Maruti Suzuki Q1 Results Review - Weak Margins Led By One-Offs, Brand Spends: Yes Securities

Yes Securities Report

Adjusted for one-offs of 80 basis points impact on staff cost, Maruti Suzuki India Ltd.’s Q1 FY24 Ebitda were ~7%/ inline to our/street estimates. Going forward, the management has indicated while stability in raw material to continue (further to be aided by cost savings programs), spends on branding building would likely remain at an elevated level.

Demand guidance remain steady as Maruti Suzuki is on track to outperform industry in FY24E (backed by new launches). Overall orderbook declined to ~3.55 lakh versus (~4.12 lakh in Q4 FY23 and ~3.50 lakh units in Q1 FY23) is bit lower than expected given decent response to new launches (Brezza 48,000, Grand Vitara – 27,000, Jimny – 23,000, Fronx – 23,000, Invicto – 8,000, Ertiga – 96,000).

Lastly, production consolidation at group level (Suzuki Motor Gujarat will be part of Maruti Suzuki), would be long term positive given synergies of manufacturing and planning efficiencies under one-roof.

While consideration of the same yet to be worked out, it would likely be at book value (SMG book value of Rs 127 billion as of FY23). Given Maruti Suzuki is expanding its manufacturing capacities (Rs 70 billion capex planned), we ascribed to management intention of consolidating varied powertrains with Maruti Suzuki.

We build in healthy revenue/Ebitda/profit after tax compound annual growth rate of 14%/22%/27% over FY23-25E.

We maintain 'Add' rating on the stock with revised target price of Rs 11,004 (versus Rs 10,703) valuing the stock at 25 times March-25 earnings per share (versus 10 year LPA of 29 times).

We upgrade FY24/25E EPS by ~1-2.5% to build in higher average selling price as contribution from recently launched SUVs to increase.

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