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Strong topline growth:

MSIL posted strong revenue growth of 22% YoY while it remained flat sequentially to Rs 32,327 Cr. The healthy performance in the topline was led by 6.4% YoY growth in volumes and superior mix of products in the portfolio. While the volumes were up as compared to last year it declined by 3.3% sequentially due to seasonality factor however, the decline in volumes was offset by higher participation of UV (Utility Vehicle) portfolio while price hike across portfolio cushioned the impact of decline in volumes.

Higher participation of UV portfolio aided margin expansion:

The increased emphasis on expanding the UV portfolio has gained strong response from customers as its participation rose to 25.4% of the overall volumes from 17.3% (Q1FY23) and 20.6% (Q4FY23), while it also achieved a market share of ~20% in the UV segment. Similarly, its volumes from the segment grew by 56.3% YoY and 19.3% QoQ to 126,401 units. The higher participation of UV in the portfolio resulted in strong realization expansion by 14.6% YoY/4.3% QoQ to Rs 649,095/unit.

Rise in employee cost impact EBITDA margin expansion:

Its Gross profit saw an increase of 30.7% YoY and a moderate growth of 2.7% QoQ to Rs 8,795 Cr with a margin of 27.2% which expanded by 181bps YoY/ 50 bps QoQ aided by declined in the prices of key raw materials. EBITDA for the quarter stood at Rs 2,983 Cr, up by 56% YoY while it declined by 11% sequentially as there was sharp increase in the employee cost on the account of retirement benefit plans as well as retention fee to the employees. Consequently, increased costs impacted the margin growth as it declined by 123bps QoQ to 9.2% for the quarter. Going ahead, we anticipate the margins may improve as the one of employee cost would normalize from Q2FY24 besides, the superior product mix could result in operating leverage which would further aid in margins expansion.

Future Outlook:

The Company has indicated that it will be terminating its contract manufacturing agreement with Suzuki Maruti Corporation (SMC) in a move to acquire 100% shares of Suzuki Motor Gujarat (SMG) from SMC with a view to scale its overall manufacturing capacity to ~4 Mn Units by 2030-31. The acquisition could see the company to benefit in terms of better operating efficiency which could result in better margins. The management has indicated that the acquisition would be completed by the end of FY24 after receiving all the regulatory approvals however the mode of acquisition and transaction details will be intimated in a due course.

Outlook & Valuations:

The domestic PV industry grew by ~6-7% for the quarter while MSIL domestic volumes were up by 12.4% (excluding sales to Toyota). We anticipate MSIL to continue to lead the industry growth with its new embark in the SUV space garnering strong response from the customers as it now maintains more than 20% market share in the segment. Additionally, it has a strong presence in the CNG space with 15 models on the offering with a market share of ~65% while its portfolio operates on petrol fuel; indicating it has a wide range of offerings to cater diverse needs of customers. We remain optimistic on the growth prospects of the company and estimate its revenue/EBITDA/PAT to grow at a CAGR of 15.2%/27.1%/28.8% over FY23-25E. Hence, we remain overweight and maintain our Buy rating with a target price of Rs 11,501 valuing the company at 26x on FY25E EPS.

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