Maruti Suzuki India Limited (MSIL) reported weak operational performance during Q2FY22, led by adverse commodity prices. The volume sales during the quarter was impacted by the shortage of electronic components leading to lower capacity utilisation. Net revenue was up 9.6% y-o-y to Rs 20,539 crore, led by 13.5% growth in average realisation, partially mitigated by 3.5% decline in volumes. EBITDA margin contracted sharper than our expectations. EBITDA margin for the Q2FY22 stood at 4.2%, which is 50 bps q-o-q and 620 bps y-o-y decline. As a result, the EBITDA and PAT declined 55.8% y-o-y and 65.3% y-o-y to Rs855 crore and Rs475 crore respectively. The management commentary was cautiously positive, as the company expects supply constraints due to electronic component shortage to improve gradually going forward. We continue to remain positive on the company and expects demand for passenger vehicles (PV) to remain buoyant, driven by rising demand in tier-2 and tier-3 cities and rural areas. MSIL is expected to sustain its dominant market share, aided by strong product portfolio and position, brand appeal, and ability to frequently launch new models. We reiterate Buy rating on the company with a revised PT of RS 8,251.
MSIL is expected to witness a recovery in domestic demand with sales volumes sustaining growth, despite the near-term challenges of electronic component shortage. Sales enquiries remain strong with orderbook currently more than 2,00,000 units. We expect strong recovery from FY2022, driven by normalisation of economic activity. Margins are expected to improve from 7.5% in FY2021 to 11.1% in FY2023E, driven by operating leverage and cost-control measures. We remain positive on the company on account of its structural growth outlook (which remains intact), healthy balance sheet, and comfortable valuations. The stock is trading at P/E of 26.7x and EV/EBITDA of 19.5x its FY2023E estimates. We retain our Buy rating on MSIL with a revised PT of Rs. 8,251.
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