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- 28 Oct 2021
- ICICIdirect Research
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MARUTI SUZUKI’S Q2FY22 PERFORMANCE SUFFERS FROM CONTINUED MARGIN PRESSURE
MARUTI - 11170 Change: -107.85 (-0.96 %)What’s Buzzing: Maruti Suzuki (MSIL) posted soft Q2FY22 results, with margin underperformance standing out as a disappointment.
Context: Operating revenues at MSIL grew 15.6% QoQ to Rs.20,539 crore amid 7.3% volume increase to 3.89 lakh units (exports up 31%, domestic sales up 3.9%) and 7% growth in ASPs to Rs.5.08 lakh/unit. EBITDA in Q2FY22 was at Rs.855 crore with corresponding margins at 4.2%. Margin performance was lower than estimated due to more than expected depletion in gross margins (up 100 bps QoQ) and higher than expected other expenses on percentage of sales basis. PAT at Rs.475 crore was up 7.8% QoQ, with the miss being on account of lower than expected margins and other income.
Our perspective: For MSIL, volume growth in the medium term is expected to be in double-digit territory courtesy benign base and healthy underlying demand in the segment, although model mix would continue to be dictated by the evolving semiconductor shortage situation. Going forward, further calibrated price hikes would be key to mitigating the impact of elevated commodity costs, with operating leverage seen coming into play once present supply worries start to abate. With almost no meaningful product action in the past several quarters, addressing portfolio white spaces, particularly in the UV segment, is a key monitorable for arresting recent market share dip. The company is expected to be a key beneficiary of the government’s thrust on higher CNG coverage due to its wide range of CNG models. However, the wider transition to cleaner mobility remains a challenge amid absence of a clear roadmap thus far in relation to EVs.