Prabhudas Lilladher is bullish on Maruti Suzuki India and has recommended accumulate rating on the stock with a target of Rs 2550 in its June 10, 2014 research report.
"Maruti Suzuki India, Given the last three years of flat volumes in the Passenger Car segment (expected latent demand) and new launches, we expect volumes to grow at 12 percent CAGR over FY14-FY16E period. MSIL has gained market share to the tune of 220bps in the small car segment given the strong product portfolio (volumes declined by 2.7 percent CAGR vs segment volume decline of 4.8 percent)."
"Dealers indicate that the demand is likely to pick up post election. Including 'Celerio' (which has received good response), the management indicated couple of new launches in FY15E. Celerio likely to deliver 6-7,000 units/month, which itself would lead to 7 percent growth for MSIL in FY15E, assuming other segments remain flat. As per Sewells Group Automotive Dealer Confidence Index for the January-March 2014 quarter, overall 62 percent dealers surveyed expected volumes to increase over the next six months. With an uptick in volumes and lower discounting, we expect EBITDA margins to remain healthy at 12.5-13 percent levels. Management indicated that the imported content of raw material has been brought down to ~16-17 percent currently from 20 percent in FY13."
"Given the fact that the Passenger car industry has been flattish for the last three years, any improvement in macroeconomic scenario could lead to recovery in sales for MSIL. Given its strong product portfolio, we have built in 10 percent volume growth for FY15E at 1.27m units (led by new launches) and a 15.1 percent YoY in FY16E (on account of strong recovery in economy) at 1.47m units. Given estimated earnings CAGR of ~27.5 percent, the current valuations of 19.7x FY15E EPS and 15.7x FY16E EPS seem attractive. We reiterate that MSIL is the best play on the recovery in the macroeconomic situation. Our TP is based on 16.0x FY16E EPS (@ 10 percent premium to its average multiple) and we revise the TP from Rs2145 to Rs2550," says Prabhudas Lilladher research report.
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