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In 1QFY24, MSIL’s Adj. EBITDA margin came in at 10% (+280bps YoY, -50bps QoQ), c.50bps below JMFe. Sequential decline in margin was due to new launch expenses and higher discounts. Employee cost had one-off impact of 80bps related to employee retention bonus. MSIL lost c.28k units due to chip shortage during 1QFY24. Management highlighted that chip supplies have largely normalised. Order inflow continues to remain healthy with over c.355k units of pending bookings led by recent launches/CNG variants. With the introduction of Jimny, Fronx and Invicto, MSIL intends to further strengthen its presence in the B-segment (regained leadership position in SUVs in 1QFY24). Benefit of richer portfolio mix, softening commodity costs and higher operating leverage is expected to aid margins going ahead. The company announced its plan to acquire SMG (at net book value - INR 127bn) to consolidate manufacturing operations and drive efficiencies. We estimate revenue / EPS CAGR of 13% / 23% over FY23-26E. After two consecutive years of market share loss, we believe that MSIL is at the cusp of mkt. share recovery led by new launches. We ascribe 25x PE to arrive at Jun’24 fair value of INR 11,500. Maintain BUY

* 1QFY24 – Adj. EBITDA below estimates: MSIL reported net revenue of INR 323bn (+22% YoY, +1%QoQ), c.1% above JMFe. 1Q wholesales stood at c.498k units (+6% YoY, - 3%QoQ). Realization improved by 3.5% QoQ (+15%YoY) despite higher promotion expenses. Discount during the quarter stood at INR 16.2k vs. INR 13.2k in 4Q. Adj. EBITDAM came in at 10% (+280bps YoY, -50bps QoQ), 50bps below JMFe. However, reported EBITDAM stood at 9.2% due to one-time employee retention related bonuses. Reported PAT stood at INR 24.8bn (+146%YoY, -5% QoQ).

* Demand environment: Pending order book as at Jun’23 stands at c.355k units (vs. 412k units at the end of 4Q) led by higher demand for recent launches and CNG models (c.27% penetration for MSIL). 1QFY24 witnessed lost sales of c.28k units owing to shortage of electronic components. The Company indicated that chip supplies have improved significantly and it remains hopeful of normalised supplies going ahead. Dealer inventory stands at a normal level of c.4 weeks (c.125k units). MSIL gained UV market share by 3.3ppt QoQ to c.23%. Overall, the company remains upbeat on sales momentum going ahead led by healthy demand for new/recent SUV launches. Demand for entry segment continues to remain muted. Overall, PV industry is expected to grow between 5-7% in FY24 and MSIL is expected to grow ahead of the industry

* Update on new product launches: Recently introduced Jimny, Fronx and Invicto have received good customer response. Pending order book for Brezza / GV / Jimny / Fronx / Invicto / Eritga stands at 48k / 27k / 23k / 22k / 8k / 93k units. Backed by recent SUV launches, the company has regained leadership position in SUV segment during 1QFY24.

* Margin outlook: Adj. EBITDA margin declined by 50bps QoQ due to higher sales promotion expense (incl. for new launch). Employee cost had a one-time 80bps negative impact owing to retention bonus paid to employees. Management indicated that steel and other precious metal prices have softened recently (with favourable impact expected from 2Q). And, the company expects better mix (on improving supplies), lower commodity costs, cost control and higher volume led positive operating leverage to drive margins going ahead

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