Maruti Suzuki - A weak quarter, CNG variants to ramp up in Q2FY22 - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Maruti's Q1FY22 PAT, at INR 4.4bn (-62% QoQ), was adversely impacted by the second wave of COVID. We believe that demand will improve from here on, as supplies for the high demand CNG variant resumes (this segment now accounts for over 10% of volumes). The OEM has an order backlog of 170,000 units. Further, Maruti is addressing white spaces in its SUV portfolio (new model launches are expected in this segment over the next 12 months). We reiterate BUY with a target price of INR 8,190 (at 27x Jun-23E EPS). We lower our estimates by ~5% over FY23-24E, to factor in weak Q1FY22 results.

Q1FY22 financials: Volumes, at 353k units, declined 28% QoQ, impacted by the second wave of COVID. The average realisation grew 3% on the back of price hikes taken. Revenue declined 26% QoQ to INR 177.7bn. EBITDA margin, disappointed, at 4.6% (-370bps QoQ), owing to commodity cost pressures (RM ratio at 74.8% was up 330/90bps YoY/QoQ) and negative operating leverage. PAT declined 62% QoQ to INR 4.4bn.

Key takeaways: (1) near-term outlook is encouraging: The demand in Jul- 21 has picked up along with enquiries (similar to Q4FY21) and bookings (~80% of Q4FY21). The recovery this time around is across rural and urban markets. The company's order book currently stands at 170k units (27 days). (2) Production in Q1FY22 was constrained for CNG variants: The supplies for the high demand variants were impacted by oxygen-related shortages, which impacted the retail market share by ~500bps. As CNG supplies normalise, Maruti will benefit as customers are incrementally preferring the lower cost option amidst rising diesel prices. (3) Commodity cost pressures: The management highlighted that the input cost inflation affected margins by 3.5%, whereas another 4% impact was due to negative leverage (production was impacted by the lockdown). Incremental price hikes will partially offset the sharp commodity increases. (3) SUVs in focus: The management is expected to launch new SUVs to address this growing white space.

Shares of MARUTI SUZUKI INDIA LTD. was last trading in BSE at Rs. 6978.7 as compared to the previous close of Rs. 6991.9. The total number of shares traded during the day was 14879 in over 3319 trades.

The stock hit an intraday high of Rs. 7095 and intraday low of 6965.3. The net turnover during the day was Rs. 104475032.

Source : Equity Bulls

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