Maruti

Maruti reported 3Q net profit at Rs4.7 bn—a growth of 24% yoy and flat on qoq basis. 3Q EBITDA margin at 15% was lower 100 bps on account of higher raw material and royalty costs. Net sales at Rs46.7 bn grew 27% yoy on account of higher volumes and improved realizations. We lower our volume estimate for FY2008 by 1% as 3Q volume growth was lower-than-expected. We tweak our model to account for higher input costs and improved realizations. We maintain our BUY rating and target price of Rs1,200/share.

Net profit at Rs4.7 bn grew 24% yoy led by a 17% yoy growth in volumes 3Q FY2008 net profit at Rs4.7 bn (we estimated Rs5.5 bn) grew 24% yoy but was flat on a qoq basis. Net profit grew mainly on account of a 17% yoy growth in sales volumes. Average realizations increased 8% yoy due to a change in product mix with greater share of mid-size cars and MUV (Grand Vitara). Higher realization offset by rise in input costs and royalty payment EBITDA margins at 15% were lower 100 bps mainly on account of higher input costs and higher royalty costs in spite of average realizations being higher by 8% yoy— material costs increased 130 bps while royalty costs increased 27%. We believe rising input costs would continue to put pressure on margins even as increased sales of midsize (SX4) and compact cars would likely improve average realizations. We lower our volume estimate for FY2008 by 1% We lower our volume estimate for FY2008 by 1% as 3Q FY2008 volumes grew slowerthan- expected.

We now estimate FY2008 volumes to grow 19% (20% previously)— our residual analysis shows that Maruti’s volumes would need to grow 20% in 4Q to achieve this growth. We believe this is manageable given that 4Q sales have historically been stronger than other quarters. We retain our FY2009E and FY2010E volume estimates for Maruti at 967,000 vehicles and 1.1 mn vehicles respectively. We factor lower volumes for FY2008; marginally tweak our estimates to factor changes in input costs We lower our FY2008 net earnings by 10% to factor lower volumes and increase in input and royalty costs. We expect royalty costs to rise on account of increase in proportion of cars on which royalty needs to be paid and increase in average realizations (royalty is paid on the basis on realization per car). We believe this would result in marginal decline in EBITDA margins for FY2009E and FY2010E by 10-20 bps.