Should you buy Maruti Suzuki stock after the 10% rise in Q4 profits?

Last Updated: Fri, Apr 27, 2018 18:27 hrs
A worker is reflected on the body of a Maruti Suzuki car as he locks the door of another car at a Maruti Suzuki stockyard on the outskirts of Ahmedabad

Maruti Suzuki, India's premier carmaker, on Friday reported a 10% rise in net profit for the fourth quarter of 2017-18.

The auto major's Q4 net profit increased to Rs 1882.1 crore from Rs 1710.5 crore during the same period in the previous financial year.

Maruti said, "increase in effective tax rate impacted net profit".

Here's the first Cut on the results by Abhishek Jain, Analyst at HDFC Securities:

Maruti Suzuki 4QFY18- Operating margin below expectation (Current Market Price - 8947 Market cap-Rs 2.70T , Neutral, Target Price –Rs 9525)

MSIL posted revenue at Rs 212 billion (+15% YoY, 1.2% above estimates), 11.4% growth in vol and 3.6% in net ASP.

EBITDA at Rs 30 billion (+18% YoY, 9% below est) with margin at 14.2 %( est. of 15.8%) dragged by higher advertisement expenses

APAT at Rs. 18.8 billionn (+10% YoY), was impacted by higher effective tax rate and interest cost

MSIL’s rapid acceleration in premium cars and UV segment is heartening. We continue to like MSIL’s unique moats, although valuation leaves little room for an upside.

We remain positive on MSIL’s growth story based on (1) steady volume growth plus increase in PV market share (2) Increasing ASP, led by expanding portfolio in the premium segment, (3) incremental volumes from the Gujarat facility (4) Ramp-up in rural demand and 5) healthy ROE/ROCE (25% in FY19/20E) and free cash flows. However, challenges persist in the form of (1) increasing fuel prices, and (2) slowdown in demand from cab aggregators such as Ola and Uber owing to cut down in incentives for car owners/drivers.

We expect rev/EPS growth of 13/17% CAGR over FY18-20E. The stock is fairly valued at 23x FY20E (5/10 yr median at 20/16x). Maintain NEUTRAL with TP of Rs 9525, 25x FY20E.



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