Maruti Suzuki Q3 Review: New Launches And Margin Expansion To Drive Growth, Say Analysts

Maruti Suzuki India Ltd.’s new product launches, margin expansion, and premiumisation will drive the company’s growth in the future, according to analysts.

Although Maruti's market share in the non-SUV segment is over 65%, it drops below 45% in overall sales when SUVs are included.

Maruti Suzuki launched the Grand Vitara and upgraded the Brezza, as well as two new unveilings of the off-roader Jimny and compact SUV Fronx at the recently concluded Auto Expo 2023, to shore up its volumes in the SUV segment.

Deliveries of Jimny and Fronx will start early in the upcoming financial year, the company’s management said in the call with investors discussing third-quarter results.

The country’s largest automaker’s market share in the SUV segment is 15%, and it expects it to improve substantially after these new launches. The company is vying for leadership in the space by FY24.

India’s largest carmaker’s consolidated net profit rose 13% sequentially to Rs 2,391.5 crore in the quarter ended December, according to its exchange filing. That compares with the Rs 1,851-crore consensus forecast of analysts tracked by Bloomberg.

Maruti Suzuki Q3 FY23 Highlights (QoQ):

• Revenue fell 3% to Rs 29,057.5 crore, against estimates of Rs 27,638 crore.

• Operating profit rose 2% to Rs 2,837 crore, against forecast of Rs 2,609 crore.

• Operating margin stood at 9.8% against 9.3% in the preceding quarter and estimates of 9.4%.

Due to a shortage of semiconductors limiting production, the company’s pending orders stood at 3.63 lakh units at the end of the December quarter, out of which about 119,000 were for newly launched models.

Analysts expect that moderating raw material costs, a higher share of SUVs in overall sales, and improved production scale will help the company expand its profitability.

Maruti Suzuki also said in the investor call that it expects to grow faster than the industry in FY24.

In the December quarter, the Brezza-maker beat analysts’ estimates as lower costs led to improved margins.

Shares of the company rose 0.64% to Rs 8,754.45 apiece as of 9:30 a.m., while the benchmark Nifty 50 declined 0.45%.

Of the 52 analysts tracking the insurer, 37 recommend 'buy', seven suggest 'sell' and eight suggests a 'hold', according to Bloomberg data. The average 12-month consensus price target implies an upside of 19.7%.

Here’s what analysts made of Maruti Suzuki’s Q3 results:

• Good demand and favorable product mix augurs well for market share and margins.

• Expect a recovery in both market share and margins in FY24.

• Lower our target price-to-earnings multiple to 25x from 27x as we lower the estimated market share for Maruti Suzuki.

• Reiterate ‘buy’ rating with a target price of Rs 10,500 per share, implying an upside of 21%.

• Expect FY23 revenue growth at 32% and the growth likely to continue in FY23-FY25 at CAGR of 14%.

• Driven by better scale and pricing, expect EBITDA margin to expand, from 6.5% in FY22 to 9.3% in FY23 and to 11.3% in FY25.

• Downside risks include macro slowdown, lower-than-expected volumes in new products, higher competition.

• Retain ‘buy’ with target price of Rs 10,700 apiece, a potential of 23% profit.

• Maintain positive view on broad based product portfolio, dealership strength and strong rural presence.

• Expect new launches to fill up empty-space in mid and compact SUVs, which will help in regaining lost market share.

• Operating margin should improve 50-80 basis points in the coming quarters with premiumisation and moderating raw material prices.

• Recommend ‘buy’ at target price of Rs 10,150 per share, with a potential profit of 17%.

• Expect one more new launch in next 12 months, in addition to recent launches of Jimny and Fronx.

• Factoring in volume growth at 15% CAGR over FY22-FY25.

• Expect margin improvement of 220 basis points from the current level.

• Maintain ‘buy’ with target price of Rs 11,188, a potential upside of 28%.