Motilal Oswal is bullish on Maruti Suzuki India (MSIL) and has recommended buy rating on the stock with a target of Rs 1418 in its September 5, 2011 research report.
“MSIL's focus is on widening its sales and service network, its key strength. In FY11 it added 191 sales outlets, totaling 993 outlets in 668 cities. It increased service outlets by 206 to 2,946 outlets in 1,395 cities. Over the past four years rural sales contribution increased, contributing ~20% to domestic sales. About 40% of MSIL's sales outlets are in the rural format, with scaled-down investment, enabling viability on lower volumes. To cut exposure to the yen, MSIL increased focus on localization of imported components. MSIL has a three-year roadmap beginning FY13 to cut vendor imports 600-700bp from 14-15% of revenue. MSIL is considering opportunities from FTAs and other arrangements for source substitution of imported technologically complex items.”
“Sales have risen of vehicles powered by alternative fuels due to rising petrol prices. The proportion of diesel (volumes) increased from 60% to 80% among available models (~20% of total volumes). MSIL will increase its diesel-engine capacity (in the SPV Suzuki Powertrain) from 0.25m to 0.29m units by September 2011. It is focusing on promoting CNG cars based on its superior i-GPI CNG technology. Based on its positive volume outlook, MSIL is expanding capacity at Manesar. A second line of 0.25m units has started operations in September 2011 and a third line of 0.25m units will start by September 2012, taking total capacity to 1.9m units. Due to a possible increase in small-car exports and the need to cut risks of production disruption, MSIL plans to set up a 1m-unit capacity plant in Gujarat. It has broad-based exports to dilute the impact of a slowdown in the EU exports.”
“We are downgrading consolidated EPS 7.5% for FY12 and FY13 to INR79.1 and INR93.8 respectively, as we lower FY12 volume estimates to 1.27m units (flat) and estimate EBITDA margin decline of 20bp to 9.3%. The stock trades at 11.6x FY13E consolidated EPS and 7.7x FY13E consolidated EPS. Maintain Buy with a target price of INR 1418 (~10x FY13E consolidated EPS),” says Motilal Oswal research report.
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