10.3

11.1

FY18

FY19E

FY20E

18.0

7.0

5.0 0.0

3.9

5.0

5.4

FY12

FY13

FY14

6.7 FY15

8.1 FY16

FY17

EBIDTA (%)

Net Profit (%)



KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com



II 30th April, 2018

Page 4

Maruti Suzuki Ltd Q4FY18 Result Snapshot Exhibit 3 : Consolidated Result Update (INR Mn) Q4 FY18

Q3 FY18

Q4 FY17

Q-o-Q change %

Y-o-Y change %

No. Of. Vehicles Sold

461737

431112

414650

7.1%

11.4%

Revenue From Operations

205943

189400

180052

8.7%

14.4%

5713

3432

3282

66.5%

74.1%

Particulars

Other operating income Net Sales & Other Operating Income

211656

192832

183334

9.8%

15.4%

Total Expenditure

181506

162454

157861

11.7%

15.0%

(Increase) / Decrease In Stocks

-6365

2465

-5294

-358.2%

20.2%

Purchase of Finished Goods

30830

24364

16786

26.5%

83.7%

Cost of Raw Materials

119298

106494

116177

12.0%

2.7%

Other Cost

29461

22262

24032

32.3%

22.6%

8282

6869

6160

20.6%

34.4%

EBIDTA

Employee Cost

30150

30378

25473

-0.8%

18.4%

EBITDA Margins (%)

14.2%

15.8%

13.9%

-151bps

35bps

Depreciation

7025

6890

7010

2.0%

0.2%

EBIT & Exceptional Item

23125

23488

18463

-1.5%

25.3%

Other Income

5950

2449

4491

143.0%

32.5%

EBIT

29075

25937

22954

12.1%

26.7%

2731

263

226

938.4%

1108.4%

EBT

26344

25674

22850

2.6%

15.3%

Tax

7523

7684

5745

-2.1%

30.9%

Net Profit from ordinary activity after tax

18821

17990

17105

4.6%

10.0%

Net Profit Margins(%)

8.9%

9.3%

9.3%

-44bps

-44bps

Interest

Other comprehensive income

-1111

-139

1504

699.3%

-173.9%

Adj. PAT

17710

17851

18609

-0.8%

-4.8%

Adj. PAT Margin (%)

8.4%

9.3%

9.3%

-89bps

-96bps

EPS

62.30

59.55

56.62

4.6%

10.0%


Key Con-call Highlights: • Management of the company stated that industry is expected to grow ~8% to 9% in FY19, whereas MSIL will continue to outperform industry growth by reporting double digit growth in its sales volumes. •Production from Gujarat facility stood at 157,000 units in FY18 and company is aiming to produce ~225,000 units in FY19. •Going forward royalty expenses will decline directionally. In FY18 royalty stood at 5.4% as against 5.8% in FY17 while during Q4FY18 royalty payment was ~5.7% of total sales. Royalty will be paid in Indian Rupee instead of Yen for models starting from Ignis. •In Q4FY18 other expenses increased due to reclassification of freight expenses and royalty variation. In the quarter staff cost had some one off related to gratuity calculations. •Management stated that capex for FY19 will be INR 50,000 Mn which will be allocated for new model development, land (INR 10,000 Mn), capacity expansion, maintenance capex and R&D. •Company’s market share in FY18 improved by 2.7% to 50% in passenger vehicle segment. They also achieved leadership position in UV and Vans segment. •Average discount given by the company in Q4FY18 was ~INR 13,880. ANALYST Raghav Garg, [email protected], +91-22-6696 5567 Udit Gajiwala, [email protected], +91-22-6696 5567





II 30th April, 2018

Page 5

Maruti Suzuki Ltd Exhibit 4: Income Statement INR Mn

FY16

FY17

FY18E

FY19E

FY20E

Total Sales

575890.0

680850.0

798094.0

927679.1

1092016.7

Total Raw Materials

386964.0

467422.0

549861.0

640298.1

755088.4

COGS

398183.0

467422.0

549861.0

640298.1

755088.4

EBITDA

88983.0

148517.0

120634.0

143790.3

180182.8

Depreciation

28218.0

26039.0

27598.0

32513.3

36513.3

817.0

894.0

3458.0

1160.0

1331.3

Other Income

15995.0

22896.0

20458.0

18553.6

21840.3

EBT (as reported)

75943.0

144480.0

110036.0

128670.5

164178.5

Tax

20875.0

26162.0

32862.0

36027.8

45970.0

RPAT

54972.0

120046.0

78807.0

95142.8

120708.5

FY16

FY17

FY18E

FY19E

FY20E

1510.0

1510.0

1510.0

1510.0

1510.0

Reserves & Surplus

275977.0

369241.0

424084.0

483165.5

560021.4

Total Share Holders Funds

277487.0

370751.0

425594.0

484675.5

561531.4

Total Loans

3913.0

4836.0

3527.0

4527.0

6027.0

Defered Tax Liability (Net)

4751.0

5058.0

-2521.0

1000.0

-1200.0

Other Long Term Liability

4245.0

11274.0

15859.0

16007.5

18877.2

290540.0

395199.0

442620.0

506208.3

585071.4

Gross Block

298650.0

328037.0

356416.0

406416.0

456416.0

less: Depreciation

168891.0

194930.0

222528.0

255041.3

291554.6

Net Block

129759.0

133107.0

133888.0

151374.7

164861.4

10134.0

12523.0

21321.0

32513.3

36513.3

Investments

183865.0

269962.0

349060.0

361058.1

421032.6

other non-current assets

13646.0

16033.0

18915.0

27830.4

32760.5

Inventories

31998.0

32673.0

31602.0

31576.3

38271.6

Trade Receivable

13873.0

12026.0

14645.0

17791.1

22438.7

768.0

235.0

740.0

450.8

357.3

Loans and Advances

18656.0

22728.0

4145.0

27830.4

32760.5

Total Current Assets

65295.0

83070.0

64272.0

105479.0

126588.6

Other Current Liability

93814.0

96720.0

118331.0

136830.8

155155.1

Provisions

18345.0

22776.0

26505.0

35216.4

41529.9

Total Current Liability

112159.0

119496.0

144836.0

172047.2

196685.0

Net Current Assets

-46864.0

-36426.0

-80564.0

-66568.2

-70096.4

Capital Deployed

290540.0

395199.0

442620.0

506208.3

585071.5

Interest & Finance charges


Exhibit 5 : Balance Sheet INR Mn Share Capital

Capital Employed Application Of Funds

CWIP

Current Assets:

Cash and Bank







II 30th April, 2018

Page 6

Maruti Suzuki Ltd Exhibit 6 : Cash flow statement INR Mn PBT & Extraordinary Depreciation (Inc) / Dec in Working Capital Taxes Cash from Operations Changes in Fixed Assets Others Cash from Investing Proceeds from issue of shares Borrowings (Net) Others Cash from Financing Net Change in Cash Cash at beginning of the year Cash at the end of the year (including bank balances)

FY16 75943.0 24767.0

FY17 144480.0 26039.0

FY18E 110036.0 27598.0

FY19E 128670.5 32513.3

FY20E 164178.5 36513.3

94902.0 -37968.0 -18152.0 -56120.0

136819.0 -29631.0 -41431.0 -71062.0

138710.0 -29387.0 -83844.0 -113231.0

114229.5 -28379.0 -86193.0 -114572.0

155793.9 -50000.0 -31957.3 -81957.3

-13379.0 -9686.0 -23065.0 -6054.0 6486.0 432.0

-2749.0 -20755.0 -23504.0 336.0 432.0 768.0

923.0 -25044.0 -24121.0 -533.0 768.0 235.0

-1309.0 -22324.0 -23633.0 505.0 235.0 740.0

1000.0 -33561.3 -32561.3 -289.2 740.0 450.8


Exhibit 7 : Ratio Analysis INR Profitability(%) EBIDTA margin Net Profit Margin ROCE ROE Gearing Ratio D/E Current Ratio Turnover days Debtor Days Payable Days Per Share Data AEPS BVPS DPS Valuations(x) PE(X) PEG(X) P/BV (x) EV/EBITDA (x) EV/Net Sales (x)

FY16

FY17

FY18E

FY19E

FY20E

15.5% 8.1% 20.9% 19.8%

21.8% 18.0% 31.0% 31.9%

15.1% 10.3% 21.0% 18.1%

15.5% 10.3% 22.0% 19.1%

16.5% 11.1% 24.6% 21.1%

0.0 0.6

0.0 0.7

0.0 0.4

0.0 0.6

0.0 0.6

8.8 86.0

6.4 75.5

6.7 78.5

7.0 78.0

7.5 75.0

182.0 918.8 35.0

397.5 1227.7 56.5

260.9 1409.3 78.0

315.0 1604.9 99.5

399.7 1859.4 121.0

38.1 1.1 6.4 19.9 3.1

14.9 0.1 4.9 12.3 2.7

32.6 -1.0 6.3 22.2 3.4

28.0 1.8 5.5 18.6 2.9

22.1 0.8 4.7 14.8 2.5







II 30th April, 2018

Page 7

Maruti Suzuki Ltd Maruti Suzuki Ltd Date

Rating Legend CMP (INR)

TP (INR)

Recommendation

Our Rating

Upside

30-Apr-18

8779

9593

Accumulate

Buy

More than 15%

25-Jan-18

9277

10162

Accumulate

Accumulate

5% – 15%

30-Oct-17

8112

8945

Accumulate

Hold

0 – 5%

27-July-17

7592

8270

Accumulate

Reduce

-5% – 0

19-May-17

6838

7552

Accumulate

Sell

Less than – 5%

28-April-17

6371

6848

Accumulate

25-Jan-17

5796

6266

Accumulate

28-OCT-16

5859

6247

Accumulate

27-July-16

4472

5220

Accumulate

ANALYST CERTIFICATION: We, Raghav Garg (B.Com, M.Com (Applied Finance)), and Udit Gaijiwala (B.Com), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. 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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that, Raghav Garg (B.Com, M.Com (Applied Finance)), and Udit Gaijiwala (B.Com), research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. It is confirmed that, Raghav Garg (B.Com, M.Com (Applied Finance)), and Udit Gaijiwala (B.Com), research associate, do not serve as an officer, director or employee of the companies mentioned in the report. 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