Maruti Suzuki surges 5%, hits 3-month high on hopes of improved outlook

Shares of (MSIL) hit an over three-month high of Rs 8,165, surging 5 per cent on the BSE in Thursday’s intra-day trade, on hopes of margin improvement due to stable commodities prices. In a separate development, the company on Monday, June 20, opened bookings for the country’s new version of compact SUV Brezza.

The stock of the passenger cars and utility vehicles company was trading at its highest level since March 2, 2022. It has recovered 25 per cent from its 52-week low price of Rs 6,540 hit on March 8.

MSIL’s profitability has been adversely impacted in the last three years by weak product lifecycle, unprecedented commodity cost inflation in base commodities and precious metals, and multiple headwinds to volumes, resulting in an operating deleverage.

This has resulted in a sharp erosion in its gross margin (~610bp) and Ebit margin (~570bp) over FY19–FY22. However, stable commodity cost during Q4FY22 and benefit of pricing action were reflected in gross margin and Ebit improvement of 180bp and 270bp QoQ in Q4FY22, respectively, Motilal Oswal Financial Services said in a stock update.

The brokerage firm expects improving supplies and product mix, and stable commodity prices would drive an Ebit margin expansion of 550bp to 8.8 per cent over FY22–24E.

“Strong demand, improving chip supplies, moderating commodity inflation and favorable Fx would support margin recovery. Robust demand coupled with strong recoveries in both market share (+600bp) and margins (+550bp) over FY22-24E, would drive 66 per cent CAGR in EPS,” the brokerage firms said with a ‘buy’ rating on the stock and a target price of Rs 10,000 per share.

Meanwhile, MSIL said the contribution of sales from non-urban in overall sales increased to 43.6 per cent in FY21-22. In the month of March MISL parent company Suzuki Motor Corporation through its subsidiary Suzuki Motor Gujarat signed a memorandum of understanding with the Government of Gujarat to invest Rs 10,400 crore in battery electric vehicle (BEV) batteries and BEV manufacturing capacity. This investment will greatly support in localizing the EV manufacturing and help the Company to accelerate and expand its BEV product portfolio in India. The Company is planning to introduce its first BEV by 2025, the company said.

Meanwhile, according to analysts at Emkay Global Financial Services, upcoming products within the next 18 months, including >4m compact SUV, Off-roader (Jimny), mid-size SUV and <4m crossover, should fill major whitespaces in the company’s product portfolio. In addition, the launch of feature-rich new generation models of Baleno, Celerio, Brezza, Ertiga, XL6 and S-Cross should support volumes. MSIL’s market share should increase from 45 per cent in FY22 to 46 per cent in FY24E, the brokerage firm said.

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