IGI Logo

Demand backlog to offset commodity headwinds

Maruti reported an in-line 3QFY21 with PAT at Rs 19.4bn (+24% YoY), driven by 13% YoY growth in revenue and higher other income. However, the EBITDA margin at 9.5% was below estimates (vs. expectation of 10.2%). We remain enthused by Maruti’s strong demand outlook, with pending orders of 215k units, and believe the commodity headwinds will be partially offset by - (1) rising utilisation levels as we expect double-digit demand growth (15%) in FY22-23E (2) price hikes and (3) normalising product mix over FY22-23E as demand revives. Reiterate BUY. Our target price is revised marginally lower to Rs 9,000 (at 27x FY23E EPS) as we trim our estimates over FY22-23E.

* 3QFY21 financials: Revenue grew 13% YoY to Rs 234bn, owing to a similar growth in volumes (+13.4/26.1% YoY/QoQ). Average realisation at Rs 473k came in flat YoY/QoQ due to higher share of entry-level cars in the mix. EBITDA margin at 9.5% (-65/80bps YoY/QoQ) was a miss owing to commodity cost pressure (raw material cost ratio costs up 165/250bps YoY/QoQ). Other income at Rs ~10bn was up 27/65% YoY/QoQ due to higher fair value gains. PAT grew by 24/42% YoY/QoQ to Rs 19.4bn.

* Key takeaways: (1) Demand sustains post the festive season: Demand momentum continued post the festive season as well. The company currently has a backlog of 215k units (c. 1.5 month of sales). System inventories remain extremely low (21k units at the beginning of Jan-21). (2) RM cost pressure: Commodity costs had a 300bps impact on the EBITDA margin in 3QFY21, with the cost pressure expected to sustain in 4QFY21 as well. The company has undertaken cost-cutting initiatives and taken price hikes in the range of 6-34k to offset the above. (3) First-time buyers increase: Due to COVID, the share of replacement buyers has fallen from 26% in FY20 to 19% currently. Against this, the share of first-time buyers has risen from 44 to 49%, due to a shift in consumer preference towards personal mobility. (4) Others: Maruti has launch e-financing services to promote end-to-end digital buying experience. The company has commenced exports of the Jimny SUV. The plant in Gujarat is operating at peak capacity of 500k units.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.hdfcsec.com/article/disclaimer-1795

SEBI Registration number is INZ000171337

Above views are of the author and not of the website kindly read disclaimer