Reiterate BUY on Maruti Suzuki - Demand backlog to offset commodity headwinds - HDFC Securities

Maruti reported an in-line 3QFY21 with PAT at Rs 19.4bn (+24% YoY), driven by 13% YoY growth in revenue and higher other income. However, the EBITDA margin at 9.5% was below estimates (vs. expectation of 10.2%). We remain enthused by Maruti's strong demand outlook, with pending orders of 215k units, and believe the commodity headwinds will be partially offset by - (1) rising utilisation levels as we expect double-digit demand growth (15%) in FY22-23E (2) price hikes and (3) normalising product mix over FY22-23E as demand revives. Reiterate BUY. Our target price is revised marginally lower to Rs 9,000 (at 27x FY23E EPS) as we trim our estimates over FY22-23E.

3QFY21 financials: Revenue grew 13% YoY to Rs 234bn, owing to a similar growth in volumes (+13.4/26.1% YoY/QoQ). Average realisation at Rs 473k came in flat YoY/QoQ due to higher share of entry-level cars in the mix. EBITDA margin at 9.5% (-65/80bps YoY/QoQ) was a miss owing to commodity cost pressure (raw material cost ratio costs up 165/250bps YoY/QoQ). Other income at Rs ~10bn was up 27/65% YoY/QoQ due to higher fair value gains. PAT grew by 24/42% YoY/QoQ to Rs 19.4bn.

Key takeaways: (1) Demand sustains post the festive season: Demand momentum continued post the festive season as well. The company currently has a backlog of 215k units (c. 1.5 month of sales). System inventories remain extremely low (21k units at the beginning of Jan-21). (2) RM cost pressure: Commodity costs had a 300bps impact on the EBITDA margin in 3QFY21, with the cost pressure expected to sustain in 4QFY21 as well. The company has undertaken cost-cutting initiatives and taken price hikes in the range of 6-34k to offset the above. (3) First-time buyers increase: Due to COVID, the share of replacement buyers has fallen from 26% in FY20 to 19% currently. Against this, the share of first-time buyers has risen from 44 to 49%, due to a shift in consumer preference towards personal mobility. (4) Others: Maruti has launch e-financing services to promote end-to-end digital buying experience. The company has commenced exports of the Jimny SUV. The plant in Gujarat is operating at peak capacity of 500k units.

Shares of MARUTI SUZUKI INDIA LTD. was last trading in BSE at Rs.7207.95 as compared to the previous close of Rs. 7586.25. The total number of shares traded during the day was 99204 in over 16175 trades.

The stock hit an intraday high of Rs. 7750 and intraday low of 7170.55. The net turnover during the day was Rs. 732366996.

Source : Equity Bulls

Keywords