Maruti Suzuki India Rating- ADD; At 9

Maruti Suzuki India Rating: ADD; At 9.3%, a good margin performance

Auto major maruti Suzuki’s Q2FY23 Ebitda margin at 9.3% was in line consensus estimates at 9.2%, up 204bps q-o-q on raw material (RM) cost benefit and 55bps gain from favourable Japanese yen (JPY) movement. Average selling price (ASP) was up 2% q-o-q through improvement in model variant mix, and partial benefit from 2% price hike taken in Q1FY23. MSIL lost production of 35k units in Q2FY23 due to chip shortage. But with improving chip supply, new launches and steady retail demand, we are building-in 2mn and 2.25mn units in FY23 and FY24e.

Blended discounts were largely similar q-o-q at Rs 13.8k/unit, with a slight increase of Rs 1.1k/unit led by model mix shifting towards higher-discount models in Q2FY23. Keeping our estimates largely unchanged, we downgrade the stock to ADD with a DCF-based TP of Rs 10,494.

Total orderbook stands at 410k units; and this includes 130k for Brezza refresh and Grand Vitara. CNG variant in the orderbook stood at 130-140k units. Nearly 35% of Vitara bookings are for the strong hybrid variant. Brands having bigger boot space to fit CNG kit viz. Ertiga, WagonR are witnessing higher CNG share. Overall production in Q2FY23 was impacted by chip shortage to the tune of ~35k units, and with gradual improvement in the situation, MSIL is looking forward to ramp-up supplies.Ebitda margin at 9.3% included benefit of 55bps of gain from favourable JPY moves on a net basis (10% of JPY denominated imports with 4% direct imports). Rest of 150bps q-o-q growth momentum (GM) improvement was driven by a decline in input commodity basket rate. Though some further scope of GM improvement is still left led by currency and commodity moves, management believes, benefits would get fully factored in by Q3FY23. On the other hand, in Q2, marketing expenses were elevated at Rs 1.5 bn and would continue to remain so with new launches ahead. Also, with product mix remaining subdued in Q2 led by Brezza run out period, better mix with Grand Vitara and full impact of Brezza and Ertiga should help MSIL revive its product mix ahead.Against peak capacity of 2.25mn units, we expect MSIL to operate close to full capacity in FY24, with maximum addition coming in through debottle necking in Gurgaon by 0.1mn units during early FY24. New plant in Haryana would be ready with its first phase of 0.25mn units by early CY25.CNG models currently account for 20% of retails and demand continues to be robust. Nearly 66% of bookings for Ertiga, 88% for DZire Tour and 38% for Dzire are for CNG variant. Strong hybrid and CNG models would help MSIL take care of the emission aspect at portfolio level.