Reduce Maruti Suzuki Ltd For Target Rs.7,782 - Yes Securities
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Near term outlook positive; structurally weak
Valuation and View
MSIL’s 3QFY22 result was operationally better as margins expanded ~250bp QoQ at 6.7% (v/s est of 5.3%) led by operating leverage and better cost control. As chip shortage challenges continue to ease out QoQ, better utilization to aid further margins expansion in 4QFY22 as well. This coupled with strong order backlog at ~264k units, lower discounts and price hike (~2% in Jan) to help healthy profitability in short to med term.
We believe, MSIL to continue benefit from healthy domestic demand momentum (~10% CAGR), coupled with increasing CNG penetration (currently ~30% mix in existing models) and higher exports (~40% CAGR) over FY21-24. However, re-rating levers such as significant new launches (with class leading features), intensifying competition in growing SUV space and wait & watch stance on EVs would limit any meaningful upside. We have marginally cut FY23/24 EPS estimate by 0.3%/0.5% to factor in lower other income. We hence, continue to maintain REDUCE rating on the stock with TP at Rs7,782 based on 24x FY24 EPS. MSIL currently trades at 34.5x/26.5x of FY23/24 EPS (v/s 27.5x of 10 year LPA), which factors in the near term positives, we believe.
Result Highlights
* Revenues declined 1% YoY/ (+13% QoQ) at Rs232.5b (in line with our est) as volume decline of ~13% YoY was offset by realizations growth of ~14% YoY (- 0.3% QoQ) at Rs5.40L (our est at Rs5.52L).
* Company currently has an orderbook of ~264k units (v/s ~240k units in Dec’21).
* Gross margins contracted 280bp YoY/+60bp QoQ at 24.7% (in line). However, led by op leverage benefits and cost control, margins came in higher at 6.7% (-280bp YoY/+250bp QoQ, est at 5.3%).
* Consequently, EBITDA beat came in at Rs15.6b (-30% YoY/+82% MoM, est at Rs12.6b).
* Better op performance was partially offset by lower other income at Rs3.3b (est at Rs5.5b). However, lower dep at Rs6.4b (est at Rs7.5b) and lower tax at 17.2% (est at 21%) led Adj. PAT beat at Rs10.1b (v/s Rs19.4b in 3QFY21, est at Rs8.2b).
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