Mr. Mitul Shah - Head of Research at Reliance Securities.
Maruti Suzuki India (MSIL) delivered a very strong performance in 4QFY22 as its EBITDA margin stood at 9.1% (vs. our estimate of 8.1%). Revenue increased by 11% YoY (up 15% QoQ) to Rs267.4bn, slightly lower than our estimate of Rs268.7bn. Revenue growth was led by ASP growth of 12% YoY and 1% QoQ to Rs547,020 despite volume de-growth of 1% YoY (up 14% QoQ). EBITDA came in at Rs24.3bn (up 22% YoY and up 56% QoQ), vs our estimate of Rs15.2bn due to better cost control and improved pricing. Its PAT increased by 58% YoY (up 82% QoQ) to Rs18.4bn as against our estimate of Rs15.2bn, due to the better-than-expected operating performance. We believe that the better product-mix, likely ease on production, price hike and stable RM environment would support MSIL's margin expansion, going forward, though near-term issue related supply constraints and commodity inflation is inevitable. Moreover, its strong product pipe line would help regaining lost market share partially in FY23-FY24. In view of the strong products basket, likely margin expansion, strong export potential, strong return ratios and healthy balance sheet, we reiterate our BUY rating on the stock and maintain the Target Price of Rs9,700, valuing the stock at a P/E multiple of 27x on FY24E earnings.
Strong Product Pipe line; Focus on CNG Segment to Drive Market Share
The company believes that preference for CNG variants would increase due to higher fossil fuel prices. Thus, it plans to introduce more CNG variants within the existing product portfolio and to launch new models. The company sold ~230k CNG vehicles in FY22. Moreover, it expects a better response for the hybrid segment compared to EVs during the next 1-2 years due to various factors. Hence, a rapid electrification by competition would not impact the industry dynamics over the medium term. We believe that its product pipe line would remain strong in FY23 with number of new launches, refreshes and increasing CNG options in other models. Its current order book of 325K units strengthens our faith on company's ability and success to win customers. Moreover, MSIL is increasing its focus on exports with support from Toyota's global reach. This would aid its incremental growth, going forward. MSIL's healthy capex plan on capacity and network expansion would aid penetration and volume growth ahead of the industry. Despite competition, we expect the company's stronger presence in CNG segment and new launches would help it regain lost market shares to some extent.
Outlook & Valuation
We expect MSIL's domestic volume to witness a growth of 17% in FY23E. We estimate a healthy 22% CAGR for export over FY22-FY24E, on the back of strong sales in African markets. Therefore, we raise our revenue and EBITDA estimates by 6%/7% and 2%/2% for FY23E and FY24E. However, we believe that the production constraint due to semi-conductor shortages and higher input cost would impact MSIL's operating margins in FY22 and FY23. Therefore, we lower our EBITDA margin estimates by 37bps and 52bps for FY23E and FY24E respectively. In view of the strong products basket, healthy balance sheet and strong return ratios, we reiterate our BUY rating on MSIL and maintain the Target Price of Rs9,700, valuing the stock at an unrevised P/E multiple of 27x.
Shares of Maruti Suzuki India Limited was last trading in BSE at Rs. 7732.75 as compared to the previous close of Rs. 7887.95. The total number of shares traded during the day was 28028 in over 4596 trades.
The stock hit an intraday high of Rs. 7945.00 and intraday low of 7630.55. The net turnover during the day was Rs. 219622712.00.