Our 'buy' rating reflects a) marketshare gains (130 bps by FY17e) due to its dominance of entry-level cars and b) ebitda margin expansion of 180 bps to 13.5% by FY17e on a reduction in discounts, currently at 8-10% for entry-level cars. We raise our FY15e/16e EPS by 5-7% to R136/165. Despite 15% year-to-date outperformance versus Sensex, it trades at P/E of 14.5x FY16e in line with the long-term average.
A blue-sky scenario suggests a potential stock price level of R3,750 over the next two years. We estimate industry growth (FY14-17e) at 14.5% per annum. Our current forecasts imply a deceleration in the long-term growth rate (5-yr CAGR) to 7.5% by FY17e versus 10% in FY14. If we assume growth to revert closer to the trend rate of 12% by FY17e, it would imply volume growth of 22% p.a. over the next three years. If MSIL were to maintain its current marketshare (42%), its FY17e volumes would stand at 2 million compared to our forecast of 1.75 million, resulting in a blue-sky FY17e EPS of R234.