Rating- neutral; Maruti Suzuki expects to gain SUV market share in FY24

Rating: neutral; Maruti Suzuki expects to gain SUV market share in FY24

Maruti suzuki’s financial performance for the fourth quarter of the fiscal year 2022-23. Average selling price (ASP) remained flat at approximately Rs 599k, which was slightly lower than the estimated Rs 605k. The company’s Ebitda missed estimates by 4%, due to higher raw material costs/sales at 76.2% (+40bp q-q) from sourcing from the Gujarat plant and Toyota, which have additional costs. However, this was partially offset by lower staff cost at 3.6% and other expenses at 13.3%. Ebitda margin was 10.5%, and Ebit margin was 8.1%. The discounts offered were at Rs 13.2k, down 90bp q-o-q.

In terms of demand, Nomura expects the industry to grow at 5-7% for the fiscal year 2023-24, driven by demand for SUVs. Maruti Suzuki plans to grow faster than the industry. The company’s order book stood at 412k, up from 363k at the end of December, and inventory is at 2-3 weeks. Margins for the Q4 were stable, but going ahead, steel prices may rise, while the fall in precious metals may benefit the company. There may be supply shortages in the first quarter of FY2023-24. Maruti Suzuki plans to invest Rs 80 bn in capital expenditure for FY2023-24. The company’s board has also approved a further capacity expansion of 1mn units after the new Kharkhoda plant ramps up to 1mn units.

Nomura estimates PV industry growth will slow to 6% in FY24F. Our Dipstick survey indicates further weakness in small cars in April-23. Hence, we trim FY24-25F volume growth estimates by 2%. While MSIL will gain share in SUVs in FY24F led by Fronx and Jimny, falling mix of car segment will drag overall market share. Hence, we now expect overall market share to be stable at 42% in FY24F . As there are no SUV launches likely in FY25F, market share may drop to 41% unless the car segment picks up. Key risks: (i) an accelerated shift to EVs may benefit Tata Motors and M&M; and (ii) supply constraints. We maintain FY24F/25F Ebitda margin estimates at 10.9%/ 10.7%. As industry inventory rises and growth slows, rise in A&P spends may offset operating leverage.