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In 4QFY23, MSIL’s EBITDA margin came in at 10.5% (+140bps YoY, +70bps QoQ), c.20bps above JMFe. Sequential improvement in margin was led by higher operating leverage and lower discounts partially offset by unfavourable currency movement. MSIL lost c.38k units due to chip shortage during 4QFY23. Management highlighted that the situation on chip supply remains volatile. Order inflow continues to remain healthy with over c.412k units of pending bookings led by recent launches/CNG variants. With the introduction of Jimny and Fronx, MSIL intends to strengthen its presence in the B-segment and aim for leadership position in SUVs in FY24. Benefit of richer portfolio mix and higher operating leverage is expected to aid margins going ahead. We estimate revenue / EPS CAGR of 14% / 30% over FY23-25E. After two consecutive years of market share loss, we believe that MSIL is at the cusp of mkt. share recovery led by new launches. Healthy order book and operating leverage tailwinds will further support strong performance going ahead. We ascribe 25x PE to arrive at Mar’24 fair value of INR 11,200. Maintain BUY.

* 4QFY23 - In-line estimates: MSIL reported net revenue of INR 320bn (+20% YoY, +10%QoQ), c.2% below JMFe. 4Q wholesales stood at c.515k units (+5% YoY, +11%QoQ). Realization remained flat QoQ (+15%YoY) despite unfavourable mix owing to lower promotion expenses. Discount during the quarter stood at INR 13.3k vs. INR 18.2k in 3Q. EBITDAM came in at 10.5% (+140bps YoY, +70bps QoQ), 20bps above JMFe. Adj. PAT stood at INR 26.2bn (+42%YoY, +12% QoQ), broadly in-line with JMFe.

* Demand environment: Pending order book as at Apr’23 stands at c.412k units led by higher demand for recent launches and CNG models (1/3rd). 4QFY23 witnessed lost sales of c.38k units owing to shortage of electronic components. The Company indicated that though chip supplies have improved, situation continues to remain uncertain. And, the company is working towards organizing chip supplies through multiple sources. Dealer inventory stands below normal level at c.2-3 weeks. Overall, the company remains upbeat on sales momentum going ahead led by healthy demand for new/recent SUV launches. The company expects demand from entry segment to remain flattish going ahead. Overall, PV industry is expected to grow between 5-7% in FY24 and the management expects MSIL to grow ahead of the industry

* Update on new product launches: Recently introduced Jimny and Fronx have received good customer response. Share of bookings for GV (strong hybrid) variant stand at c.20%. Backed by recent SUV launches, the company aims to regain leadership position in SUV segment in FY24. First EV launch is expected in FY25. The EV will feature 550km range, 60 kwh battery and a competitive charge time. The company also plans to introduce Strong Hybrid technology in other models

* Margin outlook: EBITDA margin improved by 70bps QoQ led by higher operating leverage and lower discounts partially offset by unfavourable currency movement. Management indicated that recent rise in steel prices could have an impact on margins during 1QFY24. Auto expo related spends during the quarter stood at INR 400mn. Overall, the company expects, better mix, cost control and higher volume led positive operating leverage to drive margins going ahead.

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