Higher Realizations AID Margin Expansion
Maruti Suzuki India Ltd’s (MSIL) Q4 operating performance was inline with expectations with EBITDA margin at 10% (vs. 9.5% in Q3). Profitability has seen an up-tick sequentially on higher realizations (up 2.5% QoQ) and lower employee costs (lower by 35% QoQ due to one-time in Q3). MSIL reported revenues of Rs 9,906 cr (up 20% QoQ & 6% YoY), EBITDA (incl. operating other income) of ~Rs 1,000 cr (up 12% QoQ & dn 9% YoY), and adj. PAT of Rs 660 cr (up 1% QoQ & 17% YoY).
Other highlights
ü MSIL’s Q4 overall realizations at Rs 2.8 lakhs (up 2.5% QoQ) have been aided by improvement of both domestic realizations (up 2.2% QoQ) and export realizations (up 4.4% QoQ), owing to a better sales mix.
ü Maruti has taken ~1% price increase (upto Rs 9,000 across models) in April-11. Additionally, the co. also indicated that levels of discounts are lower currently than FY11 avg. of Rs 10,500/ unit.
ü MSIL has re-started hedging (after Q1 stand of open Yen exposure) on the back of an improving Yen/ Dollar rate. The co. has hedged ~40% of its FY12E exposure. While the avg. rates are lower than FY11 levels of 87/dollar, the recent weakness in Yen is likely to benefit MSIL in the coming quarters.
ü During the qtr, MSIL has changed its policy of amortization of tools (earlier expensed) resulting in higher depreciation charges (by Rs 50 cr) in Q4. On the other hand, MSIL has guided for a 26- 27% tax rate going forward (vs. our est of 30%) due to higher R&D set-off.
Profitability likely to improve. Maintain BUY rating
As per the mgmt guidance, we raise our deprecation est. by 12% but reduce our effective tax rate to 27% for FY12E (from 30% earlier), keeping our estimates intact. Our EBITDA margin for FY12E has been reduced marginally (~10 bps) on higher raw material costs. We believe that profitability for MSIL is near trough and will improve as the co. increases realizations. We maintain our BUY rating on the stock, with a revised TP of Rs 1,594 (8.5x FY12 EV/EBITDA).
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