June 8, 2013 1:44:28 am
We remain overweight on Maruti with a target price of R1,925. The management has highlighted its cautious stance on the coming quarter volumes and discounts. It maintains a 5-6% FY14 volume target with a weak H1FY14 and a better second half.
The management said demand remains weak,but Maruti is gaining share,which is reflective of a strong franchise. Industry sales were down 9% for April-May FY14,while Marutis sales were down only 6%. Retail numbers are much slower than wholesale numbers. Consequently,inventory has been building up and will continue to remain elevated until the festive season.
The company has set a target of R3,000-crore capex in FY14 and capacity addition plans are on track to achieve 13-14% CAGR industry growth over next 10 years. The company has maintained one model a year target; thus,we should see a new model in FY14. The management did not share any details on which segment the product will be or timeline,but we believe it will see something in the SUV/crossover space and will showcase it at Auto Expo 2014 and launch in Q4FY14.
Diesel demand for the last couple of years was overdone and the company expects it to settle to around 50% of industry vs 55-57% now. The share of petrol is slowly rising. The typical diesel buyer is delaying decisions,while petrol buyers are warming up. Rural (28% of sales) continues to do well at double-digit growth. Appreciation in Japanese Yen in the past few years knocked out 700 bps from Ebitda margins. Marutis localization efforts are now starting to yield results.
Morgan Stanley
