Buy Maruti Suzuki India Ltd Ltd For Target Rs.10,000 - Motilal Oswal
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Strong beat led by stable commodity cost and lower discounts
Order book strengthens | RM cost to increase in 1HFY23
* MSIL reported a strong beat in 4QFY22, led by stable commodity prices and lower discounts. Favorable product lifecycle will drive volumes, market share, and margin, whereas the JPY depreciation will dilute the impact of commodity prices in 1HFY23.
* We raise our FY23E/FY24E EPS by 7%/3%, factoring in a ramp-up in exports and forex changes. We maintain our Buy rating, with a TP of INR10,000/share (~27x Jun’24E consolidated EPS).
Lower discounts and stable commodity cost boost margin
* Revenue/EBITDA/PAT grew 11%/22%/58% YoY to ~INR267.4b/INR24.3b/ INR18.4b. Revenue/EBITDA grew 25.5%/7% YoY to INR883b/INR57b, while adjusted PAT fell 11% to INR37.7b in FY22.
* Net realizations grew 12% YoY (+1.4% QoQ) to INR547.2k (est. INR550.5k) due to price hikes and lower discounts at INR11.1k/unit (v/s INR15.2k QoQ and INR16.6k unit in 4QFY21).
* This, coupled with stable commodity cost, boosts gross margin by 180bp QoQ (+40bp YoY) to 26.5% (est. 24%).
* EBITDA margin improved by 240bp QoQ and 80bp YoY to 9.1% (est. 7.1%), led by gross margin improvement and operating leverage. EBIT margin improved by 270bp QoQ and 150bp YoY to 6.7% (est. 4.7%). Higher other income and lower tax boosted PAT to INR18.4b (est. INR12b).
* FCFF was a negative ~INR15.3b in FY22 (a first since FY09), impacted by higher (INR28.1b) working capital.
Highlights from the management commentary
* Good demand, coupled with recent product launches (Baleno, Celerio, and XL6), has further increased its order book to 320k at present (v/s 268k as of Mar’22 v/s 240k as of Dec’21), of which CNG constitutes 40%.
* Semiconductor shortage resulted in a production loss of 270k (mainly in the domestic market). The management said the situation is unpredictable and may impact slightly in FY23.
* Cost inflation had no impact or benefit in 4QFY22. It expects an increase in 1Q/1HFY23, though it is difficult to quantify, as negotiations on steel prices are ongoing.
Valuation and view
* Strong demand and favorable product lifecycle for MSIL augurs well for market share and margin. We expect a recovery in market share and margin in 2HFY23, led by an improvement in supplies, favorable product lifecycle, mix, price action/cost-cutting, and operating leverage
* The stock trades at 33.7x/21.8x FY23E/FY24E consolidated EPS. We maintain our Buy rating, with a TP of INR10,000/share (27x Jun’24E consolidated EPS).
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