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MSIL reported a ~6%/5% beat vs consensus on revenue/EBITDA, led by an 8% QoQ growth in ASPs due to a better product mix. EBIT margin declined by 40bps QoQ to 8%, impacted by several push-pull factors, including costs related to the Kharkhoda plant, higher staff expenses, and operating deleverage—partly offset by lower marketing spends and reversal of lumpy expenses seen in Q4. MSIL highlighted that demand remains subdued; however, it is hopeful of an improvement in Q2, led by festive and monsoon-related factors. The upcoming electric SUV, E-Vitara, and a new ICE SUV launch this year are likely to support performance, even as exports remain strong (~47% market share in Q1). We continue to prefer MSIL for better visibility on new ICE launches compared to the broader industry, where most incremental launches are in EVs. Valuation near 1SD below LTA also provides comfort. We slightly raise FY26E/27E EPS and build in a 10% EPS CAGR over FY25–28E. We maintain BUY with a revised TP of Rs14,300, based on 25x core Jun-27E EPS + ~Rs2,850 cash/share.

Better mix drives ~6%/5% beat on revenue/EBITDA

Revenue was up 8% YoY to Rs384bn (~6% beat vs consensus), due to ~8% QoQ growth in ASP to Rs726K/unit due to a favorable model mix tilted toward SUVs. EBITDA was down 11% YoY to Rs40bn (~5% beat), with margin flattish QoQ at 10.4%. On a QoQ basis, EBIT margin declined by ~40bps, dragged by operating deleverage, commodities, forex, employee costs, and Kharkhoda plant startup costs (total ~220bps impact), although partly offset by a better mix, lower marketing spends, and the reversal of 90bps lumpy expenses seen in Q4 (total ~180bps impact). PAT rose 2% YoY to Rs37bn.

Earnings Call KTAs

1) Domestic demand is subdued, with Q1 weaker than expected; however, MSIL is hopeful of improvement in Q2, led by the monsoon, festive tailwinds, and rural demand. It remains optimistic about its own performance in coming quarters, given two upcoming launches in FY26 (E-Vitara and ICE SUV). 2) Rural demand continues to outperform urban, remaining in positive territory. Ahead, per MSIL, it is difficult to quantify the benefit of the Pay Commission on demand. 3) Rising export traction is due to preparatory groundwork over several years across network, products, market learnings, and support from parent Suzuki. MSIL’s exports grew 37% in Q1 (Japan is the second-largest market) vs a 2% decline for rest of the industry. The upcoming commencement of E-Vitara exports is seen as the next big trigger for further momentum; MSIL aims to cover 100 markets by FY26-end. No discounting pressure is observed, with export margins healthy. 4) Dealer inventory is under control at 33 days. 5) Efforts are underway to mitigate rare earth magnet availability. MSIL views supply chain resilience as a key monitorable amid shifting dynamics related to powertrains and emission targets. 6) FY26 capex guidance is Rs100bn, with Q1 spends in line with the overall outlook (SMG capex to be over and above Rs100bn). 7) CNG contribution to domestic volume at 33% in Q1; discounts flat vs Q4 on absolute basis; export revenue at Rs65bn; spares revenue up 13% YoY.

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