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Margin surprised, Maintain BUY

MSIL delivered better than expected performance on all fronts. Company delivered a 10% YoY growth on the top line front to Rs. 338 billion (vs CEBPL's estimated Rs.331bn). The growth was driven by a 4.8% YoY increase in the average selling price (ASP) and a 4.8% YoY increase in volume. YoY margin expansion is attributed to lower RM cost and operating leverage benefit and better ASP mix was supported by favorable model mix and forex. The operating margin improved on a yearly basis to 12.7% (vs CEBPL's est of 11.2 %), showing a expansion of 344bps YoY and +42bps QoQ, primarily driven by lower raw material costs and cost reduction efforts, resulting in robust EBITDA growth of 51% to Rs.45 billion (vs CEBPL’s est of Rs.38.8 billion). EBIDTA/vehicle improved by 44% to Rs.86273/ vehicle. The profit after tax (PAT) grew by 46.9% YoY jump, to Rs.36.5bn. Inventory level at the end of the quarter was around 37 days.

* Working on new models with higher safety features: MSIL has been synonymous with fuel-efficient, budget-friendly family cars for years, often achieving this by keeping safety features minimal and curb weight low. However, over the last two to three years, customer preferences have shifted towards vehicles with more features and stricter safety standards. With the introduction of Bharat NCAP norms, MSIL is poised to manufacture cars that exceed these safety requirements. This commitment to safety is expected to bolster MSIL's market share in the coming years. In addition, MSIL is ramping up production capacity at its Kharkhoda plant, with the first phase—250,000 units—set to go online in 2025. This expansion will enable MSIL to manage various powertrain technologies, including electric vehicles, hybrids, CNG, and ethanol, all under one roof. The move will unlock operational and scale efficiencies, solidifying MSIL's position as a leader across the powertrain spectrum in the passenger car segment.

* Scaling up the more efficient vehicles: Looking ahead, MSIL plans to launch its first BEV (Battery Electric Vehicle) by 2025, with a total of six EV models anticipated by FY31, accounting for 15-20% of total sales. The powertrain mix is expected to consist of 15% BEV, 25% hybrid, with the remainder coming from fuelefficient ICE (Internal Combustion Engine) vehicles, such as CNG, biogas, flex-fuel, and ethanol-blended fuel models. This strategic mix not only supports MSIL's market dominance but also aligns with broader carbon footprint reduction goals

* Promising outlook for export led by higher SUV share: Company started exporting Jimny-5 Door started for Latin America, Middle East and Africa and aims to achieve 750k annual sales by FY31. To support future volume, the company is looking to expand the overall capacity to 4mn/p.a. unit by 2030-31 (Domestic and Export market). The export volume was dominated by South Africa, followed by South America. Driven by strong demand in the export market, the expansion of the network, the inclusion of new products, and geographic expansion will help to deliver healthy export volume growth in the coming years, with the company aiming to sales around 300k units in FY25.

* View and Valuation:

We remain positive on long term growth story led by: 1) a large distribution network (3,719 sales outlets, 5000 service touch-points); 2) largest low emission product portfolio offering; 3) new/refresh launches in the Hybrid/ SUV and EV segment; 4) capacity expansion to (4mn units by 2030-31), 5) growing export volume (addition of newer model from UV segment) and increasing Nexa distribution network in rural market. We value the stock based on FY26E EPS to arrive at a TP of Rs. 14,338 with the BUY rating (27x FY26E EPS

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