Maruti Suzuki Q3 results to be weak, outlook remains muted; target price cut on the stock: Emkay Global

Maruti Suzuki share price declined in the early trade on Tuesday. The stock fell as much as 0.55% to 9,891.80 apiece on the . Emkay Global Financial Services cut the target price for Maruti Suzuki shares as it believes the outlook for the company remains muted and expects the company’s earnings for the quarter ended December 2023 to remain weak.

The fears regarding the Passenger Vehicle (PV) industry and Maruti Suzuki India are playing out, amid rising PV industry inventory levels, sharp run down in orderbook amid near normalized production, and steadily increasing discounts, Emkay Global Financial Services noted. With the best of the SUV product upcycle largely behind for Maruti Suzuki and absence of any revival in small cars, outlook seems muted prompting the brokerage to cut volume estimates by 3% and 7% for FY24 and FY25 26.

It also cut its earnings per share (EPS) estimates to below consensus. Emkay Global maintained an ‘Add’ rating on Maruti Suzuki and cut the target price to 10,700 per share from 11,700 earlier. It expects a slower core EPS CAGR, at 9% over FY24E 26E as against 21% YoY in FY24E. Growth in the PV industry over the past 5 7 years has been entirely driven by new launches.

Companies with a strong product cycle have gained market share with healthy volume growth, while those with fewer launches have suffered loss in market share. During the past 12 18 months, led by healthy response to its SUV launches, particularly the new Brezza, Grand Vitara and Fronx, Maruti Suzuki has reported healthy, 100 bps market share gains YoY in FY24YTD.

While share gains are expected to continue over FY24E 26E by virtue of the freshness of the company’s recent product actions combined with major competition launches now largely being behind, the brokerage believes emerging trends need to be monitored. For instance, higher inventory levels, rapid run down in orderbook and rising discounts even in SUVs.

Emkay Global also expects Maruti Suzuki’s Q3 results to be weak given lack of operating leverage with 9% decline in volumes QoQ, deterioration in mix as SUV share of total volumes at dropped to 31% from 33% in Q2, and higher discounts, which were up 10% QoQ, partially on account of the seasonal spike for model year change every December.

The brokerage builds in 90 bps EBITDA margin decline QoQ to 12% versus 12.9% in Q2 which is likely to have represented peak performance driven by healthy 11% QoQ volume growth, 800 bps improvement in the SUV mix, favorable commodities and forex, and lower discounts. Maruti Suzuki’s FY25 26 outlook appears muted amid limited new launches and absence of revival in small cars, said the brokerage house.

At 10:45 am, Maruti Suzuki shares were 0.05% trading lower at 9,942.00 apiece on the BSE. Livemint tops charts as the fastest growing news website in the world to know more. Unlock a world of Benefits! From insightful newsletters to real time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away!.