Maruti Suzuki Q2 Review: Analysts See Strong Quarter Aiding Margin, Market Share Recovery

After a strong performance in the second quarter, Maruti Suzuki India Ltd. is on track to claw back market share as its new products and upcoming launches in sports utility segment are gaining traction among buyers, analysts said.

Due to limited presence in the rapidly growing SUV segment, the company’s market share has reduced to 39.88% in September from 49.74% year ago, data from the Federation of Automobile Dealers Associations showed.

To shore up its volumes, Maruti Suzuki has launched the Grand Vitara, and upgraded the Brezza, Ertiga and XL6 in a span of four months. It has 4.12 lakh pending bookings, out of which, 1.30 lakh are for the Grand Vitara and the revamped Brezza.

Analysts also said easing commodity costs and favourable currency movement will also help the company in recovering its operating margin, which were hammered by the steep rise in metal prices and lower scale of operations amid shortage of semiconductors.

The Brezza maker’s operating margin stood at 9.3% in quarter ended September compared with 4.2% a year ago.

Here’s what analysts made of Maruti Suzuki’s Q2 results:

• Improvement in supplies, favourable product lifecycle and better product mix augur well for company’s market share and margin.

• Lower raw material costs, better scale of operations and currency-related benefits may lead to improvement in margin.

• Raised FY23 EPS estimates by 6% to reflect for FX benefits, whereas maintaining FY24 EPS estimate.

• Maintain ‘Buy’ rating with a target price of Rs 11,250 per share, implying an upside of 18%.

• Factor 44% market share for the company in passenger vehicle segment in FY24-25 amid demand, product and margin cycles aligning favourably.

• Easing commodity prices, good demand and refreshed product portfolio driving a recovery in margins.

• Volumes to rise 60% over FY22-25, along with 6 percentage point EBITDA margin improvement.

• Raise FY23-25E EPS by 3-8%

• Retain ‘Buy’ rating with Rs 12,000 target price, which implies potential gain of 26%.

• Raw material tailwinds and favourable foreign exchange should support margin recovery but it will remain below 12% in FY25 as discounts will inch up, especially in entry level segment.

• It will be challenging for the company to cross 45% market share due to decline in share of hatchbacks, market share loss in sedan and MUV segments.

• The company may find it difficult to reach 40% market share in SUV segment, which is a crowded space.

• Expect a higher mix of Grand Vitara’s strong hybrid to weigh on profitability as technology is sourced from Toyota.

• Maintain ‘Sell’ with unchanged fair value of Rs 8,150, implying a downside of 14%.