Maruti Suzuki Rating: neutral: Q4FY21’s performance missed estimates

MSIL’s Q4FY21 EBITDA margin at 8.3% was below estimates (Nom: 9.6%, Bloomberg consensus: 9.2%). RM/Sales increased 80bp q-o-q to 77.3% (Nom: 76.8%), which was the key reason for the miss. ASP at Rs 466k, +4% q-o-q (Nom: 461k) was slightly ahead. Discounts were Rs 16k (down Rs 4k q-o-q).

Mgmt commentary: Demand sentiment has not yet been impacted by the 2nd COVID wave. Retails are impacted as 35% of the markets are locked down. Current bookings stand at ~200k. There is no impact on production. The company took a ~0.8% price hike in Jan 2021 and ~1.25% in Apr 2021. There was ~300bps q-o-q cost increase in Q4FY21 and there will be more increases in Q1FY22F. Inventory was at 32k at end-March 2021 and currently stands at 85k. Long-term demand will depend on economic recovery.

Our view: Near-term retails are affected by ~30-40% as per our dealer checks even in non-lockdown areas. However, we maintain our industry view—unless COVID impacts medium-term economic outlook, volumes lost in the short term could be made up. We believe MSIL is likely to continue facing margin pressure as there is a further 200-300bps cost increase likely in Q1FY22F. There will also be cost of a new plant from April.

The company plans to use the current period to fill inventory for the rebound. Market share is also likely to remain under pressure, particularly in the high-growth SUV segment. We expect new SUVs models to be launched in FY23F, which could result in a turnaround for the company.

We largely maintain our FY22/23F volume estimates at 1.91mn/2.14mn (+31%/ 11.8%). We lower FY22F/23F Ebitda margin forecasts to 8.7% /10.9% (vs 10.4%/11.8%), which is below consensus (10.6%/11.9% FY22/23F), to factor in higher cost pressure. Overall, we change Ebitda by -16%/-7% and EPS by -14%/ -6%. Key downside risk is impact on demand sentiment due to COVID; correction in commodities is an upside risk.

Valuation: TP cut 7% to Rs 7,362 based on 25x FY23F core EPS: We continue to value MSIL at 25x (unchanged) core FY23F EPS (Rs 224), at the upper end of our expected trading band (average FY22-23F EPS) and add Rs 1,585 cash/ share and Rs 178 for subs. Current valuation at 21.5x core EPS is in fair value zone and we maintain Neutral. We prefer M&M (MM IN, Buy) and AL (AL IN, Buy).