SML Isuzu Ltd. share price target

SML reported strong results for 2QFY17, although moderately below our and consensus expectations. Topline stood at Rs 3bn ( 13.5%), volume growth of 13% YoY was offset by muted net ASPs on lower bus mix (45% of total volume). EBITDA margin came in at 5.9% ( 121bps YoY) as product mix saw a significant shift towards the lower-margin cargo segment.

SML posted revenue of Rs. 4632Mn in Q1FY17 up by 45.6% QoQ and 20.9% YoY driven by volume movement of 39.6% QoQ/28.4% YoY and slight uptick in realizations due to product mix towards the MHCVs. EBITDA margins improved by 470bps QoQ to 13.2% from 8.5% during Q4FY16 on account of raw material price cuts and reduction in operating expenses. PAT grew by 146.7% QoQ/41.5% YoY having PAT margin of 8.9% in Q1FY17 from 5.2% in Q4FY16. The overall commercial vehicle industry grew by 12.9% YoY during Q1FY17 where M&HCV passenger and goods segment surged by 1.52% and 17.52% respectively, and LCV passenger and goods segment improved by 11.7% and 11.9 % respectively.

SML posted revenue of Rs. 3181 Mn in Q4FY16 up by 63.8% QoQ and (1.1)% YoY driven by volume movement of 49.5% QoQ and (0.6)% YoY. During FY16, revenue grew by 5.3% driven by volume growth of 8.0% from 11759 vehicles in FY15 to 12700 vehicles in FY16. However, owing to severe competition from players like Eicher and TATA motors in the commercial passenger vehicle segment, there had been pricing cuts to keep their market share afloat. Also, during last fiscal, the company followed the new bus code standard which led to increase in costs.

SML Isuzu Limited (SMLI) is engaged in the business of manufacturing Light commercial vehicles. The company manufactures buses, trucks and other customized vehicles like Ambulances, Prison van, Refrigerated van, etc. SML Isuzu is mainly concentrated in 5 to 12 tonnes GVW segment.

SML Isuzus (SML) 3QFY16 performance was weaker than expected. Excluding the impact of sharp accretion in factory inventory levels QoQ, which aided in absorption of manufacturing overheads, SML would have reported an EBITDA loss. Net sales declined 8% YoY as volume growth of 9% YoY was offset by a sharp decline in net ASPs.

SML Isuzus (SML) 2QFY16 operating performance was below expectations, with EBITDA coming in at Rs 125mn ( 63% YoY/-71% QoQ). SML reported 210/70bps YoY/QoQ contraction in gross margins as its product mix saw a significant shift towards the lower-margin cargo segment.

As the industry enters the growth phase, SML is well planned to increase its sales momentum. New capex investment of Rs.2200 Mn is expected to be deployed in the next two years i.e. by 2017, exclusively for product and research development.

SML Isuzu Ltd. is a concentrate CV- passenger carrier manufacturer with passenger carrier (including LCV) segment contributing 64% of its total volumes. In the passenger carrier...