Buy Maruti Suzuki Ltd For Target Rs. 14,094 By Yes Securities Ltd
E Vitara price point key to watch for!!
Valuation and View – CNG to help drive industry outperformance
MSIL’s 3QFY25 results were steady and in-line as gross margins came in-line at 28.4% (- 70bp YoY/ +30bp QoQ). However, against topline growth of ~3.5% QoQ, EBITDA growth was flat at ~1% at Rs44.7b (est ~Rs47.5b) led by; 1) ~40bp drag due to higher A&P, 2) ~40bp RM impact, 3) increased discounts (on wholesales) at ~Rs31k/unit (vs Rs29.3k/unit in 2Q and ~Rs21.7k/unit in 1QFY25) at ~4.6% of ASP. This led EBITDA/vehicle came offpeak at ~Rs79k/unit (+1% YoY/-3.2% QoQ). Going ahead, increase in share of CNG, peak average discounts led by optimal inventory, stable RM and favorable mix are the positive margins triggers as volumes are likely to be stable led by industry growth dynamics. MSIL would likely outperform the industry led by strong CNG portfolio with ~33% contribution (vs ~33% in 2QFY25 and 1QFY25, ~26.9% in 4QFY24 vs 30.2% in 3QFY24).
We believe going forward, despite volume growth is expected to moderate, MSIL margins to likely to expand to ~12.4% (vs ~12% in 9MFY25). This will be led by, i) favorable mix, ii) moderate to stable RM inflation and iii) peak average discounts. Consequently, we build in revenue/EBITDA/PAT CAGR of 10.4%/12.8%/13% over FY24-27E. Led by decent valuations comfort and risk reward turning favorable, we have maintained the BUY with revised TP of Rs14,094 (vs Rs13,485) valuing the stock at 24x Mar-27 EPS. We increase FY26E/27E EPS by ~3-6% to factor in for favorable product mix and +fx. We prefer MM, HYUNDAI, EIM and TVSL over MSIL among our coverage OEMs.
Result Highlights – Higher A&P, RM dent margins
* Revenues grew 15.6% YoY (+3.5% QoQ) at ~Rs384.9b (est Rs389.4b) led by 2.3% YoY (-1% QoQ) growth in ASPs at Rs679.8k/unit (est Rs687.7k/unit) while volumes grew 13% YoY (+4.6% QoQ) at 566.3k units. Average discounts highest at ~Rs30.9k/unit (vs Rs29.3k/units in 2QFY25, ~Rs21.7k/unit in 1QFY25). Discount as % of ASP increased to 4.6% (+110+bp YoY/ +30bp QoQ).
* Gross margins contracted 70bp YoY (+30bp QoQ) at 28.4 (est 28.6%), impacted by higher A&P spend (~40bp QOQ), sales promotion & discounts (~20bps), Forex (-20bp), RM (-40bp) and favorable operating leverage (+20bp).
* Hence, EBITDA grew ~14.4% YoY (+1.2% QoQ) at ~Rs44.7b (est Rs47.5b) with margins remained flat YoY (-30bp QoQ) at 11.6% (est 12%, cons 11.7%).
* Other income at ~Rs9.8b (est Rs9.7b, +5.6% YoY) and steady operating performance, led Adj. PAT came in at ~Rs35.5b (est Rs36.1b, +12.6% YoY).
* 9MFY25 revenue/EBITDA and Adj.PAT grew 8.3%/+14.7% and 9.8% at Rs1112.3b, Rs133.9b and Rs102.4b, respectively.
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