"Maruti has underperformed the Sensex by 10% over the past 1 month, impacted by weakening INR. MSIL faces 3 key challenges in the near term: (1) increasing diesel engine availability beyond 400,000 units in FY13 as diesel is the key volume driver, (2) pushing petrol vehicle sales without increasing discounts, and (3) adverse JPY/ INR movement significantly impacting margins."
"The latest petrol price hike of ~INR7.5/ltr (~11%) is the steepest in last 4 years. Expect adverse impact on recovery in petrol vehicles demand, which has already been weak for the last 12 months. Widening of gap between petrol and diesel to INR32/ltr would further boost dieselization, capacity for which is a constraint for Maruti. Weak petrol vehicles demand would ensure discounts remain at all-time high levels of 4QFY12. Further, weaker INR will put pressure on profits of Maruti. For every 1% JPY/INR change, MSIL's EBITDA margin changes by 15-20bp and EPS 2.5%."
"We are downgrading earnings estimates by 16%/11% for FY13/FY14 to INR74.5/ INR98.3 to factor in a) petrol price hike impact on volumes (10% volume growth v/ s 22% earlier), and b) weaker INR at 0.65/JPY. The stock trades at 15.4x FY13 consol EPS of INR74.5 and 9.8x FY13 Cash EPS of INR118. Maintain Buy with revised price target of INR1,415 (~12x FY13 CEPS), says Motilal Oswal research report."
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