IGI Logo

Valuation and View – CNG to help drive industry outperformance

MSIL’s 1QFY25 results were healthy as it reported ~17%/~11.6% Adj.PAT beat to our/street estimates led by healthy operating performance. Better than expected EBITDA at Rs45b (est Rs38.3b) was led by; 1) ~60bp reversal of one-off in RM reported in 4QFY24, 2) RM and forex benefit offset by increased discounts, 3) favorable operating income and other operating cost benefit of ~70bp/ ~30bp. However, this was offset by ~80bp negative operating leverage and ~30bp impact due to increased A&P spends. Despite ~10.6% QoQ volume decline, EBITDA/vehicle came in highest at ~Rs86.3k/unit (+44% YoY/ +7.5% QoQ), is considered healthy. Going ahead, increase in share of CNG, peak average discounts, stable RM and favorable mix are the positive margins triggers which is expected to playout as volumes are likely to be muted led by industry growth dynamics. MSIL would likely outperform the industry led by strong CNG portfolio with ~33% contribution vs 27% in 4QFY24.

We believe going forward despite volume growth is expected to moderate, MSIL margins to likely remain at current levels of 12.1-12.7%. This will be led by, i) favorable mix, ii) moderate to stable RM inflation and iii) peak average discounts. Consequently, we build in revenue/EBITDA/PAT CAGR of 9.5%/14.6%/11.7% over FY24-26E. We maintain ADD with revised TP of Rs14,682 (vs Rs13,868) valuing the stock at 28x Mar-26 EPS (v/s 26x earlier as we reduce discount to 10yr LPA of 29x). We upgrade FY26E EPS by ~5.5% to build in for better exports volumes and higher other income.

Result Highlights – Favorable Fx, one-offs reversal drive EBITDA beat

* Revenues grew ~9.9% YoY (-7.1% QoQ) at ~Rs355.3b (est Rs347.8b) led by 2.7% YoY (+1.8% QoQ) growth in ASPs at Rs680.9k/unit (est ~Rs666.5k/unit) while volumes grew 4.8% YoY (-10.6% QoQ) at ~521.9k units. Average discounts (on wholesales) increased to Rs21.7k/unit (v/s Rs14.5k/unit in 4QFY24). Royalty rate for 1QFY25 at 3.5% (flat QoQ).

* Gross margins expanded 260bp YoY (+120bp QoQ) at 29.8 (est 28.4%), supported by sustained cost controls, favorable fx and benign RM.

* Consequently, EBITDA grew ~51% YoY (-4% QoQ) at ~Rs45b (est ~Rs38.3b) with margins expanded 340bp YoY (+40bp QoQ) at 12.7% (est 11%, cons 11.6%). This was led by 1) ~60bp reversal of one-off in RM reported in 4QFY24, 2) RM and forex benefit offset by increased discounts, 3) favorable operating income and other operating cost benefit of ~70bp/ ~30bp. However, this was offset by ~80bp negative operating leverage and ~30bp impact due to increased A&P spends.

* Other income at ~Rs9.6b (est Rs10.2b, -12.8% QoQ), led Adj. PAT came in at ~Rs36.3b (est ~Rs31.3b, cons Rs32.7b, +46.9% YoY, -5.9% QoQ).

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632.