UBS Investment maintains 'Buy' rating on Maruti Suzuki

RESEARCH: UBS INVESTMENT
RATING: BUY
CMP: RS 766

UBS Investment maintains 'Buy' rating on Maruti Suzuki and sees it as the key beneficiary of the improving domestic auto demand. UBS believes domestic sentiment has turned favourable for passenger cars following the sharp reduction in excise duty, petrol prices and rapidly declining interest rates.

Maruti has raised product prices, and this along with declining commodity prices should result in a sequential margin improvement over the next couple of quarters as contract prices get reset lower. UBS is increasing its EPS estimate for FY10/FY11 by 12%/13% driven by 94bps/93bps EBITDA margin improvement and 2%/3% reduction in volume estimates due to lower exports for FY10/11 respectively.

It has conservatively raised the domestic volume growth by 1% in FY10/FY11 to 5% y-o-y / 9% y-o-y by factoring in declining sales for Maruti’s entry level portfolio with the launch of the Nano. However, overall volume growth is to remain robust at 9% yo-y in FY10 and 13% y-o-y for FY11 helped by increasing exports of A-Star to Europe. The valuations of MSIL are attractive relative to its global peers.
Source: ET