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EBITDA below estimates; demand outlook remains intact

* Q1 revenue declined by 1% (3-yr CAGR of 10%) to Rs265bn, in line with estimates. EBITDA fell by 21% qoq (3-yr CAGR of -2%) to Rs19.1bn, 16% below estimates, mainly due to the higher-than-expected impact of commodity inflation. Management expects benefits of lower commodity prices and JPY depreciation to start reflecting in Q2.

* The pending order book is large at ~350,000 units, which includes ~70,000 units for Brezza and ~20,000 units for Grand Vitara. The upcoming launches include the Jimny off-roader, below-4m SUV and a mid-size SUV. We expect an 18% volume CAGR for FY22-24E.

* We reduce FY23E EPS by 4% due to lower other income, while broadly retaining FY24E/25E EPS estimates. We build in a strong revenue CAGR of 24% over FY22-24E, and expect EBITDA margin to expand to 10.7% in FY24E from 6.5% in FY22.

* Our positive view is underpinned by expectations of a cyclical upturn and market share recovery. We reaffirm Buy with a revised TP of Rs10,000 (Rs9,650 earlier), based on 27x core P/E on Sep’24E EPS (Jun’24E EPS earlier) and net cash of Rs1,610/share.

EBITDA below estimates: Revenue declined by 1% qoq (3-yr CAGR of 10%) to Rs265bn (est.: Rs263.9bn), broadly in line with our estimates. Volume declined by 4%, while realization grew by 4%. Supply constraints impacted production by 51,000 units. EBITDA declined by 21% to Rs19.1bn (3-yr CAGR of -2%), 16% lower than estimates due to higher-than-expected commodity inflation, discounts and employee costs. EBITDA margin contracted by 190bps to 7.2% (est.: 8.7%). Management expects the benefits of lower commodity prices and JPY depreciation to start reflecting in Q2. Other income declined 81% qoq to Rs885mn due to mark-to-market losses. Overall, adjusted PAT declined by 45% to Rs10.1bn (est.: Rs16.5bn), below estimates on lower operating profit and other incom

MSIL to gain share on aggressive model action plan: After the recent launch of the Grand Vitara SUV, upcoming products within the next 18 months include Off-roader (Jimny), mid-size SUV and <4m crossover, which should fill major whitespaces in the company’s SUV portfolio. New products have a volume potential of 18,000-25,000 units per month, and we have factored volumes of 74,000/222,000 units in our FY23/24 estimates. In addition, the launch of feature-rich new generation models of Baleno, Celerio, S-presso, Brezza, Alto, Ertiga and XL6 should support volumes. MSIL’s market share should increase from 45% in FY22 to 47% in FY24E.

Maintain Buy with a TP of Rs10,000, based on 27x core P/E on Sep’24E EPS and net cash of Rs1,610/share. Key downside risks include lower-than-expected demand in key geographies, failure of new products, rise in competitive intensity and adverse movement in commodity/currency rates.

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