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Estimates 6% CAGR in dom. PV Industry till FY31

To add 2m units capacity by FY31 | Aiming for SUV leadership in FY24

Maruti Suzuki (MSIL)’s FY23 Annual Report highlighted: a) its expectations of 6% volume CAGR in domestic PV industry until FY31, b) its estimate of 14-15% export CAGR until FY31, c) addition of 2m units capacity in nine years, d) small cars to report <2% CAGR, needing MSIL to restructure its production facilities, e) its aim for a leadership position in SUVs in FY24, f) its first EV launch in FY25E, and g) its focus on CNG and other clean fuels that would reduce its carbon footprint. The key takeaways are highlighted below:

* Unlike double-digit growth witnessed in the Chinese PV market in the past, MSIL expects a 6% CAGR until FY31 for the Indian PV industry. In FY24, the company expects to grow at a slightly higher rate than the market. Additionally, management expects demand from the exports market would continue to grow. It anticipates export volumes of 750k-800k units by FY31 (vs. 259k in FY23; implying 14-15% CAGR).

* MSIL is looking to add another 2m units capacity (vs. current 2.25m units). It is adding 250k units capacity in the first phase (at a capex of INR110b) at the first site in Kharkhoda, Haryana by 1HCY25. A similar plant of 250k units capacity will be added every year to reach a capacity of 1m units. Further, MSIL is in the process of selecting a second site for adding another 1m units capacity by FY31.

* MSIL reinforced its SUV product portfolio with the launch of Brezza and Grand Vitara. Further, the recently launched Jimny and Fronx will help MSIL expand its presence in the SUV segment. With the successful launch of Grand Vitara and Invicto, the company has proved its ability and established its brand in the premium segment. If the supply situation of the electronic components improves, MSIL aims to achieve market leadership in the SUV segment in FY24.

* Though the growth rate for non-premium hatchbacks is expected to be <2% CAGR, the industry volume is ~1m units p.a. with MSIL enjoying a ~70% market share. Hence, management intends to do whatever is necessary to meet customer needs in this segment in the best possible manner. With weak outlook of the smaller entry-level car market, MSIL is restructuring its production facilities to conform to the new realities (expects lower growth rate).

* The EV development is underway at the Gujarat plant and the first model is expected to be launched in FY25. By FY31, it expects to have six EV models that would contribute 15-20% to its total sales.

* In FY23, MSIL extended the S-CNG technology to six more models, taking the total CNG offerings to 14 (of MSIL’s 16-model portfolio). As a result, CNG vehicle sales for MSIL grew 40% (vs. +20.5% for overall sales), resulting in a rise in CNG’s share to 20% (from 17% in FY22).

* We are raising our EPS estimates for FY24/FY25 by 5-6% to reflect the sharp improvement in SUV mix, fueled by new product launch benefits since Jul’23. The stock trades at 25.8x/23.7x FY24E/FY25E consolidated EPS. Reiterate BUY with a TP of INR11,900 (premised on 25x Sep'25E consolidated EPS).

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