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Healthy overall performance: MSIL revenue for Q3FY24 revenue grew by 14.7% YoY to Rs 33,309 Cr, driven by robust sales momentum especially in the UV category as volume growth was 7.6% YoY at 501,207 units. Consequently, favorable mix as well as high other income aided in Adj. PAT expansion by 33.1% YoY to Rs 3,130 Cr.

Favorable mix aiding margin expansion: Gross profit was Rs 9,691 Cr, registering a growth of 22.1% YoY while margin expanded by 176bps YoY to 29.1%. EBITDA grew by 37.9% YoY to Rs 3,908 Cr while margin expanded by 198bps YoY to 11.7%. The strong operational performance was due to commodity tailwinds during the quarter as well as better operating leverage due to favorable mix of UVs which accounted for 31% of the sales as compared to 21% in the corresponding period of the last year.

Premiumization of portfolio driving realization: Avg net realizations improved by 6.6% YoY to Rs 664,570/unit, mainly due to higher presence of UVs as well as ~4% average price hike across its vehicle. We anticipate the trend of premiumization to continue as the company makes structural shifts towards UVs, electrification of vehicles and new launches across categories and factoring this, we estimate the realizations to improve by 6.1% over FY23-26E.

Strong international business: Despite the geopolitical situation, the export volume continued to remain strong, up by 15.8% YoY/3.5% QoQ to 71,785 units while YTD export volume is up by 5% YoY to 204,327 units. It continues to witness steady demand from its key markets like Africa and LATAM while Free Trade Agreement conclusion with middle east countries could further unlock volume expansion for the company. We estimate its export volume to grow by 7.8% over FY23-26E.

Outlook & Valuation: MSIL continues to lead the passenger vehicle industry with a market share of 42.9% in the domestic market and remains a leading player in exports from India with consistent rise in volumes. Its structural shift towards dedicated UV portfolio has garnered strong growth for the company on the revenue and realizations front. Given the slow pace of sales in the mid and compact category of vehicles, UVs will continue to drive the volume growth in the coming quarter while new launches as well as renewed models in the mid and compact segment could result in volume expansion further. It aims to enter different regions across the world as well as new launches in the EV segment shall result in overall growth for MSIL. Factoring this, we estimate its revenue/EBITDA/PAT to grow at a CAGR of 15.1%/25.5%/25.7% over FY23-26E. Hence, we remain overweight and maintain our Buy rating with a target price of Rs 12,714 valuing the company at 25x on FY26E EPS.

Concall & Other key highlights: 1) Management expects the passenger vehicle industry to reach 4.3 Mn units by the end of FY25 and remains optimistic to beat industry’s growth pace. 2) Small car segment still remains soft, expect recovery to be at a slower rate. 3) 1st time buyers were at 41% against 37% in Q2FY24. 4) Company aims to add 10 new models including BEV (Born Electric Vehicle) with few refreshers and plans to have 28 models in its portfolio by FY31. 4) The red-sea issue could lead to slight delay in its shipment due to vessel routes changes and container availability, however, it remains quite optimistic on exports outlook. 5) It plans to start the commercial production of BEV in CY24 which will cater to the Indian market as well as aims to enter Europe and Japan market with it. 6) The construction of a greenfield plant with a ramp-up capacity of 250,000 units/PA in Kharkhoda shall be operational by FY25, and aims to add 3 more such plants. 7) The acquisition of the SMG plant was approved by its shareholder with 98% in favor, making it a wholly owned subsidiary of the company. 8) Royalty eased by 30bps QoQ to 3.5%. 9) CNG penetration in overall volume at 30%. 10) Order book of ~215,000 units.

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