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Key Rationale:

Maruti Suzuki's Q4 performance largely reflects the company's ability to sail through the toughest environment, with the company able to deliver back-to-back above-expected performance on all fronts despite semiconductor shortages and RM cost pressure.

Revenue for the quarter grew by 11% YoY to Rs.267bn led by -0.7% YoY de-growth in volume and 11.9% YoY growth in ASP. Margin came at 9.1% above the consensus and our est. (+79bps YoY/+237bps QoQ), adverse commodity prices was offset by lower sales promotion, cost reduction effort and price hike, resulting in a jump in EBIDTA to Rs. 24.26bn (+22% YoY/+56% QoQ).

View and valuations:

Semiconductor shortage and commodity inflation remain a near term challenges and are largely factored in. We anticipate that PV demand will remain strong for the next 2-3 years, owing to a gradual recovery in the economy, a long waiting period, new/refresh launches, and low inventory.

MSIL would also benefit from the revival in PV demand led by 1) large distribution network, 2) gradual improvement in supply chain, 3) proven product portfolio (with largest CNG portfolio), 4) new/refresh launches, 5) healthy export outlook (low impact of chip shortage) and 6) margin expansion. To account for margin headwinds and delays in supply chain improvement we reduce our FY23E/FY24E EPS by -3.5%/-3.2% and roll forward our earnings to FY24E. We expect MSIL’s Revenue/PAT CAGR to grow at 18%/60% over FY22-24E and value the stock at 26.5x of FY24E EPS to arrive at a TP of 8,841 and upgrade to ADD from NEUTRAL.

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