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Maruti surprises Street in Q3 with higher than anticipated operating margins

ICICI Securities 27 Jan 2022

What’s Buzzing: Maruti Suzuki (MSIL) reported a healthy performance in Q3FY22. It was a very comprehensive beat to Street estimates with the stock closing the day with hefty 7% gains. EBITDA margins for the quarter came in at 6.7%, up 250 bps QoQ. The margin performance was the real positive surprise with savings realised under all costs line items. Gross margins expanded 50 bps QoQ while employee costs & other expenses were down 50 bps & 150 bps, respectively. The management attributed margin improvement to better capacity utilisation, lower sales promotion expenses & other cost reduction efforts.

Context: In Q3FY22, for MSIL, total operating income was at Rs 23,246 crore, up 13.2% QoQ with average selling price coming in at Rs 5.15 lakh/unit, up 1.3% QoQ. Sales volumes for the quarter stood at 4.31 lakh units, up 13.5% QoQ. EBITDA in Q3FY22 was at Rs 1,559 crore with consequent PAT at Rs 1,011 crore, up 113% QoQ. Higher PAT for the quarter was also supported by lower effective tax rate (~17%).

Our Perspective: MSIL is the industry leader in the domestic passenger vehicle space with market share pegged at ~48% as of Q3FY22. MSIL approaches alternate fuel/powertrain regime through CNG as well as hybrids. CNG penetration in MSIL’s sales portfolio is pegged at ~15% for FY22E with absolute sales expected at ~2.4 lakh units in FY22E vs. 1.6 lakh units clocked in FY21. The company is witnessing robust demand prospects with prevailing order book of ~2.64 lakh units amid the need for personal mobility and traction in export markets. The key monitorables, going forward, would be margin trajectory amid stable raw material price regime, new product launches especially in the high growth SUV segment and volume ramp up amid improved chip availability.

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