Maruti Suzuki India - On track to gradual recovery in profitability - ICICI Securities

Maruti Suzuki’s (MSIL) Q4FY22 operational performance was ahead of consensus estimates as EBITDA margin came in at 9.1% (consensus: 8.2%), up 237bps QoQ, led by better operating leverage, lower discounts and cost-reduction efforts. Gross margin survived RM pressures due to: a) 13% higher volume QoQ with higher production from SMG plant resulting in lower per unit sourcing cost; b) delayed cost inflation impact to H1FY23; and c) higher export mix. Despite price hikes, ASP was up only 1% QoQ (12% YoY) due to mix impact as domestic UV mix declined 400bps QoQ. Post decline in PV market share to sub-45% for a major part of FY22, MSIL is trying to recoup it toward 50% levels with increasing production led by easing of chip supply. Successful launches to bridge gaps in the UV segment along with further ramp-up in production could further enable market share gains. We expect RoE / FCF to bounce back to ~18% / Rs84bn by FY24E from FY21-FY22 mean levels of ~8% / Rs25bn. Maintain BUY.

- Key takeaways from earnings call: Management indicated: a) order backlog of 320k units (40% of which are for CNG) in Apr’22; higher fuel prices led to increased demand for CNG vehicles (230k units sold in FY22 against 160k in FY21); b) current inventory is at 40k units; MSIL reported loss of production of 270k units due to the semi-conductor chip shortage; c) share of rural sales continues to rise to 43.6% (from 43% / 41.5% in Q3FY22 / FY21); d) MSIL has signed MoU with Gujarat government to invest Rs104bn towards BEV batteries and BEV manufacturing capacity; e) capex for FY23 is likely to be Rs50bn for new product development and EV products; MSIL plans to launch its first BEV by FY25; f) continued focus to improve exports through better product portfolio and improved dealer reach aided by Toyota collaboration, has helped MSIL clock its highest ever export of 238k units, in FY22; g) other operating income for the quarter was up 16% QoQ due to higher scrap sales and Rs1bn by way of one-time exceptional adjustment; and h) discount per vehicle fell 29% QoQ to Rs11.1k.

- Maintain BUY: The interplay between demand, market share (in SUVs) and profitability remains a key focus for investors. Market share gains from success of new product launches in coming periods will likely be the key trigger for earnings upgrades along with stability / reversal in raw material basket. We upgrade our earnings estimates by 1.2% for FY24E led by 50bps EBITDA margin improvement (due to better export mix and lower royalty rates), while we keep revenue estimates largely unchanged. We revise our target price to Rs8,906 (earlier: Rs8,745), implying core FY24E P/E of ~24x, based on our DCF valuation. Maintain BUY.

Shares of Maruti Suzuki India Limited was last trading in BSE at Rs. 7641.55 as compared to the previous close of Rs. 7732.75. The total number of shares traded during the day was 28852 in over 6744 trades.

The stock hit an intraday high of Rs. 7750.00 and intraday low of 7543.95. The net turnover during the day was Rs. 220762287.00.

Source : Equity Bulls

Keywords

MarutiSuzukiIndia INE585B01010 Q4FY22 FY2022 ResultUpdate ICICISecurities