IGI Logo

MSIL’s 3QFY24 EBITDA margin came in at 11.7% was in-line with JMFe. Sequential decline (120bps) was owing to negative operating leverage (seasonality) and higher discounts. Chip supplies have largely normalised, helping lower the order backlog (c.215k units). MSIL, with back-to-back SUV launches has strengthened its presence in the B-segment (regained leadership position with c.24% mkt. share). Healthy momentum in SUV/CNG portfolio is expected to drive vol. growth. Benefit of higher operating leverage and richer portfolio mix is expected to support margins going ahead. We estimate revenue / EPS CAGR of 13% / 23% over FY23-26E. While there are no immediate catalysts for the stock, sustained market share growth driven by a technology-agnostic approach is likely to drive investors’ interest. We ascribe 25x PE to arrive at Mar’25 fair value of INR 12,250. Maintain BUY. Revival in entrylevel segment remains a key monitorable.

* 3QFY24 – In-line margin performance: MSIL reported net revenue of INR 333bn (+15% YoY, -10%QoQ), in-line with JMFe. 3Q wholesales stood at c.501k units (+8% YoY, - 9%QoQ). Realization declined by c.2% QoQ (+6% YoY) owing to higher promotion expenses. Discount during the quarter stood at INR 23k vs. INR 17.7k in 2Q. EBITDAM came in at 11.7% (+200bps YoY, -120bps QoQ), broadly in-line with JMFe. Reported PAT stood at INR 31.3bn (+33%YoY, -16% QoQ).

* Demand environment: Pending order book as at Dec’23 stands at c.215k units (vs. 250k units at the end of 2Q) led by higher demand for recent launches and CNG models. Normalisation of component supplies helped the company lower order backlog. Dealer inventory stands at an optimium level. The company indicated that demand for entry segment continues to remain muted and it is hopeful of recovery in this segment in the medium term. Overall, PV industry is expected to grow by low-to-mid single-digit in FY25 (SIAM est.) and MSIL is expected to grow ahead of the industry. With respect to exports, MSIL is targeting to grow export volumes by 3x (to c.750k units) by FY31. This is based on gradually increasing presence across regions and expanding product offerings. EV model launch in India is expected during CY24. MSIL also plans to export it to Japan and EU.

* Margin outlook: EBITDA margin declined by c.120bps QoQ to 11.7% due to negative operating leverage (-110bps), higher discounts (-70bps) and Ad.expenses (-30bps) partially offset by favourable forex movement (+30bps), lower royalty (+30bps) and commodity costs (+10bps). Management indicated that recent increase in steel prices is expected to largely offset the benefit of softening precious metal prices. MSIL has taken a price increase of c.0.5% during Jan’24. Going forward, higher operating leverage, lower discounts, price hike and cost control efforts is expected to support margins.

* Other highlights: 1) The company indicated that it will require capacity of 4mn cars p.a. by 2030-31. It plans to increase no. of model offerings from 18 currently to 28 by that time. 2) CNG / Hybrid penetration for industry stands at 16.5% / 2%. MSIL’s CNG penetration stands at c.31%. 3) Additional 100k units capacity at Manesar plant is expected to be operational by Mar’24. Further, 250k units capacity addition at Kharkhoda plant is expected during FY25. 4) Share of first time buyers improved to c.41% in 3Q vs. 38% in 2Q. However, it is still below its previous peak of c.47% in 2021.

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784