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Healthy operating performance

Valuation and View – On track to outperform industry in FY24E

MSIL’s 2QFY24 overall results were healthy as EBITDA/Adj.PAT came in higher by 18- 22% to our/street estimates. This was led by higher than expected gross margins at 29.4% (+250bp YoY/ +220bp QoQ, led by soft RM). Going ahead, margins expansion to be influenced by 1) forex movement (expected to be favorable), 2) decline in precious metal prices to be partially offset by recent spurt in Steel prices (factor to remain watchful) and 3) under control discount at ~2.5% of ASP. The demand commentary remained mix with festive to festive industry growth expected at ~18% (MSIL to grow in-line) while FY24E PV industry growth expected at ~5%. With improved supply, overall orderbook declined to ~250k units as of today (v/s ~355k in 1Q and ~412k in 4QFY23).

We believe going forward with, i) stable demand, improving supplies and refreshed product portfolio, ii) moderating commodity inflation and iii) controlled blended discounts, EBITDA margins to recover ~11.2% in FY24E (v/s 9.4% in FY23 and 10.5% in 4QFY23). Going forward volume we build in healthy revenue/EBITDA/PAT CAGR of 15%/35%/30% over FY23-25E and maintain ADD rating on the stock with revised TP of Rs12,153 (v/s Rs11,671) valuing the stock at 26x Mar-25 EPS (v/s 10yr LPA of 29x). We upgrade FY24/25E EPS by ~2-4% to build in for better operating performance.

Result Highlights – No-offs in the fine print

* Revenues grew ~23.8% YoY (+14.6% QoQ) at Rs370.6b (in-line) led by 16.1% YoY (+3.4% QoQ) growth in ASPs at record Rs671.3k/unit (est Rs688k/unit) while volumes grew 6.7% YoY (+10.8% QoQ) at 552k units. Average discounts increased to Rs17,692/unit (2.6% of ASP) v/s Rs16,214/unit (2.5% of ASP) in 1QFY24.

* Gross margins came in better than expected at 29.4% (est 27.5%, +250bp YoY/ +220bp QoQ). This was led by softening of key RM prices. Management indicated no one-offs on the margins print.

* Other expense came in at Rs47.9b (est Rs50.4b, +15.6% YoY). Consequently, EBITDA grew ~73% YoY (+60% QoQ) at Rs47.8b (est ~Rs39.2b, cons Rs40.4b) with margins expanded 360bp YoY (+370bp QoQ) at 12.9% (est 10.3%, cons 11%).

* Healthy operating performance was partially offset by lower other income at Rs8.4b (est Rs9b, -15.7% QoQ), led adj.PAT at ~Rs37.2b (est Rs31.4b, cons Rs30.4b, +80% YoY, +47% QoQ).

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