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Maruti Suzuki Rating ‘Buy’; supply-side issues impacted Q4 volumes

Maruti Suzuki Rating ‘Buy’; supply-side issues impacted Q4 volumes
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Maruti Suzuki Rating ‘Buy’; supply-side issues impacted Q4 volumes

Maruti Suzuki Rating ‘Buy’; supply-side issues impacted Q4 volumes

MSIL volumes in Q4FY22 were still impacted by supply side shortages, especially for CNG. Still, overall volumes were up 13% q-o-q and flattish y-o-y, though domestic volumes were down 7% y-o-y (up 16% q-o-q). Exports continued their strong traction and grew c93% y-o-y. The model mix in domestic market was slightly better sequentially with a lower share of volume from smaller cars such as the Alto. The commodities price rise in Q4 overall was a c75bp headwind on Ebitda margins vs Q3; however, since February, the commodity hit has increased further by 75bp vs Q4, which will likely impact the coming quarters. In total, the incremental commodity hit to margins so far is 150-200bp vs the Q3 run rate.

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The company took a price hike of 1.7% in January. Yen weakness in recent weeks would be a minor tailwind from Q1FY23e onwards. Adjusting for positive operating leverage, lower discounts (as retail is lower than wholesale in Q4), price hike, favourable mix and commodity headwinds – we expect Ebitda margins to be 9.3% in FYQ4, up 230bp q-o-q.

Market share outlook buoyant: As discussed in a recent report, beyond the recently launched Baleno, Brezza is likely to be launched in June/July and the mid-size SUV in Q3FY23. Beyond Baleno, Brezza and the mid-size SUV, over the coming quarters (end of this year and next year), we expect MSIL to launch a small SUV (below Brezza) to compete with Tata Punch and Nissan Magnite, and then Jimny and a large SUV to compete with the Hyundai Alcazar and Kia Caren. Factoring in all these launches, we expect MSIL’s market share to improve from 44% in FY22 so far to 45-46% in FY23e and 47-48% in FY24e. Overall, while the volume and market share outlook is robust, margin expansion potential has been curtailed by the recent commodity price rise. A moderation in commodity prices can be a significant positive trigger for earnings and the stock price in the coming months.

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We expect recent (Baleno) and upcoming launches to drive an increase in capacity utilisation, an improvement in realisations, and an overall improvement in margins. The recent spike in commodity prices and uncertainty around time to normalisation will be headwinds in the near term; we have cut our margins and EPS for FY22e by c45bp and 7%, respectively, but maintain our Buy and TP of Rs 9,500 as our 12-month forward EPS expectation remains unchanged.


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