PL Stock Report: Maruti Suzuki (MSIL IN) - Q1FY24 Result Update - Strong traction for new launches to continue - BUY

Maruti Suzuki (MSIL IN) - Himanshu Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs9,821 | TP: Rs11,100

Q1FY24 Result Update - Strong traction for new launches to continue

Quick Pointers:

♦ To acquire SMG at Rs. 127bn (book value) from SMC; by FY24 end.

♦ Demand environment remains stable; supply situation largely normalized.

Maruti Suzuki (MSIL)’s 1QFY24 revenues were marginally higher than our (c1%) and consesnus estimates (c2%), however, higher employee costs and other other expenses led to a miss on EBITDA margins (10% vs BBGe: 10.2%; PLe: 10.5%) (which could not be offset by higher gross margin). EBITDA margins expanded by c280bp YoY, but was lower QoQ on lower volumes, higher employee and ooperating expenses. Chip shortage impacted 28k units and MSIL noted that situation is largely normalised now. Going ahead, MSIL hopes to outgrow PV industry’s growth led by its SUV portfolio, increased traction from CNG models and servicing stronger orderbook. We expect MISL to partially re-coup lost market share through faster growth than the industry in UV & MUV segment (for MSIL we build its UV & MUV mix to increase to ~30% in FY24 vs ~21% in FY23).

MSIL is well placed to strongly benefit from (1) market share gains and ASP increase coming from higer mix of the new UV portfolio, (2) c260bps increase (over FY23-25E) in EBITDA margins on the back of commodity cost softening, cost control, operating leverage and higher UV share and (3) rural revival. We marginally change our EPS estimates for FY24E by -1.5%, given largely in-line numbers and reiterate ‘BUY’ with an unchanged TP of Rs 11,100 at 25x Mar-25E EPS.

♦ Revenue grew by 22% YoY, helped by volume growth of 6.3% and was in line with PLe and slightly higher than Bloomberg consensus estimates (BBGe). EBITDA margins at c10% missed PLe (10.5%) and BBGe (10.2%). Gross margin came higher than expected +50bps QoQ. Higher employee and other expenses led to a miss on EBITDA margins (after adjusting for 80bps one-off cost). Higher other income led to PAT beat.

♦ Key takeaway: (1) MSIL noted stable demand environment and maintained its outlook of growing faster than the industry. However, noted that 2Q base is high which could moderate growth rate in 2QFY24. (2) MSIL has an order book of 355k units (vs 412k unit in 4QFY23), which it plans to service fast. (3) MSIL reached market share of c20% in SUV segment in Q1FY24, helped by strong demand for new launches. MSIL now plans to consolidate these new SUV models in domestic market and start exports. (4) MSIL lost 28k units production (~38k in 4Q) due to chip shortage, but the situation has largely normalized. (5) In 1QFY24, first time buyers were at 40% (vs 42%-43% previously). (6) MSIL has increased inventory to normal levels of 4 weeks (125k units). (7) CNG vehicles saw good traction with 113k units (27% mix) and MSIL launched 5 CNG options in Fronx (now offering 50 CNG models). (8) MSIL will acquire Suzuki Motor Gujarat (SMG) from Suzuki Motor Corporation (SMC) at book value (FY23 – Rs. 127bn) and terminate the contract manufacturing agreement; it aims to complete the transaction in FY24. MSIL would achieve efficiency and some economies of scale from the transaction. (9) MSIL has maintained its Rs.70Bn capex plan ex-SMG. SMG plant doesn’t have land bank for further expansion.

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