Maruti Suzuki Q4 Review: Analysts Say Margin Recovery On Track, Demand Outlook Healthy; Shares Volatile

Analysts expect Maruti Suzuki India Ltd. market share and margin to improve aided by operating leverage benefits, price hikes, cost cuts and new launches, especially in SUVs. The stock, however, was volatile.

The nation's largest carmaker saw its profit rise over the year earlier in the three months to March, beating estimates. Its revenue also increased, and margin expanded aided by price hikes and cost cuts.

Maruti Suzuki Q4 FY22 Highlights (YoY)

• Profit jumped 57.7% year-on-year to Rs 1,839 crore. That compares with the Rs 1,482.1-crore consensus estimate of analysts tracked by Bloomberg.

• Revenue was up 11.3% at Rs 26,740 crore, compared with the Rs 26,662-crore estimate.

• Earnings before interest, tax, depreciation and amortisation rose 55.6% to Rs 2,426 crore, against the Rs 2,173-crore forecast.

• Ebitda margin stood at 9.1% against 8.29% a year ago and 6.71% in Q3. Analysts had pegged the metric at 8.15%.

Production during the year was impacted by shortage of electronic components, with the company estimating the total output loss at 2.7 lakh vehicles, mostly domestic models. "In addition, the first quarter witnessed a disruption owing to the second Covid-19 wave."

"The prices of commodities such as steel, aluminium and precious metals witnessed an unprecedented increase during this year. The company was forced to increase prices of vehicles to partially offset this impact," the company said.

Shares of the company fell as much as 2.25% in intraday trade before closing with losses over 1%.

Of the 52 analysts tracking the company, 36 maintain a 'buy', 9 suggest a 'hold' and seven recommend a 'sell', according to Bloomberg data. The overall consensus price target implies an upside of 17.5%.

Here's what analysts have to say about Maruti Suzuki's Q4 FY22 results.

• Maintains 'neutral', raises target price to Rs 7,200 from Rs 6,525, still implying a potential downside of 6.7%.

• The beat was driven by a combination of lower commodity costs sequentially as well as better other operating income (steel scrap sales). While commodity prices have provided a reprieve in the second half of the fiscal year, this could partially reverse in the first half of the current fiscal.

• Maruti needs a meaningful increase in its market share to outperform other auto stocks in our coverage. While JPMorgan expects it to launch a few models in FY23, the competitive intensity is not abating.

• Upside risks: Faster and more successful model launch pipeline.

• Downside risks: Slower-than-expected growth in passenger vehicle volumes.

• Maintains 'buy', raises target price to Rs 10,000 from Rs 9,840, implying a potential upside of 29.2%.

• Maruti exited FY22 on a strong note with 14-quarter high Ebitda on back of ramp-up in capacity utilisation and stable commodity prices. Amid sector-wide margin downtrend expected in FY23, Maruti stands out with revised EBIT margin.

• Reasons for margin outperformance: softening in commodity basket excluding steel and pricing action, favorable yen depreciation and robust operating leverage. The second half of FY23 could offer further upside if the new launches (mid-size SUV, new S Cross) are well received by customers as that would drive higher mix/margins.

• With customer order backlog of 3.2 lakh and a solid launch pipeline, semiconductors remain the only bottleneck in the near term.

• Maruti remains the best positioned among peers in carbon dioxide emission for CAFE norms as CNG vehicles have 20-25% less emission than gasoline car.

• Our price target at Rs 10,000 is higher as we factor in lower depreciation and higher investment income estimates.

• Maintains 'buy', raises target price to Rs 10,700 from Rs 10,500 earlier, implying a potential upside of 39.3%.

• Maruti remains its top pick in the sector.

• Maruti Suzuki reported strong Q4 FY22 results with higher operating leverage boosting margin. There are near-term headwinds in terms of commodity cost pressures, though Maruti has been nimble in terms of price hikes.

• Demand is robust, and with upcoming new model launches planned over FY24, Maruti should see increase in market share.

• Chip shortage remains a concern though and is a possible downside risk. Citi does not change volume or pricing assumptions but tweak margin estimates, resulting in slight increase in EBIT and earnings estimates.

• Maruti volumes could grow at a slightly higher pace, given new launches and strong order backlog for existing models.

• While precious metal prices have eased slightly, steel and aluminum prices continue to rise and this could put downward pressures on margin.

• Maintains 'buy' at a target price of Rs 9,700, implying a potential upside of 25.7%.

• Better product mix, likely ease on production, price hikes and stable raw material environment would support Maruti's margin expansion.

• 'Buy' rating in view of the strong products basket, likely margin expansion, strong export potential, strong return ratios and healthy balance sheet.

• Maruti expects a better response for the hybrid segment compared to electric vehicles during the next one-two years due to various factors. Hence, a rapid electrification by competition would not impact the industry dynamics over the medium term.

• Production constraint due to semiconductor shortages and higher input cost would impact Maruti's operating margin in FY22 and FY23.

• Maintains 'buy' at a target price of Rs 9,246, implying a potential upside of 20%.

• Maintains a positive view given Maruti's unique moats and intrinsic strength (proven product portfolio, strong dealer network, and rural presence and dominance in the entry-level car segment. Also see sharp earning growth led by margin expansion.

• Expects passenger vehicles demand to continue to be strong for the next two years led by sharp recovery in the economy, strong waiting period of cars and low inventory. Also, sees sharp margin expansion due to new rollout in SUV segment, cost cutting initiatives, reduction in discounts, increase in mix of CNG and SUV, operating leverage and price hike.

• Key focus on management is regaining its market share along with improvement in mix (CNG and SUV portfolio) and margin expansion.

• Maintains 'buy' at a target price of Rs 10,000, implying a potential upside of 29%.

• Favourable product lifecycle will drive volumes, market share, and margin, whereas the Yen depreciation will dilute the impact of commodity prices in the first half.

• Expects a recovery in market share and margin in the second half, led by an improvement in supplies, favorable product lifecycle, mix, price action/cost-cutting, and operating leverage.

• Maintains 'buy' at a target price of Rs 8,815, implying a potential upside of 15%.

• Expects margins to improve gradually, aided by operating leverage benefits, price hikes, cost-control initiatives and improving product mix. See demand holding reasonably well, indicated by large pending booking. However, supply-chain challenges continue to remain a cause of concern.

• Four new model launches in the SUV segment in 2022 and 2023 expected in a bid to address the white spaces in the portfolio.

• Remains positive about the prospects of Maruti's SUV models despite it being a highly competitive space, owing to Maruti's enhanced tech capabilities and its lower cost of ownership.

• Maintains 'buy' at a target price of Rs 10,627, implying a potential upside of 37%.

• Maruti is well poised to capitalise on the passenger vehicle industry turnaround in the Indian market. The company is set to report all time high profits in FY23 and FY24.

• Growth outlook remains bright aided by domestic and export markets.

• Benefit of price hikes, stabilising of metals prices and operating leverage to result in sharp improvement in profitability.

• Booming exports to drive double digit volume growth over FY22-24.