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2025-04-14 09:30:08 am | Source: Emkay Global Financial Services
Buy Maruti Suzuki India Ltd For Target Rs. 13,500 By Emkay Global Financial Services
Buy Maruti Suzuki India Ltd For Target Rs. 13,500 By Emkay Global Financial Services

We upgrade MSIL to BUY from Add while revising up our TP by 5.5% to Rs13,500 at 25x core Mar-27E PER (rolled-over) despite a muted near-term PV industry environment. Notably, new launches have historically driven volume growth in PVs; MSIL’s launch cycle turns positive in FY26E (vs a muted industry launch pipeline) with 2 major upcoming ICE SUVs (5-seater likely in Sep-25E; 7-seater likely in Jan-26E; combined production of ~18-20K/mth per industry checks; we factor in 12K units/mth), apart from the recently unveiled E-Vitara electric SUV. This coincides with early signs of improvement seen in small cars (2% growth in Dec-Jan after ~3Y of decline) with potential consumption boosts (recent tax cuts, 8th Pay Commission) providing further optionality; however, sustenance of such improvement needs to be watched. We build in ~8% FY25E27E volume CAGR, with 12.5% margin by FY27E vs 11.6% in Q3, on higher share of SUVs; EPS CAGR is 13% (FY26E/27E EPS, in line with/5% below Consensus. Risk-reward is favorable, with 1YF valuations near 1SD below LTA.

 

Two new ICE SUVs in FY26E; strong volume visibility, per industry checks

MSIL’s upcoming launches ICE SUV launches (5-seater likely from Sep-25E, and 7-seater likely in Jan-26E) provide greater growth visibility as against the muted PV industry pipeline. Per our industry checks, there are indications of significant ~18-20K/mth volumes from the 2 SUVs (we factor in 12K). This, along with the upcoming electric SUV E-Vitara (10-12K units/mth as per checks led by exports, leveraging Toyota’s distribution network), drive 5%/8% upgrade in FY26E/27E revenues. We also draw comfort from MSIL’s aggressive long-term growth intent, ie 1) near-doubling of capacity to ~4mn units pa by 2030, 2) 9 model launches by 2028 (per media reports), 3) ambition to reclaim 50% market share apart from enhanced exports focus (targets 3x volumes by 2030), and 4) work under way on BEVs (4 planned launches by 2030), aided by collaboration on a common EV platform with other Japanese players, to ensure cost efficiencies.

 

Small car decline narrowing; sustainability needs to be monitored

Small cars are showing early signs of improvement (2% growth in Dec-Jan, after ~3 years of decline); Wagon R, one of MSIL’s power brands, has seen 3 months of growth. We believe potential consumption boost from the recent tax cuts and 8th Pay Commission payout could be further enablers; however, sustenance of such improvement needs to be watched. Parent Suzuki has also announced its intent to revive interest in the segment, with launch of a new model in coming years. MSIL would be an outright beneficiary of small car recovery owing to its lion’s share in the segment (~67% as of FY25YTD).

 

Risk-reward attractive; valuations below LTA

MSIL managed its Q3 profitability well, at 11.6% (vs 150bps decline at HMIL), despite discounts being at record high levels. We believe a richer SUV mix would help drive margin improvement to 12.5% by FY27E (though partially negated by EVs); FY25E-27E core EPS CAGR stands at 11%. We believe valuations at 21x Mar-27E PER are attractive; at CMP, MSIL trades near 1SD below its LTA from a 10-year perspective.

1-Year share price trend (Rs)

 

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