Maruti Suzuki reported a stellar Q4FY15 with net profit of Rs 12.8 bn (+61% year-on-year), which was 18% above our estimates. The positive surprise was due to 320 bps quarter-on-quarter improvement in Ebitda margin led by a sharp reduction in discounts (+145 bps), favourable currency benefit (+100 bps) and lower royalty and advertisement expenses. We maintain our Buy rating on the stock owing to a strong model launch pipeline followed by improvement in the Ebitda (earnings before interest taxes depreciation and amortisation) margin trajectory. We increase our target price to R4,500 (from R4,300).
Sequential decline in discounts, forex gains boost margin: Maruti Suzuki reported a 61% rise in net profit. Net sales grew by 13% y-o-y while Ebitda grew by 74%. . Ebitda margin improved by 560 bps y-o-y and 320 bps q-o-q. The key reasons for sequential improvement in Ebitda margin are – (i) sequential decline in discounts to R15,000/vehicle in Q4 vs R20,500 in Q3, which led to 145 bps q-o-q improvement in margin, (ii) favo-urable currency benefit on imported content (+100 bps), (iii) decline in royalty cost to sales (+30 bps), (iv) lower advertising expenses (+50 bps) and (v) one-off excise duty payment in Q3, which did not impact Q4 (+70 bps). We believe the key trigger for the stock would be sustaining Ebitda margin at 16% in FY16, which is dependent on keeping discounts at current levels.
Maruti Suzuki guided a 10% y-o-y volume growth in FY16, which it believes would be higher than industry growth rate.
First-time buyer proportions in overall volumes have gone up to 44% in FY15 versus 37% in FY14.
Rural volumes grew by 23% y-o-y in FY15 and formed 34% of total volumes.
The company is focused on increasing its production capacity to 2m units in the next three years, higher than its rated capacity.
Direct plus indirect imports form 16% of net sales in FY15. Further reduction in import content is difficult until electronics are localised in India.
The company’s diesel car volumes grew by 2.8% y-o-y in FY15 against a 6.8% decline for the industry.