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MOSL: MARUTI SUZUKI (Buy)-Weak performance in a tough quarter; Good demand recovery | RM cost inflation to persist in 2QFY22

MARUTI SUZUKI: Weak performance in a tough quarter; Good demand recovery | RM cost inflation to persist in 2QFY22

(MSIL IN, Mkt Cap USD29b, CMP INR7150, TP INR8200, 15% Upside, Buy)

 

• Maruti Suzuki (MSIL) reported a weak performance in 1QFY22, weighed by the impact of the lockdowns on volumes as well as commodity cost inflation. While commodity inflation would persist in 2Q, there are drivers in place for sustained volume and margin recovery from 2HFY22E.
• We lower our FY22E/FY23E EPS by 13%/3%, factoring in further cost inflation in 2Q, higher staff costs, and lower other income. Maintain Buy, with TP of INR8,200/share (27x Mar’23E consol. EPS).

 Margins impacted by higher costs; lower other income hurts PAT

• Revenue grew to ~INR177.7b (+333% YoY / -26% QoQ) in 1QFY22, while EBITDA/PAT came in at INR8.2b/INR4.4b (-59% QoQ / -62% QoQ).
• Net realizations grew 3% QoQ (-6% YoY) to INR502.5k (v/s est. INR492.4k) on price hikes and lower discounts (at INR14k/unit v/s INR16.6k in 4QFY21).
• The gross margin declined 90bp QoQ (-3.3pp YoY) to 25.2% (v/s est. 25.5%), impacted by RM cost (350bp QoQ), but diluted by price hikes (~1.6% in Apr’21) and lower discounts (~60bp).
• The EBITDA margin declined 370bp QoQ to 4.7% (v/s est. 5.2%), impacted by higher staff costs (+18% QoQ / +46% YoY) and operating deleverage. The EBIT margin declined 480bp QoQ to 0.4% (v/s est. 0.9%). Lower other income resulted in PAT decline of 62% QoQ to INR4.4b (v/s est. INR6.2b).