Maruti Suzuki Ltd.-Quarterly Result Update

Sector Outlook – Positive

Maruti Suzuki posted Q2FY24 financial results. Their total revenue went up by 14.6% compared to the previous quarter and by 23.8% compared to the same time last year, reaching a whopping Rs. 37,062.1 crores. This impressive growth came from selling more cars and having a better variety of cars, especially SUVs. They’ve been launching a bunch of new SUVs, and because of that, they now have a bigger market share in the SUV category. In fact, they’re the leader in that segment once again. Overall, they sold 6.7% more cars in India compared to last year, which is a record high for them, with 552,055 units sold in Q2FY24. They also did well in exports, sending 9.6% more cars to other countries, making them the top car exporter in India.

Their EBITDA went up by 60.4% compared to the previous quarter and by 72.8% compared to last year, totaling Rs. 4,784.2 crores in Q2FY24. Their actual profit after all expenses (net profit) for Q2FY24 was an impressive Rs. 3,717 crores, which is a big increase of 49.6% compared to the previous quarter and 80.2% compared to last year. 

This great performance is because Maruti Suzuki has been working hard to cut costs and sell more of the kinds of cars people want to buy. They have big plans for the future, including launching 10-11 new car models, including six electric vehicles (EVs) by 2031. They’re also working on making their cars in India and exporting them to other countries, which is all part of their plan to grow and succeed.

Key Concall Highlights

Demand

• The company’s management predicts that the passenger vehicle (PV) industry will grow by 5-7% in FY24. Maruti Suzuki aims to outperform the industry with a 10% growth rate. During the recent festive period, the PV industry saw a 20% growth, and MSIL matched this industry growth.
• MSIL is determined to achieve a 50% market share in PVs, although it may take longer than originally expected.
• The current order backlog has been reduced to 288,000 units, including 123,000 units for Compressed Natural Gas (CNG) variants, thanks to improved vehicle availability.
• Dealers currently have slightly over a month’s worth of finished goods inventory.
• The small car market is still struggling due to increased costs, making cars less affordable. However, there is hope for a revival in this segment due to its low market penetration and people’s aspirations to upgrade from two-wheelers.
• In international markets, models like Baleno, Dzire, and Spresso are selling well, while Grand Vitara, Fronx, and Jimny have started contributing to export growth. MSIL aims to export 750,000-800,000 units by FY30, focusing on Latin America, Africa, Southeast Asia, and the Middle East.

Cost

• While the costs of precious metals are decreasing, steel prices are rising again, which is a concern. However, any negative impact from this increase may be offset by the weakening yen.
• During Q2FY24, the average discount offered was Rs. 17,700, which is typical during the festive season.

Other Highlights

• Export revenue reached Rs. 4,333 crores in Q2FY24.
• The company’s capital expenditure (capex) guidance for FY24 remains at Rs. 8,000 crores.

Valuation and Outlook

MSIL has exhibited a remarkable performance, with a particular focus on profitability. The company achieved its highest-ever quarterly sales volume, driven by robust SUV sales, successful newer models, and strategic discounts on entry-level cars. This surge in sales translated into the company’s highest-ever quarterly revenue. As expected, strategic price hikes in popular segments (SUVs and mid-level hatchbacks), combined with a favourable sales mix, contributed to a noteworthy 16.7% YoY growth in the Average Selling Price (ASP). MSIL has benefited from softening commodity prices, augmented realisations, and improved operating leverage which has propelled a substantial EBITDA margin expansion.

Looking ahead, the medium-to-long term outlook remains positive as exports are poised to outpace domestic sales which will contribute to an overall margin improvement. Additionally, the favourable mix of UVs, supported by currency exchange rates, is likely to provide margin support. Despite some movement in commodity prices, the upward trajectory in SUV profitability is expected to endure in the forthcoming quarters.

Key Takeaway

• The current order backlog has now been reduced to 288k units (including 123k for CNG variants) with improved availability of vehicles.
• The small car market is still weak due to affordability as cost has gone up, and income is yet to catch-up to that level. Sooner or later, this segment has to revive due to low penetration and aspiration of people to upgrade from 2Ws.
• While precious metal costs continue to soften sequentially, steel prices are again on an uptrend which remains a cause of concern.