Maruti Suzuki - Margins disappoint; order backlog remains healthy - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Maruti reported a weak 4QFY21 as PAT of INR 11.7bn (-10% YoY) was affected by a 400bps YoY impact of higher commodity prices/sharply lower other income. Maruti's order backlog though remains healthy at 200k units due to sustained demand for personal mobility. We believe the OEM will address white spaces in the SUV segment (management has acknowledged gaps in its product portfolio). We reiterate BUY with a target price of INR 7,750 (at 27x FY23E EPS). Our estimates are lowered by ~9% over FY22-23E to factor in the 4QFY21 results.

4QFY21 financials: Volumes at 492k units were flattish QoQ as demand trends remained encouraging. Revenue grew 32/2% YoY/QoQ to INR 240bn as realisations improved 3% YoY/QoQ. EBITDA margin was below estimates, at 8.3% (-20/-120bps YoY/QoQ), owing to commodity cost pressure (RM ratio was up 360/135bps YoY/QoQ). PAT declined 10% QoQ, 40% YoY, due to cost pressures and lower other income (-90% YoY) on account of mark-to-market losses.

Key takeaways: (1) Healthy order backlog: Maruti currently has pending booking of 200k units. We believe that demand will benefit from the requirement for personal mobility. The company has a limited network stock of 85k units currently. (2) Retail market share has sustained at ~50%: The OEM's retail share has sustained due to improved sales of CNG vehicles as well as dominant share in cars (above 60%). (3) SUV launches ahead? The management acknowledged the need to ramp up its presence in this segment - especially the mid-sized SUVs - as the response to the S-Cross has been below par. Maruti is working on new launches to address the gaps. (4) Hybrids/EVs: The OEM has a lithium-ion battery plant in Gujarat and is currently testing larger-sized battery packs. However, timelines on BEV launches are awaited. (5) Commodities inflation: The impact of the sharp increase in metal prices was felt in 4QFY21, with a 400bps YoY and 300bps QoQ impact on margins. The OEM is adopting cost reduction initiatives such as lowering the usage of precious metals. Further, to offset the higher cost impact, Maruti has taken a price hike in Apr-21 of 1.25% and 0.8% was taken in Jan-21, which will partially alleviate margin pressures.

Shares of MARUTI SUZUKI INDIA LTD. was last trading in BSE at Rs.6571.1 as compared to the previous close of Rs. 6558.2. The total number of shares traded during the day was 41644 in over 4623 trades.

The stock hit an intraday high of Rs. 6649.9 and intraday low of 6545.05. The net turnover during the day was Rs. 274591430.

Source : Equity Bulls

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