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Growth to pick up with upcoming launches

Exports remain the key growth driver in 1Q

* MSIL’s 1QFY26 PAT of INR37.1b was ahead of our estimate of INR29.5b, led by higher-than-expected other income, even as EBITDA margin was largely in line with estimates. Revenue growth was ahead of estimates, led by higher blended ASP, which was, in turn, driven by an improved mix.

* For FY26, we see multiple launch tailwinds for MSIL, such as the eVitara, one new SUV and hybrid variants. Further, MSIL anticipates that exports will sustain the growth momentum and grow by at least 20% in FY26. Overall, we expect MSIL to deliver a 10% earnings CAGR over FY25-27E, driven by new launches and strong export growth. At 25.9x FY26E/23.4x FY27E EPS, MSIL’s valuations appear attractive. Reiterate BUY with a TP of INR14,476, valued at 26x Jun’27E EPS.

Earnings beat led by higher other income

* Revenue grew 8% YoY to INR384b, above our estimate of INR359b. While volume growth was just 1%, the revenue beat was driven by improved mix (higher SUVs, CNG, exports and lower discounts). CNG mix improved 400bp QoQ to 35%, mainly driven by higher CNG sales in SUVs.

* Overall, EBITDA margin was largely in line with our estimate at 10.4%. Factors that hurt margins in 1Q included: Impact of Kharkhoda greenfield plant (30bp), adverse commodity prices - Steel (40bp), unfavorable operating leverage (60bp), forex (40bp) and higher employee expenses (50bp) on account of seasonality.

* On the other hand, factors that helped to partially offset the above impact included: favorable mix (30bp) and low advertisement cost (60bp). Further, lumpy costs in 4QFY25 (90bp) was reversed in 1Q as expected.

* Other income increased to INR18.2b, led by MTM gain on forex and commodity hedges and prudent treasury management.

* Overall, PAT grew 2% YoY to INR37.1b, above our estimate of INR29.5b.

Highlights from the management commentary

* Industry outlook: Domestic PVs saw weak demand in 1Q, down 1.4% YoY. However, management is hopeful of a demand revival in PVs in 2Q-3Q, led by the festive season and positive rural sentiment. Management expects to outperform industry growth on the back of two new SUV launches coming up in 2Q.

* Exports: MSIL posted strong 37% YoY growth in exports in 1Q, while the industry (excl. MSIL) posted a 2% decline. Management expects its export momentum to improve further with the launch of its e-Vitara, which is slated to be launched in around 100 regions globally. Export revenue stood at INR65b in 1Q.

* The company has two launches lined up for FY26 in the SUV segment, of which one is the e-Vitara and the other in the ICE segment.

* Inventory and discounts: Dealer inventory by 1Q end for MSIL was normal at 33 days. Discounts remained flat QoQ, whereas peers saw a rise in discounting QoQ.

* Availability of rare earth magnets remains a challenge for the industry, including MSIL, though the company is managing its supplies so far.

Valuation and view

* For FY26, we see multiple launch tailwinds for MSIL, such as the e-Vitara, one new SUV and hybrid variants. Further, the company anticipates exports to sustain the growth momentum and grow by at least 20% in FY26. MSIL expects to deliver 70k units of e-Vitara in FY26, the bulk of which would be in export markets.

* Further, any favorable policy for hybrids by the govt. may drive a re-rating, as MSIL would be the key beneficiary of the same. However, we factor in 50bp margin pressure for MSIL in FY26E given the anticipated rise in input costs.

* Overall, we expect MSIL to deliver a 10% earnings CAGR over FY25-27E, driven by new launches and strong export growth. At 25.9x FY26E/23.4x FY27E EPS, MSIL’s valuations appear attractive. Reiterate BUY with a TP of INR14,476, valued at 26x Jun’27E EPS.

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