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Maruti Suzuki reports muted performance in Q1FY23, operating margin disappoints!

ICICIdirect Research 27 Jul 2022 DISCLAIMER

What's Buzzing: Maruti Suzuki (MSIL) reported muted performance in Q1FY23. EBITDA margins for the quarter came in at 7.2%, down 186 bps QoQ. Margin performance was the real negative surprise wherein gross margins declined by 105 bps QoQ while employee costs & other expenses were up by ~53 bps & ~26 bps respectively.  

Context: In Q1FY23, for MSIL, total operating income stood at ₹ 26,500 crores, flat QoQ with average selling price (ASP) coming in at ₹ 5.4 lakh/unit, up 3.5% QoQ. Sales volumes for the quarter stood at 4.9 lakh units, down 4.3% QoQ. EBITDA in Q4FY22 stood at ₹ 1,912 crores with consequent PAT at ₹ 1,013 crore, down 44.9% QoQ. Muted PAT performance was due to lower operating margins, lower other income (mark to market adjustment) & higher effective tax rate at 23.4% vs 16.3% in Q4FY22. 

Perspective: MSIL is the industry leader in the domestic passenger vehicle space with market share pegged at ~43% as of FY22. MSIL is steadily moving up the technology ladder with interesting new age connected tech offerings in the new Baleno, Ertiga, Brezza as well as upcoming Grand Vitara. MSILs market share has suffered due to weak offering in its SUV space. Therefore with the launch of new face lifted Brezza & unveiling of its new product in mid-SUV space under Mild and strong hybrid models (Grand Vitara), it is expected to recoup the same over a period of time. It is also approaching the alternate fuel scheme though aggressive push towards CNG vehicles which are gaining traction in the market place amidst high fuel prices. It clocked largest ever CNG sales at >2.3 lakh units for FY22 with penetration at ~15% of its portfolio. Company is approaching electrification through mild & strong hybrids with first EV slated to be launched by 2025. With underpenetrated nature of passenger vehicle segment domestically and benign raw material outlook, macros are in favour for MSIL for a healthy profitable growth going forward. Company has strong order book of ~2.8 lakh units as of June, 2022. The key monitorables going forward at MSIL would be revival of margins post cooling off raw material prices, new product launches especially in the SUV segment & affirmative steps on electrification. 

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