RESULTS REVIEW 2QFY16

27 OCT 2015

Maruti Suzuki
BUY
INDUSTRY

AUTOS

CMP (as on 27 Oct 2015)

Rs 4,497

Target Price

Rs 4,991

Nifty

8,233

Sensex

27,253

KEY STOCK DATA

Bloomberg/Reuters

MSIL IN/MRTI.BO

No. of Shares (mn)

302

MCap (Rs bn) / ($ mn)

1,358 / 20,905

6m avg traded value (Rs mn)

2,074

STOCK PERFORMANCE (%)

52 Week high / low

Rs 4,763 / 3,106
3M

6M

12M

Absolute (%)

7.6

23.3

41.9

Relative (%)

8.7

23.0

40.0

SHAREHOLDING PATTERN (%)

Promoters

56.21

FIs & Local MFs

14.44

FIIs

22.08

Public & Others

Source : BSE

Navin Matta
navin.matta@hdfcsec.com
+91-22-6171-7322
Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171-7336

7.27

Strong quarter; new launches in ramp-up mode

Maruti Suzuki (MSIL) delivered another solid quarter
with strong operational performance. Gross margin
surprised positively with 50bps QoQ expansion,
despite discount/vehicle rising to Rs 19.5k (vs. Rs 16k
in 1QFY16). However, other expenses saw a 160bps
QoQ rise because of higher marketing spends and
royalty expenses. As a result, EBITDA margin stood at
16.3% (vs. adjusted EBITDA margin of 16.9% in
1QFY16). APAT came in a little below expectations
at Rs 12.2bn (+42% YoY, -4% QoQ) owing to lower
other income and higher tax rate.
MSIL continued to gain market share despite new
launches by competition. With MSILs strong new
product cycle, implementation of the 7th pay
commission and hopes of economic revival, we
expect volume growth to accelerate. We see upside
risks to our and the streets 12-14% volume CAGR
over FY15-18E. We have reduced our FY16E/FY17E
EPS modestly by 3.5%/2.5%, as we cut other income
estimates. However, we raise our TP to Rs 4,991 as
we roll forward to Sept-17E. Maintain BUY.

Highlights of the quarter

Rural growth still ahead: In 1HFY16, MSIL's rural

growth stood at 10% vs. 4% YoY in urban markets.
While it acknowledges the slowdown in rural
markets, the company's focus on expanding its
network to smaller towns and villages is allowing it
to grow at a faster pace.
Baleno high expectations: The company believes
that despite the aggressive pricing of the recently
launched Baleno hatchback, the target customers
are likely be different from those of Swift. MSIL
hopes to achieve leadership in premium hatchback
segment over the medium to long term and is also
upbeat on export volume growth prospects.
Favourable terms for royalty on new models: The
management clarified that models having
meaningful value addition from MSILs R&D efforts
will have lower royalty rate of ~4%. Further,
royalty payments for new models, starting with
the compact SUV, will be denominated in INR,
which will reduce currency risk for MSIL.

Financial Summary
(Rs mn)
Net Sales
EBITDA (adj.)
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

2QFY16 2QFY15
139,337 123,038
22,694 15,208
12,256
8,625
40.6
28.6

YoY (%) 1QFY16 QoQ (%)

FY15
FY16E
FY17E
FY18E
13.2 134,249
3.8 499,707 571,778 674,012 761,355
49.2 22,676
0.1 67,808 94,301 114,949 124,170
42.1 12,714
(3.6) 37,112 55,179 71,845 78,916
42.1
42.1
(3.6)
123
183
238
261
35.9
24.6
18.9
17.2
16.4
12.0
9.6
8.4
16.9
21.5
23.9
22.6

Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

In 2QFY16, despite industry

diesel sales being down 2%
YoY, MSIL clocked 8% YoY
growth on the back of Celerio
diesel and S-Cross launch

Given sluggish demand

trends, MSIL raised discounts
during the quarter
(Rs 19.5k/vehicle from Rs
16k/vehicle in 1QFY16)

Gross margin expansion by

~50bps QoQ was driven by
raw material cost reduction
initiatives and softer
commodity costs. However,
further gains from lower input
cost appear limited

Sharp rise in other expenses

was largely driven by higher
marketing spends related to
new model launch costs, ramp
up costs towards launching
Nexa network and increase in
royalty expenses (5.9% vs
5.3% in 1QFY16)

Quarterly Financials Snapshot: Standalone

(Rs mn)
Volumes (in units)
Net ASP (Rs/veh)
Net Sales
Material Expenses
Employee Expenses
Other Operating Expenses
EBITDA
Interest Cost
Depreciation
Other Income
PBT
Tax
APAT
E/o (adj for tax)
RPAT

2QFY16
3,53,335
3,84,749
1,39,337
93,124
4,180
19,339
22,694
178
6,694
1,371
17,193
4,937
12,256
12,256

2QFY15
3,21,898
3,72,675
1,23,038
87,749
3,698
16,383
15,208
348
5,989
1,933
10,805
2,179
8,625
8,625

YoY (%)
9.8
3.2
13.2
6.1
13.0
18.0
49.2
(48.9)
11.8
(29.0)
59.1
126.6
42.1
42.1

2QFY16
66.8
3.0
13.9
16.3
28.7
8.8

2QFY15
71.3
3.0
13.3
12.4
20.2
7.0

YoY (%)
(448.5)
(0.6)
56.4
392.6
854.8
178.5

1QFY16
3,41,329
3,83,159
1,34,249
90,448
4,631
16,494
22,676
190
6,716
1,720
17,490
4,776
12,714
(785)
11,929

QoQ (%)
3.5
0.4
3.8
3.0
(9.7)
17.2
0.1
(6.6)
(0.3)
(20.3)
(1.7)
3.4
(3.6)
2.7

Source: Company, HDFC sec Inst Research

Margin Analysis: Standalone

Material Expenses % Net Sales
Employee Expenses % Net Sales
Other Expenses % Net Sales
EBITDA Margin (%)
Tax Rate (%)
APAT Margin (%)

1QFY16
67.4
3.4
12.3
16.9
27.3
9.5

QoQ (bps)
(53.9)
(44.9)
159.3
(60.4)
141.0
(67.5)

Source: Company, HDFC sec Inst Research

Page | 2

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

With a strong new product

cycle, we expect 12% CAGR
in MSILs volumes over
FY15-18E
Higher-than-anticipated
demand in FY17 may stretch
MSIL on the supply side

Volume Assumptions
(in units)
Domestic Petrol
% YoY
Domestic Diesel
% YoY
Domestic LCV
% YoY
Domestic sales
% YoY
Export sales
% YoY
Total sales
% YoY

FY14
721,925
9.7
331,764
-15.6
-

FY15
828,187
14.7
342,516
3.2
-

FY16E
894,442
8.0
411,020
20.0
-

FY17E
1,012,508
13.2
464,452
13.0
25,000

1,053,689
0.3
101,352
-15.8
1,155,041
-1.4

1,170,703
11.1
121,713
20.1
1,292,416
11.9

1,305,462
11.5
127,799
5.0
1,433,260
10.9

1,501,960
15.1
143,134
12.0
1,645,095
14.8

FY18E
1,113,759
10.0
496,964
7.0
28,750
15.0
1,639,473
9.2
161,742
13.0
1,801,215
9.5

FY14
325,727
0.5
405,765
7.3

FY15
335,969
3.1
376,763
(7.1)

FY16E
347,971
3.6
389,950
3.5

FY17E
359,024
3.2
405,548
4.0

FY18E
370,515
3.2
421,770
4.0

Source: Company, HDFC sec Inst Research

Net Realisations
(Rs/vehicle)
Dom vehicle ASP
% YoY
Exports ASP
% YoY
Source: Company, HDFC sec Inst Research

Change In Estimates
(Rs mn)

Despite raising our EBITDA

margin estimates, our
FY16E/FY17E EPS has been
lowered modestly, as we cut
our other income estimates

Net Sales
EBITDA
Adj PAT
Adj EPS (in Rs)

New
FY16E
571,778
94,301
55,179
182.7

FY17E
674,012
114,949
71,845
237.8

Old
FY16E
572,876
89,516
57,164
189.2

FY17E
680,472
111,441
73,652
243.8

% chg
FY16E
(0.2)
5.3
(3.5)
(3.5)

FY17E
(0.9)
3.1
(2.5)
(2.5)

Source: HDFC sec Inst Research

Page | 3

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

Net ASP ( % YoY) - RHS

3.0

18.0

2.0

16.0

1.0

14.0

12.0

(1.0)

10.0

(2.0)

8.0

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

(10.0)

20.0

21.5

19.4

20.5

19.5

17.5
16.0

15.1

Source: Company, HDFC sec Inst Research

Source: Company, HDFC sec Inst Research

MSILs Diesel Mix Rose During The Quarter

EBITDA Margin Maintained Healthy Trend

Petrol

Diesel

EBITDA/vehicle (Rs)

100%
80%

30

32

32

32

28

28

28

2QFY16

(5.0)

4.0

21.0

1QFY16

22.0

4QFY15

5.0

5.0

3QFY15

10.0

24.0

2QFY15

15.0

Discount/vehicle (Rs in '000)

6.0

4QFY14

20.0

3QFY14

Volume (% YoY)

Discounts Rose Due To Sluggish Demand

1QFY15

Volume Growth Moderated Due To High Base

EBITDA margin - RHS

70,000

18.0%

60,000

16.0%

31

60%

50,000

40%

40,000

14.0%
12.0%

20%

Source: Company, HDFC sec Inst Research

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

0%

10.0%

30,000

8.0%

20,000

6.0%

2QFY16

69

1QFY16

72

4QFY15

72

3QFY15

72

2QFY15

68

1QFY15

68

4QFY14

68

3QFY14

70

Source: Company, HDFC sec Inst Research

Page | 4

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

MSILs PV Market Share Continues To Improve

PV Industry Mix Reflects Premiumisation Trend

49.0%

44.0

44.2

44.0%

45.2

44.9

43.0%

80%

23

21

21

20

20

60%

8
17

6
17

8
15

9
16

8
17

6
17

40%

18

19

21

20

22

23

30

28

28

28

27

27

20%

41.0%

0%
2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

40.0%

Source: SIAM, HDFC sec Inst Research

Source: SIAM, HDFC sec Inst Research

JPY/INR Trend Turned Slightly Adverse

One-year Forward P/E Chart

P/E

Avg P/E

+ 1 SD

- 1 SD

26
0.54 0.52 0.52 0.53

24

0.50

22

0.40

20

0.30

18
16

0.20

Source: Bloomberg, HDFC sec Inst Research

Oct-15

Mar-15

Aug-14

Jan-14

Nov-12

Jul-10

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

10
2QFY14

12

Apr-12

14

0.10

Sep-11

0.60

0.63 0.62
0.60 0.59 0.58

Feb-11

0.70

Jun-13

42.0%

42.8

2QFY16

45.0%

21

1QFY16

46.0%

100%

4QFY15

47.7

45.9

3QFY15

46.8

47.0%

Entry-Sedans
MPV

2QFY15

48.0%

Premium Hatch
UV

1QFY15

Compact
Mid-size

Source: Company, Bloomberg, HDFC sec Inst Research

Page | 5

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

Peer Valuations

Ashok Leyland
Bajaj Auto
Eicher Motors
Hero Motocorp
M&M
Maruti Suzuki
Tata Motors
SML Isuzu

CMP
(Rs/sh)
93
2,582
17,660
2,620
1,250
4,497
383
1,365

Mcap
(Rs bn)
264
747
479
523
738
1,358
1,301
20

TP

Rating

94
2,720
20,470
2,836
1,400
4,991
445
1,181

NEU
NEU
NEU
BUY
NEU
BUY
BUY
NEU

Adj EPS (Rs/sh)

FY15 FY16E FY17E
0.8
3.7
5.2
110.7 132.2 149.3
227.0 384.3 618.9
126.2 160.8 177.6
47.6
64.9
75.9
122.9 182.7 237.8
45.0
39.2
53.3
25.5
53.6
65.5

FY15
113.1
23.3
77.8
20.8
17.6
36.6
8.5
53.5

P/E (x)
FY16E
24.8
19.5
46.0
16.3
12.9
24.6
9.8
25.4

FY17E
17.7
17.3
28.5
14.7
11.0
18.9
7.2
20.8

EV/EBITDA (x)
FY15 FY16E FY17E
27.9
13.0
10.0
15.9
13.0
11.2
41.7
25.0
15.3
14.2
11.4
10.1
10.6
8.2
6.8
19.7
13.9
11.0
4.4
4.0
3.3
27.5
15.9
13.0

FY15
4.9
27.7
26.9
36.2
16.6
16.9
23.8
14.1

RoE (%)
FY16E FY17E
19.7
24.7
33.1
32.3
36.0
42.8
40.8
38.0
19.4
19.7
21.5
23.9
19.9
21.0
23.6
24.6

Source : Company, HDFC sec Inst Research

Page | 6

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

Income Statement (Standalone)

Balance Sheet (Standalone)

(Rs mn)
Net Sales
Growth (%)
Material Expenses
Employee Expenses
SG&A Expenses
Other Operating Expenses
EBIDTA
EBIDTA (%)
EBIDTA Growth (%)
Other Income
Depreciation
EBIT
Interest
PBT
Tax
Adj PAT
APAT Growth (%)
EO items (net of tax)
Reported PAT
Adj EPS
Adj EPS Growth (%)

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders' Funds
Long-term Debt
Short-term Debt
Total Debt
Deferred Taxes
Long-term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments, LT Loans &
Advances
Inventories
Debtors
Cash
ST Loans & Advances, Others
Total Current Assets
Creditors
Other Current Liabilities &
Provisions
Total Current Liabilities
Net Current Assets
Misc Expenses & Others
TOTAL APPLICATION OF
FUNDS

FY14
FY15E
FY16E
FY17E
FY18E
437,918 499,707 571,778 674,012 761,355
0.1
14.0
14.5
18.1
13.0
313,488 350,771 383,663 450,914 521,528
13,681 16,066 19,440 22,550 23,903
21,181 23,577 27,081 31,212 33,559
37,697 41,485 47,293 54,387 58,194
51,871 67,808 94,301 114,949 124,170
11.8%
13.6%
16.5%
17.1%
16.3%
21.3
30.7
39.1
21.9
8.0
7,317
8,316
7,583 10,675 12,260
20,844 24,703 26,544 28,073 29,322
38,344 51,420 75,340 97,552 107,108
1,759
2,060
773
464
464
36,585 49,360 74,566 97,088 106,644
8,755 11,570 19,387 25,243 27,727
27,830 37,790 55,179 71,845 78,916
16.3
35.8
46.0
30.2
9.8
27,830 37,790 55,179 71,845 78,916
92
123
183
238
261
16.3
33.4
48.7
30.2
9.8

Source: Company, HDFC sec Inst Research

FY14

FY15E

FY16E

FY17E

FY18E

1,510
1,510
1,510
1,510
1,510
208,270 235,532 274,571 322,880 372,452
209,780 237,042 276,082 324,390 373,962
18,239
5,156
5,156
5,156
5,156
18,239
5,156
5,156
5,156
5,156
5,866
4,809
4,809
4,809
4,809
233,885 247,008 286,047 334,355 383,927
107,904 122,593 131,589 134,056 133,273
30,689 23,540 23,540 23,540 23,540
101,179 128,140 146,140 197,140 258,140
17,059
14,137
6,297
28,093
65,586
56,429

26,150
10,698
183
24,206
61,237
62,557

28,197
15,665
4,514
32,786
81,162
62,791

33,239 37,546
18,466 20,859
5,825
5,077
38,398 39,458
95,928 102,941
73,521 83,794

15,043

25,945

33,592

42,787

50,172

71,472 88,502 96,383 116,308 133,966

(5,886) (27,265) (15,221) (20,380) (31,026)
233,885 247,008 286,047 334,355 383,927

Source: Company, HDFC sec Inst Research

Page | 7

MARUTI SUZUKI : RESULTS REVIEW 2QFY16

Cash Flow (Standalone)

(Rs mn)
Reported PAT
Non-operating & EO items
PAT from Operations
Interest expenses
Depreciation
Working Capital Change
Other Operating Items
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
INVESTING CASH FLOW ( b )
Debt Issuance
Interest expenses
FCFE
Share capital Issuance
Dividend
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
Non-operating and EO items
Closing Cash & Equivalents

Key Ratios (Standalone)

FY14
27,830
(402)
28,232
1,759
20,844
15,068
1,779
67,682
(37,086)
30,596
(30,396)
(67,482)
4,347
(1,759)
34,943
(4,241)
(1,653)
(1,453)
6,297

Source: Company, HDFC sec Inst Research

FY15E
37,112
760
36,352
2,060
24,703
15,265
(1,057)
77,323
(32,243)
45,080
(26,961)
(59,204)
(13,083)
(2,060)
31,997
(9,090)
(24,233)
(6,114)
183

FY16E
55,179
(0)
55,179
773
26,544
(7,713)
74,784
(35,540)
39,244
(18,000)
(53,540)
(773)
39,244
(16,140)
(16,913)
4,331
4,514

FY17E
71,845
0
71,845
464
28,073
6,470
106,852
(30,540)
76,312
(51,000)
(81,540)
(464)
76,312
(23,536)
(24,000)
1,312
5,825

FY18E
78,916
(0)
78,916
464
29,322
9,898
118,600
(28,540)
90,060
(61,000)
(89,540)
(464)
90,060
(29,344)
(29,808)
(748)
5,077

PROFITABILITY (%)
GPM
EBITDA Margin
APAT Margin
RoE
RoIC
RoCE
EFFICIENCY
Tax Rate (%)
Asset Turnover (x)
Inventory (days)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)

FY14

FY15E

FY16E

FY17E

FY18E

28.4
11.8
6.4
14.1
17.7
13.6

29.8
13.6
7.6
16.9
15.6
16.7

32.9
16.5
9.7
21.5
21.8
21.3

33.1
17.1
10.7
23.9
28.4
23.6

31.5
16.3
10.4
22.6
32.3
22.4

23.9
1.9
14.2
11.8
47.0
(21.0)
0.4
(0.4)
21.8

23.4
2.0
19.1
7.8
45.7
(18.8)
0.1
(0.1)
25.0

26.0
2.0
18.0
10.0
40.1
(12.1)
0.1
(0.2)
97.4

26.0
2.0
18.0
10.0
39.8
(11.8)
0.0
(0.3)
210.2

26.0
2.0
18.0
10.0
40.2
(12.2)
0.0
(0.4)
230.8

92
161
12
694

125
205
25
785

183
271
46
914

238
331
67
1,074

261
358
84
1,238

48.8
6.5
20.2
5.3
2.4
2.6
0.3

35.9
5.7
16.4
5.8
3.4
2.4
0.6

24.6
4.9
12.0
5.7
3.0
2.9
1.0

18.9
4.2
9.6
8.5
6.1
5.6
1.5

17.2
3.6
8.4
9.9
7.5
6.6
1.9

Source: Company, HDFC sec Inst Research

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MARUTI SUZUKI : RESULTS REVIEW 2QFY16

RECOMMENDATION HISTORY
Maruti

Date
31-Oct-14
28-Jan-15
28-Apr-15
29-Jul-15
27-Oct-15

TP

5,500
5,000
4,500

CMP
3,240
3,688
3,648
4,274
4,497

Reco
NEU
NEU
BUY
BUY
BUY

Target
3,376
3,816
4,267
4,802
4,991

4,000
3,500
3,000
Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

2,500

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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MARUTI SUZUKI : RESULTS REVIEW 2QFY16

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