Maruti Suzuki Ltd. – Shift in sales mix enabling profitability

Sector Outlook – Positive
Maruti Suzuki India Limited (MSIL) had mixed results in Q3FY24, with a revenue of Rs. 33,309 crores, a 19.6% increase from last year but a 6.3% decrease from the previous quarter, falling short of expectations due to lower sales prices and higher discounts. 

Despite this, the company achieved its highest-ever sales volume, revenue, and net profit for the first nine months of the year, driven by an 8% increase in sales volume to 501,207 units and a strong SUV portfolio. However, its SUV market share dropped slightly. Exports rose by 15.8% year-over-year, reinforcing MSIL’s position as India’s leading car exporter. 

EBITDA was up 37.9% year-over-year, surpassing expectations, but net profit dropped 15.8% from the last quarter due to increased raw material costs and promotional expenses.

Concall Highlights

• Volume/Demand: The car industry is expected to grow slightly in FY 25. Maruti Suzuki aims to grow faster than the industry average. The company is focusing on Utility Vehicles (UVs), CNG, and hybrid cars, with CNG making up 30% of sales in Q3 FY 24. Demand for small cars is low due to high costs. Maruti is planning to launch 10 new models by FY 31, including electric vehicles (EVs) and possibly CNG options.
• Margin: Profit margins dropped due to fewer sales and higher marketing costs. However, gains from foreign exchange and lower commodity prices helped. Discounts were higher in Q3 to clear inventory. The company expects Q4 to have higher sales with fewer discounts.
• Capacity: A new plant in Gujarat with a capacity of 1 million units is planned by FY 29, requiring a Rs 35,000 crore investment. Another plant in Kharkhoda is underway, aiming for 1 million units capacity in the future.
• Exports: Maruti faces challenges with export logistics but plans to improve sales volumes, targeting 750,000 units by FY 30. Africa and the Middle East are key markets, with the government working on free trade agreements (FTAs) to boost exports.

Valuation and Outlook

Maruti Suzuki Ltd is gearing up for a promising future, planning to introduce 10 new models by FY31, which includes six electric vehicles (EVs), aiming for a production target of 4 million units. 

The company is focusing on both domestic growth and expanding exports, with special attention on markets in Africa and the Middle East. MSIL is also investing in localising EV production with Suzuki Corp.’s support. New SUV launches and a strong lineup of CNG vehicles are expected to drive sales. The company is optimistic about improving its profit margins by enhancing product mixes and operational efficiencies. 

Overall, MSIL’s strategy is to outperform industry growth rates by leveraging its strengths in innovation, exports, and a diverse product range.