ICICI Securities: Maruti Suzuki’s Hurdle Rate Of Expectations Remains Elevated Post Q1
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ICICI Securities Report
Maruti Suzuki India Ltd.’s Q1 FY21 earnings were a miss on consensus estimates as Ebitda margin dropped 3,141 basis points to -21% largely due approximately 79% revenue drop while costs remained relatively sticky.
The industry read-through from Q1 results is the sharp divergence between fixed cost structures of original equipment manufacturings (two-Wheelers displayed resilient Ebitda margins even in low utilizations while private vehicles breakeven hurdle rates remain high).
However, current valuations would make you believe otherwise. Two key focus points for Maruti Suzuki in FY21/22 are managing SUV market share without a diesel(high torque) offering as competition intensifies (e.g. Kia Sonet, Nissan Magnite, Toyota Brezza), and scaling back to approximately 6% Ebit margins amidst high conversion costs, weak utilization and sticky discounts.
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