Maruti Suzuki India Ltd (MARSUZ) is India’s largest passenger vehicle
manufacturer with more than 50% market share. It is a key player in the
compact car segment with a dominant market share. Suzuki Motor Corporation
(Suzuki) of Japan holds 54% stake in the company. MSIL offers the
widest product range in passenger cars (10 models), with special focus on
the compact car segment (five models).
Passenger vehicle penetration in India is currently low compared with comparable
countries. In the coming years, penetration is expected to rise driven by growing
disposable incomes, favorable demographics, better availability and penetration
of financing, and increasing availability of product choices. With MARSUZ
being the largest passenger vehicle manufacturer in India is likely to benefit
significantly from the same.
MARSUZ is expected to leverage its leadership in thegrowing-domestic
market with the launch of several new models. With parent Suzuki Motors choosing
India to be its base for small car manufacturing, we expect the company
to boost its exports significantly.
Going forward, we expect new launches and additional diesel capacity
to drive MARSUZ’s sales. Demand momentum and market share gain
would be driven by: (1) new launches namely Dzire CS and Eritga and (2)
additional capacity for diesel engines which goes up from 20,000 p.m. to
33,000 units p.m. We expect Maruti to return to pre-strike period market share
of 45% in CY13 in the car segment vs 42% market share in FY12.
Royalty and direct imports are 13-14% of sales while indirect imports are
at ~10% of sales. Hence, current JPY depreciation will benefit MSIL.
A 1% depreciation of JPY will increase EPS by 3%. JPY has depreciated
by 21% from recent peak. The effective exchange rate for USD/JPY for
MSIL in the quarter stood at 90.0 versus the current levels of 99 and it has
hedged 30% of its yen exposure for FY14 at 95.0.
MARSUZ has been a preferred early interest rate cycle play. Its multiple
expands to the range of 16x-21x 1-year forward earnings when growth
returns and earnings upcycle begins. We expect a similar cycle to play
out as earnings visibility improves and RBI cuts interest rates,
thus improving the industry outlook.
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