Last updated: 29 Jul, 2021 | 10:31 am
Volumes: 353,614 (up 361% YoY/ Down 28% QoQ)
EBITDA Margin: 4.6% (up from -21% in Q1FY21 / down from 8.3% in Q4FY21)
Revenue and Net profit below estimates: Maruti Suzuki has reported a 332% increase in revenue on-year, mainly aided by a lower base last year. On-quarter, the company reported a 26% fall in revenues. Like every automobile company, Maruti too is struggling due to semiconductor shortage and its effects will be much more profound in Q2 FY22. Net profit too has reduced by 62% over last quarter.
Margins: Higher raw material cost continues to have an impact on margins. The company is working on its cost optimization program which includes reducing its sales promotion and advertisement expenditure to set off higher raw material cost. The operating leverage has impacted further 400bps at operating margin level.
Price hikes: The realizations by the company have been increasing consistently from Q2FY21. It increased from Rs 4,50,978 in Q2FY21 to Rs 5,02,545 in Q1FY22. This was caused by the company taking price hikes in January, April and July 2021.
Demand: Demand seems to have increased and reached pre 2nd wave levels. The company has pending order booking of 170,000 vehicles and stock in its warehouses and retail network of 135,000. However, the long term outlook seems weak due to a major shift in consumer preferences towards SUVs and premium hatchbacks from Sedans and cheaper hatchbacks.
Market Share: The retail market share of the company was lower at 40% whereas wholesale market share was 46%.
Although Maruti Suzuki posted results below expectations, this was caused by industry wide problems like high raw material costs, 2nd wave of covid and semiconductor shortages. Demand is back to Jan-Mar 21 levels, but semiconductor shortages and high raw materials costs will weigh on the business till 2nd half of FY22. In the long run, the business will grow due to the macros like high rural consumption, upcycle in the industry and economic recovery. The company is currently focusing more on hybrid and CNG vehicles than EVs. This is in line with the government target of E20 by 2025. However, Maruti Suzuki is expected to release the Futuro-E electric vehicle in the 2nd half of FY22.
Maruti Suzuki: Brokerage action
Global brokerage firm Bernstein has maintained an outperform rating on the shares, with a target price of Rs 7,850. Commodity prices continue to be a key overhang on Maruti Suzuki, and are not getting offset by their price hikes. Further, Covid-19 led disruptions are impacting the automaker’s operating leverage. While the Q1 results show challenges at various levels, the management commentary indicates confidence in demand recovery, said Bernstein.
Kotak Institutional Equities has retained a ‘Sell’ rating on the stock highlighting market share loss in the SUV segment, and the stock’s rich valuations. It has a target price of Rs 6,000 on the shares. Maruti Suzuki shares were trading 2% down at Rs 7,006 on Thursday afternoon.