Buy Maruti Suzuki Ltd For Target Rs.14,500 by Motilal Oswal Financial Services Ltd
In-line performance; visible signs of improving rural demand
Demand recovery visible in 3QFY25; inventory level at just nine days
* Maruti Suzuki India (MSIL) reported an in-line performance during 3QFY25. Margin dilution in Q3 was restricted to 30bps QoQ despite the rise in discounts due to favorable operating leverage benefits. Retail demand showed signs of recovery, with retail sales rising ~8% YoY in 3Q (vs 3.5% YoY growth in 9MFY25), mainly driven by rural markets.
* We keep our estimates unchanged. For FY26, we anticipate multiple launch tailwinds for MSIL, including: 1) an EV launch, for India and exports; 2) hybrid variants; and 3) one more SUV. The stock is attractively valued at 23x/21x FY26E/FY27E EPS. Reiterate BUY with a revised TP of INR14,500 (premised on 26x Dec’26E EPS).
Minimal margin dilution QoQ despite rise in discounts
* 3QFY25 standalone revenue/EBITDA/PAT grew ~16%/14%/13% YoY to INR384.9b/44.7b/35.3b (est. INR385.1b/43.8b/34.8b). 9MFY25 revenue/EBITDA/PAT grew 8%/15%/16% YoY.
* Revenue growth was driven by 13% YoY growth in volumes and ~2% YoY growth in ASP at ~INR679.8k (est. INR680.1k).
* Gross margins contracted 70bp YoY (+30bp QoQ) to 28.4%, while EBITDA margin came in at 11.6% (-10bp YoY/-30bp QoQ, est. 11.4). The company reported incremental cost pressures, including: 1) sales promotion up 20bp QoQ; 2) higher marketing spend due to the launch costs of Dzire and e-Vitara – up 40bp QoQ; and 3) adverse forex of 30bp QoQ. Discounts for 3Q stood at INR 30,990 per unit vs INR29,300/unit in 2Q.
* However, these were offset by lower input costs (30bp) and operating leverage benefit (30bp).
* Overall, EBITDA grew ~14% YoY to INR44.7b (est. INR43.8b).
* Adj. PAT for the quarter grew 13% YoY at INR35.3b (in line).
Highlights from the management commentary
* 3Q retails grew 8.3% YoY to 573k units: This marked the highest-ever performance, led by festive momentum and higher discounting. This resulted in a 3.5% retail growth for MSIL over 9M. The company expects to deliver similar retail growth in 4Q. Rural (+15%) is performing better than urban (+2.5%) for MSIL.
* Preference for high-end models continues: In the hatchback segment, higher-end hatches are outperforming lower-end ones. Similarly, in rural areas, consumer trends are increasingly aligning with urban regions, with a noticeable shift toward premiumization.
* Exports: MSIL continues to witness strong growth across many export regions, including Africa, LatAm, ME, and ASEAN.
* e-Vitara will be exported to over 100 countries globally. MSIL is poised to become the No. 1 EV OEM by production in India in its first year of launch. With the launch of e-Vitara, the company plans to develop an EV ecosystem, including a charging network, dealer capabilities, roadside assistance, etc.
Valuation and view
* For FY26, we see multiple launch tailwinds for MSIL, such as its first EV for India and exports, hybrid variants, and one SUV. Further, any favorable policy for hybrids by the government may drive a re-rating as MSIL would be the key beneficiary of the same.
* We expect MSIL to deliver an 11% earnings CAGR over FY24-27E, driven by new launches and strong export growth. While we have factored in stable margins over FY24-27E, there could be a upside risk to our estimates if PV demand revives and MSIL is able to retain the benefits of an improving mix. At 23x FY26E/21x FY27E EPS, valuations appear attractive. Reiterate our BUY rating with a TP of INR14,500, valuing at 26x Dec’26E EPS.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
