IGI Logo

Maruti Suzuki’s Q3FY24 print was in-line with our estimates. Revenue/EBITDA/PAT grew 14.7%/39.9%/33.1%. Overall volumes grew 7.6% backed by 6.3%/15.8% growth in domestic and international business. Strong SUV lineup helped in achieving market share of ~21% in the SUV segment, yet register highest ever CNG volume with 16.5% mix in Q3. Management alluded strong performance led by, (1) improved consumer sentiment around festivals, (2) better product mix of SUV’s and  CNG/Hybrid/EV in fuel, and (3) surge in export volumes. Inventory level after de-stocking in Dec’23 stood at 45K, while pending order backlog stood at ~215K units. Gross margin inched up to 29.1% (176bp) YoY, driven by a better mix and stable commodity prices but offset by higher discounts (3.5% of ASP – Rs23.3k/unit). Despite higher A&P spend (100bp), other exp. (+13.8%), employee cost (+11.6%) EBITDA margin rise to 11.7% (198bp). Management expects low single digit volume growth in PV industry (~4.3mn) due to weakness in Mini/compact, though MSIL would outperform industry in our view. We hold earnings and remain upbeat on MSIL’s operating performance and maintain BUY rating with TP of Rs15,082 (implying 28.9x avg. FY25E/FY26E EPS).

Demand Skewed towards SUV’s led to net better realization ~7%, visible pain in hatchbacks

MSIL reported Q3FY24 consol. revenue of Rs333.1bn (+14.7%) YoY. MSIL overall volume grew 7.6% backed by SUV volume growth 59.6%, while mini+compact/sedan volume declined by 16% YoY, SUV’s contribution increased from 20.7% to 30.7% in 3QFY24. Our channel check indicate Grand VitaraMSIL reported Q3FY24 consol. revenue of Rs333.1bn (+14.7%) YoY. MSIL overall volume grew 7.6% backed by SUV volume growth 59.6%, while mini+compact/sedan volumes declined by 16% YoY, SUV’s contribution increased from 20.7% to 30.7% in 3QFY24. Our channel check indicate Grand Vitara in UV’s and CNG vehicle getting strong consumer traction. Management alluded resilient performance to, (1) first time buyer mix reached to 41%, (2) small car segment shrinking both in absolute and percentage terms, though improved around festival season, (2) CNG mix was 16.5%, (3) improved product mix of SUV’s, and (4) surge in export driven by Africa and Middle East. Inventory level after de-stocking in Dec’23 stood at 45K, while pending order backlog stood at ~215K units.

Multiple tailwinds lead to margin expansion

Gross margin inched up to 29.1% (176bp) YoY, driven by a better mix and stable commodity prices but offset by higher discounts (3.5% of ASP – Rs23.3k/unit). Despite higher A&P spend (100bp), other exp. (+13.8%), employee cost (+11.6%) EBITDA margin rise to 11.7% (198bp).PAT margin rise to 9.4% despite higher interest expenses (+19.6%) and other income. We reckon MSIL benefited from structural tailwinds led by, (1) richer product mix (2) benign steel and precious metal prices, (3) favorable FX. We expect with 0.4% price increases in Jan24 and launch of BEV, mid-size SUV with higher range of 550km (battery of 60kWh) in the domestic market may influence stable margins in FY25 as well.

Valuation and risk – maintained BUY rating with target price of 15,082

As argued in our initiating coverage with renewed focus on fuel efficient models such as CNG/hybrid and strong line-up for SUVs despite short term weakness in hatchback segment, we expect Maruti Suzuki’s performance to be driven by, (1) reshaping of portfolio driven by SUVs, (2) visibility on EV entry in FY25, and (3) consolidation of SMG. We believe Greenfield plant in Kharkhoda, Gujarat and additional EV line in SMG will create synergy and help MSIL to secure 4mn capacity by FY2030-31. Given strong growth and margin expansion in 9MFY24 we remain upbeat on MSIL operating performance and maintain BUY rating with TP of Rs15,082 (implying 28.9x avg. FY25E/FY26E EPS). Risks: Rising commodity price and renewed competition in SUV.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331