Maruti Suzuki : Stock Recommendations

| December 3, 2009 | 1 Comment

Maruti Suzuki India (MSI) reported robust volume growth in November 2009 (of 66.6% y-o-y and 2.8% m-o-m) to 87,807 units. The low base of November 2008 has inflated the y-o-y growth figure. However, we are impressed by the m-o-m 6.7% domestic sales growth, which is the highest mom growth in November for MSI since FY04. Current channel inventory for MSI is optimal at approximately 3 weeks.
In the home market, volumes were boosted by the A2 segment (+60.1% and +8.9% m-o-m), MPVs (+116.4% y-o-y and 3.8% m-o-m) and the A3 segment (+46.3% yoy and -0.7% m-o-m). These are the highest A2 segment monthly sales ever. The A3 segment growth was boosted by the launch of the new version of the SX4. Being a fresh model, SX4 sales are contributing approx 25% to the A3 segment product mix, as compared to approx 10-15% historically.
Export growth continued to be healthy, at 128.6% y-o-y, to 11,448 units (a 17.4% m-o-m decline however). While some countries have discontinued with car scrappage incentives, it is likely that some others would continue till March 2010 due to the backlog of pending applications.
Year-to-date growth has been good at 29.4% y-o-y but the stock trades at 20.9x FY10e and 18.3x FY11e EPS, which is expensive on valuations so we recommend SELL.

Maruti Suzuki India (MSI) reported robust volume growth in November 2009 (of 66.6% y-o-y and 2.8% m-o-m) to 87,807 units. The low base of November 2008 has inflated the y-o-y growth figure. However, we are impressed by the m-o-m 6.7% domestic sales growth, which is the highest mom growth in November for MSI since FY04. Current channel inventory for MSI is optimal at approximately 3 weeks.

In the home market, volumes were boosted by the A2 segment (+60.1% and +8.9% m-o-m), MPVs (+116.4% y-o-y and 3.8% m-o-m) and the A3 segment (+46.3% yoy and -0.7% m-o-m). These are the highest A2 segment monthly sales ever. The A3 segment growth was boosted by the launch of the new version of the SX4. Being a fresh model, SX4 sales are contributing approx 25% to the A3 segment product mix, as compared to approx 10-15% historically.

Export growth continued to be healthy, at 128.6% y-o-y, to 11,448 units (a 17.4% m-o-m decline however). While some countries have discontinued with car scrappage incentives, it is likely that some others would continue till March 2010 due to the backlog of pending applications.

Year-to-date growth has been good at 29.4% y-o-y but the stock trades at 20.9x FY10e and 18.3x FY11e EPS, which is expensive on valuations so we recommend SELL.

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