Going forward, we expect sales and PAT to grow at a CAGR of 2.9% & 1.9%, respectively, over FY19-21E. We believe BS-VI rollout would have a lower cost impact on PV segment (especially petrol) and MSIL as the industry bellwether would drive volume growth here. However, valuations remain stretched compared to historical precedents for muted growth periods. Thus, we retain our cautious stance with a REDUCE rating, valuing MSIL at | 6,420 i.e. 25x P/E on FY21E EPS of Rs 258/share.
We have increased our other income estimate to match with the performance in 2HFY20 and we have considered a 23.5% tax rate for our estimated period as per management’s guidance. This results in a PAT growth of 7.1% CAGR for FY19-22E. The stock is trading at 27x our Sept 2021 EPS, which is expensive. We upgrade our target multiple from 18x, which was at a discount, to its historical average of 21x mainly as we believe that after five quarters of volume decline we could see low single digit growth for the rest of the forecasted period. Thus, we arrive at our target price of Rs5,846 based on 21x Sept 2021 EPS. We maintain our Sell rating.
We remain positive on the MSIL’s medium term growth prospects given the low 4W penetration in India and MSIL’s competitive advantages like strong brand and distribution network with 2800+ distribution centers and seven blockbuster models, MSIL currently dominates the Indian car market. We do not see any major threat to its product portfolio and its product pricing. MSIL is expected to possess ~Rs457bn cash on its balance sheet byFY21E. We, however believe, current valuations (PE of 28.7xFY21E earnings) are highly expensive. We maintain the target PER multiple to 26xFY21E (in line with its five year 12M forward average PE) and retain our SELL rating on the stock with a revised price target of Rs6706 (PER of 26xFY21E earnings).
Demand recovery unlikely in near term; Retain Hold: PV industry has been under pressure on the back of slowing economic growth and steep increase in cost of ownership. The industry demand is unlikely to improve in the near term and we expect muted volumes over the next two to three quarters. We have retained our earnings estimates for FY2021. Recent run up in the stock price (12% in past one month) is led by probability of personal income tax cut. However given muted earnings CAGR of 2% over FY2019-2021 period, we maintain Hold rating on the stock with revised PT of Rs 7,500. Stock is already trading at rich valuations of 29xFY21 earnings leaving limited scope of upside from current levels.
With positive demand outlook and controlled inventory levels (even for BS4 vehicles) we believe MSIL is well placed amongst OEMs in light of, a) structural shift towards Petrol cars especially in lower CC segments and, b) with ~78% of its portfolio is skewed to Petrol making it less prone to cost increase challenges in BS6. We believe, well spread out monsoon would too auger well with rural sales accounting for ~39%. Consequently, we maintain Buy rating on the stock with revised price target of Rs7,809 (from Rs7,336). We value the stock at 24x Sep-21E EPS.
Domestic volumes decline ~34% YoY; exports decline ~11% YoY. MSIL’s Aug’19 wholesales were below est.at 106.4k units (~-33%YoY). Domestic volumes declined ~34%YoY to 97kunits(v/sest.100.8kunits). Compact segment volumes remained weak; volumes declined~21%YoY to ~56.6k units (v/s est. 60k units) despite addition of Wagon-R to this segment from Apr’19. UV volumes grew 3%YoY to ~18.5k. Export volumes were above est.at~9.4kunits(-11%YoY). Based on volume decline estimate of ~7% in FY20, implied residual run-rate is ~158.9k units or ~6% residual growth. Our FY20 estimates are at risk of further cut if volume recovery isn’t sharp during the upcoming festive season. The stock trades at 26.9x/21.3xFY20E/FY21E earnings. Maintain Buy.
Due to the existing demand slump in the automobile industry, high cost of vehicleownership and uncertain macroeconomic factors, there was a dip in the company’sperformance. However, we expect the situation to improve by FY21 owing to new launches, better economic conditions and thereby forecast net profit to grow at CAGR of 6.0% to Rs. 8,400cr by FY21. We cautiously revise our rating downwards to Hold with a target price of Rs. 6,400 at 23x FY21 adj. EPS.
During the last four quarters, the company’s volume growth has remained subdued mainly due to overall slowdown in economy, which affected the buying sentiment. However, we believe that any revival in auto industry would benefit Maruti on the back of its leadership position, diversified portfolio and strong brand & distribution network. Considering the above factors, we maintain our Buy recommendation on MSIL with Target Price of 7,783.
Outlook and valuation: MSIL posted a dismal performance in Q1 as volumes and margins both witnessed deceleration. Volumes were impacted by macros and high base, while margins were impacted by low operating leverage, higher inventory and competition. We maintain our BUY as we believe MSIL to be the proxy to any recovery in demand hereon. Also MSIL remains well positioned to benefit from the transition to BSVI given its higher share of petrol variants. On margins front, higher local content, control on discounts, lower RM costs and operating leverage at Gujarat plant will provide a positive impact over Q1 levels. In line with subdued Q1 numbers and expectations of a lack luster FY20, we have reduced our volume and margin estimates. Maintain BUY with a reduced target of ₹6,200, valuing at 22x FY21E (currently trading at 19.7x FY21E earnings) earnings of ₹282.
Not out of the woods yet, growth still a mirage.. Going forward, we expect sales and PAT to grow at a CAGR of 5.1% & 0.4%, respectively, in FY19-21E. We build in 1.3% volume CAGR and EBITDA margin trajectory of 11-12% over FY19-21E. We value MSIL at | 5,000 i.e. 20x P/E on FY21E EPS of | 250 with a REDUCE rating on the stock. We do not deny the underlying opportunity presented by underpenetrated 4-W market domestically. However, we will await valuations to correct amid muted growth prospects in the near term before any meaningful change in our stance. On the B/S front, MSIL remains a cash rich company (cash & cash equivalents>20% of MCap) with healthy ~15% return ratios.
We cut our FY20/21 consol. EPS estimate by ~5% to factor in our forecast of lower volumes and higher depreciation. Valuations at 25.6x/20.2x FY20/21E consol. EPS are on downcycle earnings, where EPS CAGR is estimated at just ~4% over FY17-21. While near-term demand headwinds persist, MSIL is best placed in the entire OEM space to tackle them, particularly with regard to BS6 transition due to limited price inflation in ~80% of its portfolio. MSIL is likely to recover the fastest once current headwinds recede due to its strong product portfolio, increased localization, reducing FX exposure and capex-light business. Maintain Buy.
Muted earnings expected in remainder 9MFY2019; Retain Hold: MSIL’s management indicated there are no signs of revival in the PV industry’s demand as consumer sentiment continues to remain weak. Increased cost pressures and operating deleverage would continue to exert margin pressure. Earnings are expected to remain flat in remainder of 9MFY2019. Given the steep drop in PV demand in Q1FY2019 and no scope of volume revival, we have cut our FY2020 and FY2021 earnings estimates by 10% and 18%, respectively. We retain Hold rating on the stock with a revised PT of Rs. 6,075.
Inline Performance, ripe for comeback Maruti’s 1QFY20 results were broadly in line with our estimates, as lowerthan-expected EBIDTA margin at 10.4% (vs estimate of 11%) was offset by an increase in ASP. While MSIL’s net profit fell by 27% YoY in 1QFY20, but we still retain our faith in the company, given its dealership strength and strong product portfolio. We expect reduction in interest rate, pick-up in rural volume, and festive season to revive demand from 2HFY20. The company also bring down dealer inventory to comfortable four weeks. We lower our EPS estimate by 3/4% for FY20E/21E, factoring in slower-thanexpected ramp up in volume. We forecast a 10% EPS CAGR over FY19-21E, driven by a 3% volume growth and 110bps margin expansion. Given the company’s strong rural presence (39% of volume) and a healthy ROE/ROCE (17% each), with FCF of 180bn in FY19-21E (9% of current EV), we maintain Accumulate, with a lower TP of 6692 (based on 22x FY21E EPS).
We estimate volumes to be flat and EBITDA margins to be at 11.6% (-100bp YoY). The benefit of sofetening RM price and forex benefit to be partially offset by higher spends in run up to BS6. We believe, well spread out monsoon would be a single major force in escalating buying sentiments. We value the stock at 23x Mar21E EPS (15% discount to 5 year LPA). We continue to maintain our BUY rating with a target price of Rs6,842.
Higher credit costs, revised growth assumptions and lower fee income will have a bearing on the bank’s medium-term earnings and valuations, even as they are positive for sustainability of earnings over the longer term. Trimming our earnings estimates by 42%/37% for FY20E/FY21E to factor in lower balance sheet growth, weaker other income and higher provisioning, we revise our recommendation on the stock to HOLD from BUY with a revised Target Price of Rs220 (from Rs 290 earlier), based on 1.7x FY21E adjusted PB. We have factored in a capital raise of Rs50bn in FY20 at Rs220.
We expect MSIL to report net revenue CAGR of ~12% to ~`1,07,023cr over FY2019-21E mainly due to new launches and upcoming facelift in various models. Further, on the bottom-line front, we expect CAGR of ~13% to Rs 9,697cr over the same period on the back of healthy sales and improvement in operating margin (due to ramp-up of Gujarat plant over next 6-12 months, royalty rate reduction on the back of volume growth and cost reduction efforts). Thus, we maintain our Buy recommendation on MSIL with Target Price of Rs 8,552.
Going forward, we expect sales and PAT to grow at a CAGR of 9.3% & 8.2%, respectively, in FY19-21E. We build in 5.7% volume CAGR and EBITDA margin trajectory of 12.5-13% over FY19-21E. We value MSIL at | 5815 i.e. 20x P/E (in line with long term averages) on FY21E EPS of | 290.7 and assign a SELL rating on the stock. We do not deny the underlying opportunity presented by underpenetrated 4-W market domestically. However, we will wait for valuations to correct amid muted growth prospects in the near term before any meaningful change in our stance. On the B/S front, MSIL remains a cash rich company with healthy ~15% return ratios.
We have cut our FY20/21 consol. EPS by 2.5%/4% as we have trimmed our volume estimates by 2%/4%. Margin estimates have been cut by 60bp each in FY20/21, but we increase our other income estimate. The stock trades at 24.9x/20.6x FY20E/21E consol. EPS. Maintain Buy with a TP of INR8,047 (23x June’21 EPS).
Maruti’s 4Q PAT at Rs.18bn (-5% YoY) was inline with street estimates. We re-iterate our BUY on the stock. The stock trades at 24/21x FY20/21E EPS. Our earnings estimates are unchanged.We re-iterate BUY as i) management expects to sustain market share and grow inline / ahead of the market in FY20 ii) Maruti remains well positioned to benefit from the transition to BSVI given its higher share of petrol variants. MSIL’s share of diesel now stands at just 23% (lower than the industry mix). The synergies from the collaboration with Toyota will be felt over the medium term.
MSIL posted a soft performance in Q4 as volumes and margins both witnessed deceleration. Volumes were impacted by macros and high base, while margins were impacted by firming up of RM costs, adverse currency and Gujarat plant ramp up costs. We re-iterate BUY as we would go with management expectations to sustain market share and grow inline or ahead of the market in FY20. Also MSIL remains well positioned to benefit from the transition to BSVI given its higher share of petrol variants. MSIL’s share of diesel now stands at just 23% (lower than the industry mix). On margins front, higher local content, reduction in discounts, price hike and operating leverage at Gujarat plant will have a positive impact. Synergies from the collaboration with Toyota in the exports markets (Africa) will be felt over the medium term. In line with subdued Q4 numbers, we have slightly reduced our volume and margins estimates. Maintain BUY with a reduced target of ₹ 7,808.
We believe all the uncertainties for the next few months are already priced in and trust that the moat of Maruti remains intact w.r.t. low cost manufacturer, an unmatched distribution reach & over the years has created a loyalty among the consumers. The company has been gaining market share from the last few years as they keep innovating & introducing newer products/refreshers which kept the consumers excited. We have arrived the fair value of Maruti Suzuki at Rs. 7,217 per share, valued it by averaging P/E & EV/EBITDA valuation methodology. The company has been trading at a forward P/E multiple of close to 23.2x in the past few years and 12.4x on EV/EBITDA. We have assigned similar earning multiples to its FY21E EPS & EBITDA to arrive at a fair value and recommending buying on dips. We have drilled down our estimates post change in the guidance by the management.
Earnings headwind to persist; retain Hold with revised PT of Rs 7,150: Maruti’s Q4FY2019 results were lower than estimates on the operating front. With muted volume growth and margin pressures, we expect operational headwinds to sustain in FY2020. We have been highlighting challenges for Maruti (had downgraded stock to Hold refer our note dated Jan 25, 2019) and retain our cautious view. We have fine tuned our earnings estimates for both FY2020 and FY2021. We retain Hold rating on the stock with a revised PT of Rs 7,150.
During Q4FY19, MSIL sales grew by 1.4% YoY to Rs214.6bn (below our estimates Rs235 bn). Its EBITDA margins declined by 370bps to 10.5% (below our estimates of 12.5%). PAT declined by 4.6% YoY to Rs 17.9bn (below our estimates of Rs19.5bn). To factor in present business outlook we reduce our volume and PAT estimates by 0.6%/0.7% and 13.6%/8.3% for FY20E and FY21E respectively. We retain our BUY rating on the stock with a revised price target of Rs 7977 (PER of 25xFY21E) as we remain positive on the MSIL’s growth prospects given the low 4W penetration in India and MSIL’s competitive advantages like strong brand and distribution network.
Near term outlook: The sales are expected to be weak through 1QFY20, due to de-stocking exercise (high inventory at dealer level) and slower sales during the election period. We are lowering our earnings by ~4% to factor in the above. We set a revised PT of Rs.7,350 based on 22x PE (on FY21 EPS).
Incorporating YTDFY19 volume numbers and pencilling in volume growth of 5% CAGR in FY18-20E, we expect sales, PAT at MSIL to grow at a CAGR of 5.4%, 3.3%, respectively. There is limited scope for margin improvement given high discounting in the marketplace as well as elevated commodity prices, leading us to build marginal 50 bps margin improvement in FY20E, over FY19E. We value Maruti atRs| 6,000 i.e. 22x P/E on FY20E EPS of Rs 272.6 with a SELL rating on the stock.
Cut estimates; retain Hold rating: We have reduced our FY2020 and FY2021 estimates by 7% each to factor the continued earnings pressures. We retain Hold rating on the stock with an unchanged PT of Rs 6,950.