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MOSL: MARUTI SUZUKI: Operating performance in line; lower other income hurts PAT (MSIL IN, Mkt Cap USD32.7b, CMP INR8660, TP INR10700, 24% Upside, Buy)

Good traction from recent launches; RM/FX benefits to accrue in 2QFY23

• Maruti Suzuki (MSIL) reported an in-line operating quarter driven by higher realization. Favorable product lifecycle is likely to drive volumes, market share and margins, whereas moderating commodity prices and favorable FX are expected to boost margins.
• We maintain our FY23E/FY24E EPS. Reiterate BUY with a TP of INR10,700 (premised on ~27x Jun'24E consolidated EPS).

 

Higher RM/staff costs hurt margins

• MSIL's revenue/EBITDA/PAT grew 49%/133%/ 130% YoY to ~INR265b/ INR19b/INR10b, respectively.
• Net realizations expanded 13% YoY (+3.5% QoQ) to INR566.3k (est. INR550k) fueled by price hikes and improved mix.
• Gross margin contracted 110bp QoQ (+20bp YoY) to 25.4% (v/s est. 25.5%), adversely impacted by higher RM cost and QoQ increase in discounts.
• Higher-than-estimated staff costs (due to increments) led to EBITDA margin miss at 7.2% (v/s est. 7.5%), a decline of 190bp QoQ (+260bp YoY). EBITDA grew 133% YoY to ~INR19.1b (v/s est. ~INR19.3b).
• EBIT margin contracted 190bp QoQ (+440bp YoY) to 4.8% (v/s est. 4.9%). Lower other income due to MTM losses on treasury resulted in PAT miss. PAT grew 130% YoY to ~INR10.1b (v/s est. ~INR11.4b).

Highlights from the management commentary

• The new Brezza has received ~70k bookings so far, with over 50% of the bookings are for the top two premium variants.
• The recently launched Grand Vitara is developed by Suzuki and will be produced by Toyota. This model will be exported as well. Grand Vitara has received ~20k orders, with over 45% of the bookings are for the strong hybrid variant.
• RM cost impact in 1QFY23 was <2pp. With commodity prices correcting, management expects 2Q RM basket to be much lower than 1QFY23.
• JPY benefit on imports comes with a lag; 1QFY23 had a negligible benefit, with the full benefit expected to accrue in 2QFY23.

Valuation and view

• Strong demand and favorable product lifecycle for MSIL augurs well for its market share and margins. We expect a recovery in 2HFY23 in both market share and margins, led by an improvement in supplies, favorable product lifecycle, improved mix, as well as RM/FX benefits and operating leverage.
• The stock trades at 37.7x/23x FY23E/FY24E consolidated EPS. We retain our BUY rating with a TP of INR10,700 (based on 27x Jun'24E consolidated EPS).