Maruti Suzuki India Ltd. share price target

At the Fag-End of Weak Business Cycle -Maintain BUY: During Q4FY19, MSIL sales grew by 1.4% YoY to Rs214.6bn (below ourestimates Rs235 bn). Its EBITDA margins declined by 370bps to 10.5% (belowour estimates of 12.5%).

Our channel checks indicate near-term demand concerns due to tight liquidity conditions for business community and increasing vehicle prices. The volume performance is expected to gradually improve after elections, and single-digit growth likely in FY20. Dealer inventory days have increased to 45-50 days, in comparison with normal levels of 20-30 days, and is expected to reduce in the coming months due to lower offtake from OEMs and sequential demand improvement due to the marriage/festive season. However, MSIL is expected to sustain market share over next 1-2 years due to new products, network expansion, and shifting customer preferences toward petrol vehicles....

We set a revised PT of Rs.7,350 based on 22x PE (on FY21 EPS). The Toyota Suzuki - Maruti relationship has moved a step further with the two Japanese OEMs announcing joint development initiatives both in India and for global markets. We expect the synergies from this relationship to be visible over the medium term. While Maruti will gain access to hybrid technology, which will ensure their continued market dominance, they will now be sharing one fourth of their portfolio by volumes with Toyota. We re-iterate our BUY on Maruti as we believe that it is well positioned to benefit from the transition post the introduction of BSVI in Apr20.

ICICI Securities Ltd | Retail Equity Research The demand situation in the domestic auto space has got aggravated post the recent muted festive season (Dussehra, Diwali 2018) with inventory levels in the system showing no signs of abatement. Consumer sentiment is muted primarily tracking higher penetration of connected mobility (ride sharing), higher insurance costs incidence, etc. As per recent FADA release, total passenger vehicles retail sales domestically are down 8.25% YoY in February 2019 with inventory in this segment at 50-60 days vs. the...

4 February 2019 that demand in 2HCY18 was impacted by a confluence of factors like higher fuel prices, higher interest rates, insurance cost increase and the lack of major new product launches. A comparison with other consumer discretionary items like paints and adhesives where volumes have been sustainably strong suggests that the recent weakness in passenger vehicle (PV) demand was largely a function of financing issues. In our view, correction in fuel prices, resolution of liquidity issues and upcoming new product launches are likely to drive a recovery in PV demand over the next few months. reasons for MSILs weak volumes in 2HCY18 was the lack of new product launches in CY18 and the benefit of the strong Baleno and Brezza order book already being realized in 1HCY18. We believe that the operating performance has bottomed out in 3QFY19, and expect a gradual recovery from 4QFY19 and a revival in the EBITDA margin to 14% level by 2HFY20.

Near Term Challenges Remains - Maintain SELL: MSIL stock has declined by ~ 34% over the last 12 months on account ofvolumes slackness followed by reporting single digit EBITDA margin duringQ3FY19 (lowest in last 24 quarters).

Flat Volume sales on domestic front and substantial volume decline in exports Domestic volume growth stood at 1.3% on a YoY basis at 405,597 units in Q3FY19 as against 400,586 units in Q3FY18. Exports stood at 23,046 units in Q3FY19 as against 30,526 units in Q3FY18, a decline of 24.5% YoY. Overall volumes (domestic + exports)...

The results of this quarter have to be viewed in the context of particularly weak market conditions. While SIAM had forecasted a passenger vehicle domestic market growth of 8~10% for the year, Industry could grow by 4.4% in the first 3 quarters of the year and declined in the third quarter by 0.8%. The Company grew by 7.2% in the first three quarters and by 0.4% in the third quarter in unit wholesales. In addition, the Company helped dealers retail about 90,000 vehicles in excess of wholesale to keep dealer inventories lean as the festive season sales growth was below expectation. Passenger vehicle exports from India also declined by 8.5% owing to weakness in global...

MSIL Q3FY19 results were below our and consensus estimates at operating level. EBITDA margin significantly declined to 9.8% vs our and consensus estimates of 14% and 13.7% respectively. Margins were majorly impacted on account of higher commodity prices, foreign exchange fluctuations, higher discounts and higher operating cost. Adj. PAT for the quarter stood at Rs14.8bn, significantly below our and consensus estimates of Rs17.6bn and Rs17.3bn respectively. Key Highlights and Investment Rationale Operationally weak quarter: Net Revenues declined 0.1% YoY/12.2% QoQ Rs189.2bn...

ICICI Securities Ltd | Retail Equity Research Maruti Suzuki (MSIL) reported a dismal Q3FY19 performance Total operating income in Q3FY19 was at | 19,668 crore, up 2.0% YoY. ASP for the quarter came in at | 4.42 lakh/unit, up 0.5% YoY. However, discounting was aggressive at | 24,300/unit, up 30% QoQ Volumes for Q3FY19 were at 428,643 units, down 0.6% YoY. Of this, domestic volumes grew 1.3% YoY to 405,597 units while exports were down 25.0% YoY to 23,046 units. MSIL had to push extra...