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Valuation and View – FY23 exit orderbook highest of past 3 quarters

MSIL’s 4QFY23 missed our EBITDA/Adj.PAT by 4%/7%, we believe the overall results were still better given sustained improvements in key metrics such as EBITDA/vehicle which grew ~7% QoQ to Rs65k/unit (+31% YoY). Higher contribution from SMG (as overheads are loaded in RM) as well as one time impacted of Rs400m due to auto expo expense restricted margins. Going forward with RM stability and controlled discounts to support margins while recent cut in CNG price bode well for volumes. Overall bookings healthy at ~4.12L v/s (~3.6L in 3QFY23, ~4.1L 2QFY23 and ~3.5L units in 1QFY23).

We believe going forward i) strong demand, improving supplies, ii) moderating commodity inflation and iii) moderate discounts, EBITDA margins to recover ~11.2% in FY24E (v/s 9.4% in FY23 and 10.5% in 4QFY23). We build in healthy revenue/EBITDA/PAT CAGR of 14%/23%/24% over FY23?25E. We maintain ADD rating on the stock with revised TP of Rs10,051 (v/s Rs10,605) valuing the stock at 24x Mar?25 EPS (v/s 10yr LPA of 29x). We upgrade FY24E EPS by ~8% to build in higher contribution from recently launched SUVs while cut FY 25E EPS by ~5% to factor in increased capitalization for new capacities.

Result Highlights? Operating performance continued to improve

* Revenues grew ~20% YoY (+10.3% QoQ) at Rs320.5b (in?line) led by 13.8% YoY (flat QoQ) growth in ASPs at Rs622.4k/unit (in?line). Flat ASPs QoQ is explained by weak product mix partly offset by price hikes. Average discounts for 4QFY23
    declined to Rs13,269/unit (v/s Rs18,291/unit in 3QFY23 and Rs11,130/unit in4QFY22.
* Gross margins came in?line lower at 26.7% (+20bp YoY/ ?60bp QoQ). As indicated by the management, while RM was sable QoQ, increased contribution from SMG reflected in higher overheads sitting in RM costs. This coupled with one off
   expense of Rs400m due to auto expo partially negated operating leverage, restricted EBITDA growth to 18.3% YoY (+38% YoY) at Rs33.5b (est Rs35b) with margins expanded 140bp YoY (+70bp QoQ) at 10.5%. EBITDA/vehicle continues
   to improve with ~7% QoQ to Rs65k/unit (+31% YoY).
* Other income at Rs7.4b (est Rs8.2b) and lower tax at 19.4% (est 20.6%), led adj PAT growth by 42.7% YoY (+11.6% QoQ) at Rs26.2b (est Rs28.3b).
* FY23 performance ? Revenues/EBITDA/Adj. PAT grew 33%/~1x/1.1x. Net ASP increased 11.9% to ~Rs597.7k/unit backed by price hikes, favorable mix and controlled discounts. FY23 dividend at Rs90/share (v/s Rs60/share in FY22).

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