Maruti Suzuki Reaches 3-Month High on Hopes for Better Margins; Buy, Sell, or Hold?



The largest manufacturer of passenger cars in India, Maruti Suzuki India (MSIL), saw its shares rise to Rs 8,319.80 intraday before closing the previous session 6.33 percent higher at Rs 8,274.6 on the BSE. The level is at its highest point since February 28 of this year. Since its 52-week low of Rs 6,540, which was reached in March of this year, the stock has increased by 25%.

On Thursday, auto shares rose as a result of buyers snatching up some of the damaged names due to the recent decrease in global commodities, especially metals. The BSE Auto index increased by 4.4%, becoming the day's top sector gainer.


Weak product lifecycles, unprecedented commodity cost inflation in base commodities and precious metals, as well as several challenges to volumes, have all had a negative influence on MSIL's profitability over the previous three years, leading to an operating deleverage.

Throughout FY19 to FY22, this has caused severe erosion in its gross margin (about 610bp) and Ebit margin (about 570bp). However, Motilal Oswal Financial Services reported in a stock update that stable commodity costs during Q4FY22 and the benefits of pricing action were reflected in gross margin and Ebit increase of 180bp and 270bp QoQ in Q4FY22, respectively.


In research released last week, Motilal Oswal Financial Services stated that Maruti Suzuki's product pipeline has just begun with improvements to major models and is about to introduce new models. According to the company, better supply, stable material prices, and strong demand will drive increased EBIT margins while the return of product life cycles will drive market share recovery. The stock has a "buy" recommendation from the research and brokerage firm, and its price objective of Rs 10,000 suggests a potential 22 percent increase from present levels. Strong demand, better chip supplies, reduced commodity inflation, and favorable foreign exchange will all promote margin recovery, it was further said.

MSIL reported that in FY21–22, the share of sales from non–urban areas in total sales climbed to 43.6%. In March, Suzuki Motor Corporation, the parent company of MISL, and its subsidiary Suzuki Motor Gujarat inked a memorandum of understanding (MOU) with the Gujarati government to invest Rs. 10,400 crores in BEV batteries and BEV manufacturing capacity. This investment will make a significant contribution to localizing EV production and aid the company in accelerating and diversifying its BEV product line in India. According to the business, the first BEV will be released by 2025.


According to analysts at Emkay Global Financial Services, the company's product range should be significantly filled by new vehicles in the next 18 months, including a >4m compact SUV, Off-roader (Jimny), mid-size SUV, and 4m crossover. Additionally, volume sales should be supported by the introduction of feature-rich new generation Baleno, Celerio, Brezza, Ertiga, XL6, and S-Cross models. According to the trading business, MSIL's market share should rise from 45% in FY22 to 46% in FY24E.


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