Maruti Suzuki Q3 Review: Analysts Say Price Hikes And Easing Chip Crisis, Input Costs To Aid Margin

Analysts expect Maruti Suzuki India Ltd. to recover market share and margin as demand recovers, chip constraints ease gradually, input cost pressures weaken, and it launches new models, especially SUVs.

That comes after India’s largest carmaker saw its profit slump by nearly half over the year earlier in the quarter ended December, but beat estimates. Its sales fell 13% year-on-year, hurt by a global semiconductor shortage and high input costs.

According to Maruti Suzuki, “though still unpredictable, the electronics supply situation is improving gradually. It hopes to increase production in Q4, though it would not reach full capacity.”

Analysts, however, see an increase in competition in SUVs, failure to launch new products, and a further loss in market share and margin as key risks facing the automaker.

Of the 53 analysts tracking the company, 35 have a ‘buy’ rating, eight suggest a ‘hold’ and 10 recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 2.1%.

Here’s what brokerages have to say about Maruti Suzuki’s third-quarter FY22 performance:

• Maintains ‘buy’ with a target price of Rs 10,300 apiece, implying an upside of 20%.

• The company reported a strong recovery in Q3 FY22, despite losing 90,000 units due to the semiconductor shortage.

• With an improvement in supplies, stability in raw material cost, and launch of new products, Maruti Suzuki is expected to recover both market share and margin.

• This is to be further supported by favourable product lifecycle, and mix, as well as price action/cost-cutting and operating leverage.

• Recovery in margin will be supported by strong demand, softening commodity inflation, and improving semiconductor shortage.

• While Q4 will be better than Q3 FY22, the management doesn’t expect production to fully normalise in the foreseeable future.

• The company has not seen any drop in bookings and is currently clocking 6,000 bookings a day.

• Maruti Suzuki is targeting a market share of 50% in coming years by plugging gaps in its product portfolio.

• Raw material cost pressures are starting to ease as the rise in steel prices was diluted by a decline in precious metals.

• If commodity prices stabilise, the management expects a further reduction in raw material cost in Q4 FY22.

• The company will be addressing weakness in the mid-SUV segment by launching products.

• It expects to strengthen its portfolio in the coming years.

• Maintains ‘buy’ and hikes target price to Rs 10,500 from Rs 9,250 apiece, implying an upside of 22%.

• The brokerage sees better times for Maruti Suzuki ahead given a strong demand recovery, easing chip constraints, input cost pressures behind, and a product cycle likely around the corner.

• The management's commentary was positive on all the above parameters.

• Q3 volumes were down 13% YoY but rose 13% QoQ as chip shortage started to ease.

• Price hikes and lower discounts more than offset the incremental input cost pressures.

• Nine-month FY22 exports are 2.2x of 9MFY20, led by expansion in Africa utilising Toyota's distribution network, and the company said the improvement is sustainable.

• The peak of commodity cost pressures for autos is behind, while continued price hikes and operating leverage benefit should drive better margins.

• Strong CNG focus is a tailwind amid increasing CNG availability and rising petrol prices. However, new lower-priced SUV launches by competitors pose risk.

• On three-five-year view, Maruti Suzuki’s electrification strategy would be key for its franchise.

• Maintains ‘buy’ with a target price of Rs 9,850 apiece, implying an upside of 14.5%.

• Ebitda above brokerage’s estimate on lower sales promotion expenses and cost savings.

• The pending order book is large at 264,000 units.

• Driven by a sales upcycle and new products, we expect a 19% volume CAGR in FY22-24.

• In the next two years, major launches could include an above-4 metre SUV, below-4 metre SUV, large SUV and an off-roader.

• Positive view is underpinned by expectations of a cyclical upturn and market share recovery.

• Maruti Suzuki likely to initiate an aggressive model action plan in the next two years to fill up the white-spaces in its product range.

• New generation models of Brezza, Baleno, Alto and S-Cross are expected.

• Suzuki/Toyota have technological capabilities for xEVs (generic for electromotive vehicles such as a hybrid EVs, plug-in hybrid EVs and fuel-cell EVs) and are expected to commission a lithium ion assembly plant in Gujarat soon.

• The management said rural volume share has improved and sentiment remains positive.

• It has applied for the PLI scheme and should receive incentive on localisation efforts.

• The company has been increasing prices to pass-through commodity inflation, and has further taken 2% hike in Jan 2022. The company expects gross margin improvement in Q4 FY22.

• The company’s online car financing efforts have received good response.

• Risks: Delay in economic recovery, failure of new products, increase in competitive intensity and adverse movement in currency/commodity prices

• Recommends ‘accumulate’ with a target price of Rs 8,316 apiece, implying a downside of 3%.

• The management indicated that raw material cost headwinds could likely subside in Q4 FY22, but will have to be closely monitored.

• Expect margins to improve gradually, aided by a positive operating leverage, price hikes, cost-control initiatives and, lower discounts.

• Sees demand holding reasonably well, led by large pending bookings (2,64,000 units) and expect production to pick up pace as supply constraints gradually ease.

• Given a relatively weak model cycle and rising gap in the highly competitive SUV space, Maruti Suzuki is expected to launch a slew of new products over the next two years to address the white gaps.

• This should aid in market share recovery and support positive margin trajectory.

• However, a gradual recovery in profitability, a defensive model launch schedule and increased competitive intensity are likely to restrict any

  material upside.

• Risks: Faster-than-anticipated recovery in the passenger vehicle segment, further margin erosion, loss in market share, faster-than-anticipated model launch pipeline.