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Robust volumes, operating profit margins to drive gains for Maruti Suzuki

The progress outlook for India’s largest passenger carmaker — Maruti Suzuki India (MSIL) — is popping the nook. While strong volumes and value hikes will drive income progress, moderating commodity costs and enhancing leverage are anticipated to rub off on its operating profit margins.

Brokerages have tweaked their quantity progress and earnings estimates upwards after the January-March quarter outcomes (2021-22, or FY22) to incorporate beneficial tendencies for the market chief.

In addition to the outlook, valuations are beneath the long-term common, the 14 per cent improve in its stock costs because the lows in March however.

While provide disruption has led to loss in manufacturing, demand tendencies stay robust, aided by new product launches as mirrored within the order guide — rising over the previous few months. The order guide is now at 320,000 items, in contrast with 240,000 in December 2021.

Since November 2021, the carmaker has launched a raft of up to date and refreshed merchandise — the Baleno, Celerio, WagonR, Dzire compressed pure fuel (CNG), Ertiga, and extra not too long ago, the XL6.

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The demand for CNG autos continues to be sturdy, with over 40 per cent of MSIL’s bookings coming from this section. The company has 5 vehicles providing CNG.

While these launches are encouraging, what the Street will likely be eyeing is new merchandise within the sport utility car (SUV)/multipurpose section, whose share within the total automotive market (presently at 38 per cent) continues to climb.

MSIL is anticipated to launch 4 new fashions on this area over calendar years 2022 and 2023, bolstering the present portfolio encompassing the Brezza, Ertiga, XL6, and the S-Cross.

The success of those new launches is vital, provided that the company’s share within the home automotive market has slid from a peak of 54.4 per cent two years in the past to 44.8 per cent now. Faster progress within the SUV section (the place it lags behind competitors) and declining share of the entry-level section (which it dominates) have led to the autumn in share.

The company’s Chairman R C Bhargava in a post-results name mentioned that authorities laws, taxes, and better operating prices have squeezed the entry-level section.

“There is no butter left in the small car market, which used to be our bread-and-butter segment,” he quipped.

Brokerages, nevertheless, have a blended view on the flexibility of the company to regain share, given its late entry into this closely aggressive area.

Aniket Mhatre and Sonaal Sharma of HDFC Securities anticipate the company to be a key beneficiary of gradual recovery within the financial system and regain share, given the robust pipeline in utility autos (UVs).

“We believe that concerns over market-share loss in UVs are overstated, as MSIL has often proved its mettle in the past, and we expect it to bounce back this time as well,” they add.

However, Axis Capital analysts, led by Nishit Jalan, argue that the market chief is unlikely to repeat the success of 2011-12 by 2016-17, when it was in a position to capitalise on comparatively new segments with restricted competitors. The causes, in accordance to them, are that late entry right into a highly-competitive and ‘aspirational’ SUV section will pose challenges, particularly given its positioning as a price model. Even its present strongholds will face incremental headwinds, driving additional market-share loss over the subsequent three years.

Higher volumes, particularly within the worthwhile SUV section, are vital as they will enhance realisations and profitability. So much will, nevertheless, rely upon the trajectory of commodity costs, in addition to semiconductor provides. The company had a manufacturing lack of 270,000 items due to provide disruptions in FY22.

Motilal Oswal Research expects recovery within the second half of 2022-23 (FY23). Say analysts, led by Jinesh Gandhi, of the brokerage, “Strong demand and favourable product lifecycle for MSIL augur well for market share and margin. We expect recovery in market share and margin in the second half of FY23, led by an improvement in supplies, favourable product lifecycle, mix, price action/cost-cutting, and operating leverage.”

The brokerage expects yen depreciation to dilute the impression of commodity costs over the subsequent few quarters.

If recovery takes maintain and the continued traction within the export section continues, the company may report robust double-digit quantity progress over the subsequent few years. This, coupled with value hikes, stabilising metallic costs, and operating leverage, may enhance the company’s margins.

IDBI Capital expects the company to report all-time excessive income in FY23 and 2023-24.

At the present value, the stock trades at a slight low cost to its long-term common. The consensus goal value of analysts at Rs 9,006 interprets right into a achieve of 16.5 per cent from the present ranges. Investors can contemplate the stock on dips to achieve from recovery, new product launches, and margin gains.

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