RESULTS REVIEW 1QFY20 29 JUL 2019

Maruti Suzuki
NEUTRAL
Weak performance INDUSTRY AUTOS
After weak 1Q operational performance, we downgrade norms is not likely to be material. We expect sales to CMP (as on 26 Jul 2019) Rs 5,806
the stock to NEUTRAL. The EBITDA margin declined decline -2% YoY in FY20. Target Price Rs 5,820
450/15bps YoY/QoQ to 10.4%. We are lowering our  Maruti is focusing on gasoline / CNG variants and will Nifty 11,284
estimates by 6-7% for FY20-21E with a revised TP of Rs discontinue its small 1.2L diesel engine. The share of Sensex 37,883
5,820 at 20x FY21 EPS (22x earlier). An expected 2H petrol vehicles has risen 600bps to 78% for MSIL vs
KEY STOCK DATA
demand recovery is delayed as the macros remain 66% for the industry. The management highlights that
Bloomberg MSIL IN
challenged and the restricted availability of finance (NBFC economics will favor gasoline for personal vehicles and
CNG for commercial/shared mobility segment. The No. of Shares (mn) 302
related) is impacting footfalls.
OEM has already transitioned five of its high volume MCap (Rs bn) / ($ mn) 1,754/25,433
HIGHLIGHTS OF THE QUARTER models to BSVI including the Swift, Alto and Wagon R. 6m avg traded value (Rs mn) 6,353
 The operating performance was impacted by the weak We believe that MSIL will benefit from BSVI, given the STOCK PERFORMANCE (%)
industry environment. Margins contracted 450/15bps higher share of gasoline vehicles in the sales mix. 52 Week high / low Rs 9,833/5,684
YoY/QoQ to 10.4% due to the negative operating  MSIL is undertaking trials of EVs and is expected to 3M 6M 12M
leverage as volumes declined -18% YoY. This was offset introduce petrol hybrid vehicles over FY21-22. The Absolute (%) (15.2) (10.9) (38.2)
by increased other income (Rs 8.3bn, up 2x YoY) on technology sharing agreement with Toyota will help. Relative (%) (12.1) (16.0) (40.6)
higher fair value gains and lower tax rates (25% vs STANCE SHAREHOLDING PATTERN (%)
31.5% in 1QFY19). PAT declined by 27/20% YoY/QoQ to
Downgrade to NEUTRAL as (1) An expected demand Mar-19 Jun-19
Rs 14.4bn.
recovery in 2H is delayed (2) Valuations are not Promoters 56.2 56.2
 Management expects near term demand to remain adequately factoring in the current downturn (3) We FIs & Local MFs 13.4 13.4
challenged as the tightened lending norms by the would recommend buying on dips as Maruti enjoys a
FPIs 22.3 23.2
Banks and NBFCs is impacting consumer sentiment. We strong franchise with a dominant market share of ~50%.
Public & Others 8.1 7.2
believe that an expected 2H recovery in demand is Also, Maruti is well prepared for the upcoming transition
delayed and the pre-buy ahead of the new emission to BSVI due to its gasoline led portfolio. Pledged Shares 0.0 0.0
Source : BSE
Financial Summary
YE March (Rs mn) 1QFY20 1QFY19 YoY (%) 4QFY19 QoQ (%) FY17 FY18 FY19 FY20E FY21E
Net Sales 197,198 224,594 (12.2) 214,594 (8.1) 680,348 797,627 860,203 893,294 989,373
EBITDA 20,478 33,511 (38.9) 22,634 (9.5) 103,517 120,615 109,993 111,662 129,608 Aditya Makharia
APAT 14,355 19,753 (27.3) 17,956 (20.1) 73,502 77,218 75,006 75,180 87,826 aditya.makharia@hdfcsec.com
Diluted EPS (Rs) 47.5 65.4 (27.3) 59.5 (20.1) 243.4 255.7 248.4 248.9 290.8 +91-22-6171-7316
APAT Growth (%) 37.0 5.1 (2.9) 0.2 16.8
P/E (x) 23.9 22.7 23.4 23.3 20.0 Mansi Lall
RoE (%) 22.2 19.8 16.9 15.2 15.9 mansi.lall@hdfcsec.com
Source: Company, HDFC sec Inst Research +91-22-3021-2070
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Conference call takeaways
 Other operating income was higher due to the move
towards uniform freight recovery charges. The
amount was Rs 4.8bn in the quarter. This is related to
freight charge recovery from dealers (which is
correspondingly shown as an expense in the P&L).
 Gujarat Plant: Suzuki’s Gujarat plant production was
at 96,603 units in 1Q (96,272 units in Q4FY19). SMG is
operating at ~80% utilisation as their capacity is now
500,000 units annually.
 Weakened demand environment: In the current
market scenario, the dealer inventory continues to
remain higher (more than a month). Retail sales
declined by 17% YoY. Tightened lending norms by the
Banks and NBFCs have lowered the LTV ratio which is
impacting sales. A 2H recovery is likely to be delayed
due to challenging macros and finance related
constraints.
 BSVI transition: Major top-selling models (Alto,
Wagon R, Swift, Dzire and Baleno) are already BSVI
complaint. MSIL is still exploring the viability of a 1.5L
MARUTI SUZUKI : RESULTS REVIEW 1QFY20
diesel engine post BSVI transition. Smaller engines
are expected to be cost-prohibitive not only due to BS
VI but also RDE norms that take effect from April
2022. The management believes that diesel vehicle
sales will be impacted post the introduction of BSVI.
We believe that Maruti is well positioned to benefit
from the rollover to BSVI with its gasoline dominant
portfolio.
 Product mix: The petrol segment accounted for
66.3% of industry sales in Q1FY20. For MSIL, the
contribution increased from 72% Q1FY19 to 78% in
Q1FY20.
 CNG vehicles: CNG vehicles contribute about 6% to
total volumes for MSIL. In markets where CNG is
available, these vehicles would contribute about 22%
of sales. The Co Expect petrol hybrids to also find
acceptance in the shared vehicle segment. Maruti is
well prepared for a transition to alternate fuels.
 Electric vehicles: Maruti is currently testing 50 EV
prototypes across different countries and terrains.
Page | 2
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Quarterly Financials Snapshot: Standalone

Particulars 1QFY20 1QFY19 YoY (%) 4QFY19 QoQ (%)
Volumes (in units) 402,594 490,479 (17.9) 458,479 (12.2)
Net ASP (Rs/veh) 489,819 457,907 7.0 468,056 4.6

Net sales (incl OOI) 197,198 224,594 (12.2) 214,594 (8.1)

Material Expenses 140,913 155,020 (9.1) 154,236 (8.6)
Employee Expenses 8,591 7,652 12.3 8,169 5.2
Other Operating Expenses 27,216 28,411 (4.2) 29,555 (7.9)
While the operating Total Expenditure 176,720 191,083 (7.5) 191,960 (7.9)
performance was impacted EBITDA 20,478 33,511 (38.9) 22,634 (9.5)
by weak vehicle sales, it was Depreciation 9,186 7,198 27.6 8,102 13.4
partially offset by increased EBIT 11,292 26,313 (57.1) 14,532 (22.3)
other income and lower tax Other Income 8,364 2,718 207.7 8,677 (3.6)
rates Interest Cost 547 207 164.3 88 521.6
PBT 19,109 28,824 (33.7) 23,121 (17.4)
Tax 4,754 9,071 (47.6) 5,165 (8.0)
PAT 14,355 19,753 (27.3) 17,956 (20.1)
Adj EPS 47.5 65.4 (27.3) 59.5 (20.1)
Source: Company, HDFC sec Inst Research

Margin Analysis: Standalone

As % of sales 1QFY20 1QFY19 YoY (bps) 4QFY19 QoQ (bps)
Material Expenses 71.5 69.0 244 71.9 (42)
Employee Expenses 4.4 3.4 95 3.8 55
Other Operating Expenses 13.8 12.6 115 13.8 3
Total Expenditure 89.6 85.1 454 89.5 16
EBITDA 10.4 14.9 (454) 10.5 (16)
PAT 7.3 8.8 (152) 8.4 (109)
Tax as % of PBT 24.9 31.5 (659) 22.3 254
Source: Company, HDFC sec Inst Research

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 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Volume Assumptions
(in units) FY17 FY18 FY19 FY20E FY21E
We expect demand to Domestic sales 1,444,541 1,653,500 1,753,700 1,718,626 1,838,930
remain weak over 2HFY20 % YoY 10.7 14.5 6.1 (2.0) 7.0
and are lowering our volume Export sales 124,062 126,074 108,749 114,186 123,321
forecasts accordingly % YoY 0.1 1.6 (13.7) 5.0 8.0
Total sales 1,568,603 1,779,574 1,862,449 1,832,812 1,962,251
% YoY 9.8 13.4 4.7 (1.6) 7.1
Average Net ASP 433,729 448,212 461,867 487,390 504,203
% YoY 7.7 3.3 3.0 5.5 3.4
Source: Company, HDFC sec Inst Research

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 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Weak market demand impacted volumes Realizations grew 7% YoY

Volumes ('000 units) % change YoY -RHS Avg realisation (Rs '000)

24.3
495 490
500 25
Realisations were higher,

13.2
20 485

11.3
partially due to uniform 15

17.6
475
freight recovery 450 10 468

-0.7
11.4

-1.5
5 463
465 458 459
0 458
-5

-0.6
400 455
-10 447
445
-15 445 442

-17.9
-20
350 -25 435

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

EBITDA margins (%): remain muted Avg discount/vehicle

EBITDA margin contracted EBITDA (Rs mn) EBITDA Margin (%) - RHS Discount/vehicle (Rs in '000)
16.9

450bps YoY (-15bp QoQ) due 24.3

15.8

15.3
25
14.9
40,000 18
to the impact of negative
14.2
13.3

16
operating leverage 35,000 14 18.7

10.5
20

10.4
17.9
16.9

9.8
12 16.6
30,000 15.5 15 15.1
10 13.7
15
8
25,000
6
4 10
20,000
2
15,000 0 5
1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 5
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

MSIL’s PV market share : Sustaining at over 50% INR/JPY has been rangebound in the year
Domestic market share (%) INR/JPY
56 1.8

54 1.8

52 1.7
Maruti’s market share has
1.7
sustained at above 50% 50 51
driven by its upgraded 1.6
48
product portfolio 1.6
46 1.5
44 1.5

Sep-16

Sep-17

Sep-18
Mar-17

Mar-18

Mar-19
Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19

Sep-16

Sep-17

Sep-18
Mar-17

Mar-18

Mar-19
Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19
Source: SIAM, HDFC sec Inst Research Source: Bloomberg, HDFC sec Inst Research

Product mix (%): SUV sales are 16% of mix 1 year forward P/E band
Pass Cars UVs P/E Mean +1 SD -1 SD
100% 40

14%
14%
15%

15%
16%

16%

16%
17%

17%
80% 35

30
60%
25
86%
86%
85%

85%
84%

84%

84%
83%

83%
40%
20
20% 15

0% 10

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

Source: SIAM, HDFC sec Inst Research Source: Bloomberg, HDFC sec Inst Research

Page | 6
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Peer set comparison

Mcap CMP Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%)
Reco TP
(Rs bn) (Rs/sh) FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E
Ashok Leyland 217 74 NEU 90 6.9 7.0 10.8 10.6 5.5 5.0 23.4 21.3
Bajaj Auto 758 2,619 BUY 3,000 156.0 171.5 16.8 15.3 10.9 9.8 19.6 19.4
Eicher 469 17,187 SELL 17,150 811.6 835.3 21.2 20.6 12.9 11.4 22.7 19.6
Hero Motocorp 493 2,467 BUY 2,875 168.0 179.8 14.7 13.7 10.3 9.6 23.7 23.0
Maruti Suzuki 1,754 5,806 NEU 5,820 248.9 290.8 23.3 20.0 11.8 9.6 15.2 15.9
Source: HDFC sec Inst Research

Change in estimates
New Old Change (%)
In Rs mn
FY20E FY21E FY20E FY21E FY20E FY21E
Net Sales 893,294 989,373 901,606 1,006,049 (1) (2)
EBITDA 111,662 129,608 120,815 137,829 (8) (6)
EBITDA margin (%) 12.5 13.1 13.4 13.7 -90 bps -60 bps
Adj PAT 75,180 87,826 80,786 93,083 (7) (6)
Adj EPS (in Rs) 248.9 290.8 267.5 308.2 (7) (6)
Source: HDFC sec Inst Research

Page | 7
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Income Statement (Standalone) Balance Sheet (Standalone)

(Rs mn) FY17 FY18 FY19P FY20E FY21E (Rs mn) FY17 FY18 FY19P FY20E FY21E
Net Revenues 680,348 797,627 860,203 893,294 989,373 SOURCES OF FUNDS
Growth (%) 18.2 17.2 7.8 3.8 10.8 Share Capital - Equity 1,510 1,510 1,510 1,510 1,510
Material Expenses 466,280 548,759 601,321 634,239 700,476 Reserves 362,801 416,063 466,903 519,529 581,007
Employee Expenses 23,310 28,338 32,549 34,838 35,617 Total Shareholders Funds 364,311 417,573 468,413 521,039 582,517
Other Operating Expenses 87,241 99,915 116,340 112,555 123,672 Total Debt 4,836 1,108 1,496 1,994 2,492
Total Expenses 576,831 677,012 750,210 781,632 859,765 Net Deferred Taxes 4,662 5,589 5,640 5,922 6,218
EBITDA 103,517 120,615 109,993 111,662 129,608 TOTAL SOURCES OF FUNDS 373,809 424,270 475,549 528,955 591,227
EBITDA Margin (%) 15.2 15.1 12.8 12.5 13.1 APPLICATION OF FUNDS
EBITDA Growth (%) 16.5 16.5 (8.8) 1.5 16.1 Net Block 132,927 133,590 138,401 138,191 136,078
Depreciation 26,021 27,579 30,189 35,210 37,114 CWIP 12,523 21,259 22,322 23,438 24,610
EBIT 77,496 93,036 79,804 76,452 92,494 Investments 8,612 12,082 12,082 12,082 12,082
Other Income (Including EO Items) 23,001 20,455 25,610 29,588 31,655 Total Non-current Assets 154,062 166,931 172,805 173,711 172,770
Interest 894 3,457 758 451 451 Cash & Equivalents 276,336 341,531 376,683 434,902 505,213
PBT 99,603 110,034 104,656 105,589 123,698 Inventories 32,622 31,608 35,351 36,711 40,659
Tax (Incl Deferred) 26,101 32,816 29,650 30,410 35,873 Debtors 11,992 14,618 21,210 22,026 24,395
Minority Interest - - - - - Other Current Assets 37,494 39,013 42,186 45,677 49,517
RPAT 73,502 77,218 75,006 75,180 87,826 Total Current Assets 358,444 426,770 475,431 539,316 619,784
EO (Loss) / Profit (Net Of Tax) - - - - - Creditors 114,951 139,172 141,318 151,517 167,500
APAT 73,502 77,218 75,006 75,180 87,826 Other Current Liabilities & Provns 23,746 30,259 31,369 32,556 33,827
APAT Growth (%) 37.0 5.1 (2.9) 0.2 16.8 Total Current Liabilities 138,697 169,431 172,687 184,073 201,327
Adjusted EPS (Rs) 243.4 255.7 248.4 248.9 290.8 Net Current Assets 219,747 257,339 302,744 355,243 418,457
EPS Growth (%) 37.0 5.1 (2.9) 0.2 16.8 TOTAL APPLICATION OF FUNDS 373,809 424,270 475,549 528,955 591,227
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 8
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Cash Flow (Standalone) Key Ratios (Standalone)

(Rs mn) FY17 FY18 FY19P FY20E FY21E FY17 FY18 FY19P FY20E FY21E
Reported PBT 99,603 110,034 104,656 105,589 123,698 PROFITABILITY (%)
Non-operating & EO Items (23,001) (20,455) (25,610) (29,588) (31,655) GPM 31.5 31.2 30.1 29.0 29.2
EBITDA Margin 15.2 15.1 12.8 12.5 13.1
Interest Expenses 894 3,457 758 451 451
EBIT Margin 11.4 11.7 9.3 8.6 9.3
Depreciation 26,021 27,579 30,189 35,210 37,114
APAT Margin 10.8 9.7 8.7 8.4 8.9
Working Capital Change 23,266 27,603 (10,253) 5,719 7,097
RoE 22.2 19.8 16.9 15.2 15.9
Tax Paid (23,382) (31,889) (29,599) (30,128) (35,576) RoIC (or Core RoCE) 55.6 72.5 63.0 56.4 72.9
OPERATING CASH FLOW ( a ) 103,401 116,329 70,141 87,253 101,128 RoCE 16.9 16.4 12.7 10.8 11.7
Capex (36,302) (36,978) (36,063) (36,116) (36,172) EFFICIENCY
Free Cash Flow (FCF) 67,099 79,351 34,078 51,137 64,956 Tax Rate (%) 26.2 29.8 28.3 28.8 29.0
Investments (2,338) (3,470) - - - Fixed Asset Turnover (x) 5.1 6.0 6.2 6.5 7.3
Non-operating Income 23,001 20,455 25,610 29,588 31,655 Inventory (days) 17.5 14.5 15.0 15.0 15.0
Debtors (days) 6.4 6.7 9.0 9.0 9.0
INVESTING CASH FLOW ( b ) (15,639) (19,993) (10,453) (6,528) (4,516)
Other Current Assets (days) 20.1 17.9 17.9 18.7 18.3
Debt Issuance/(Repaid) 4,062 (3,728) 388 498 498
Payables (days) 61.7 63.7 60.0 61.9 61.8
Interest Expenses (894) (3,457) (758) (451) (451) Other Current Liab & Provns (days) 12.7 13.8 13.3 13.3 12.5
FCFE 70,267 72,166 33,708 51,184 65,003 Cash Conversion Cycle (days) (30.4) (38.5) (31.4) (32.5) (32.0)
Share Capital Issuance 14,623 210 - - (0) Debt/EBITDA (x) (2.6) (2.8) (3.4) (3.9) (3.9)
Dividend (22,656) (24,166) (24,166) (22,554) (26,348) Net D/E (x) (0.7) (0.8) (0.8) (0.8) (0.9)
FINANCING CASH FLOW ( c ) (4,865) (31,141) (24,536) (22,507) (26,301) Interest Coverage (x) 86.7 26.9 105.3 169.5 205.1
NET CASH FLOW (a+b+c) 82,897 65,195 35,152 58,219 70,311 PER SHARE DATA (Rs)
Closing Cash & Equivalents 276,336 341,531 376,683 434,902 505,213 EPS 243.4 255.7 248.4 248.9 290.8
Source: Company, HDFC sec Inst Research CEPS 329.5 347.0 348.3 365.5 413.7
Dividend 75.0 80.0 80.0 74.7 87.2
Book Value 1,206.3 1,382.7 1,551.0 1,725.3 1,928.9
VALUATION
P/E (x) 23.9 22.7 23.4 23.3 20.0
P/BV (x) 4.8 4.2 3.7 3.4 3.0
EV/EBITDA (x) 14.3 11.7 12.5 11.8 9.6
EV/Revenues (x) 2.2 1.8 1.6 1.5 1.3
OCF/EV (%) 7.0 8.2 5.1 6.6 8.1
FCF/EV (%) 4.5 5.6 2.5 3.9 5.2
FCFE/Mkt Cap (%) 4.0 4.1 1.9 2.9 3.7
Dividend Yield (%) 1.3 1.4 1.4 1.3 1.5
Source: Company, HDFC sec Inst Research

Page | 9
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

RECOMMENDATION HISTORY

Date CMP Reco Target

Maruti TP 9-Jul-18 9,304 NEU 9,432
10,000 26-Jul-18 9,396 NEU 9,664
9,500 3-Oct-18 7,465 BUY 8,252
8-Oct-18 6,893 BUY 8,252
9,000
26-Oct-18 6,725 BUY 8,252
8,500 9-Jan-19 7,340 BUY 8,252
8,000 25-Jan-19 6,516 BUY 7,400
7,500 25-Mar-19 6,553 BUY 7,350
12-Apr-19 7,179 BUY 7,350
7,000
25-Apr-19 6,903 BUY 7,350
6,500 10-Jul-19 5,945 BUY 6,780
6,000 29-Jul-19 5,806 NEU 5,820
5,500 Rating Definitions
Dec-18
Oct-18
Aug-18

Apr-19
Nov-18

Jan-19
Sep-18

Feb-19

May-19
Jun-19
Jul-18

Jul-19
Mar-19

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

Page | 10
 MARUTI SUZUKI : RESULTS REVIEW 1QFY20

Disclosure:
We, Aditya Makharia, CA & Mansi Lall, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to
the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have
beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities
Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

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co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
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