The country’s largest carmaker, Maruti Suzuki India reported Ebitda of Rs 2,830 crore, which was 5?ove our estimates due to higher-than-expected ASPs (superior product mix). We expect mix benefit to partly reverse in coming months. Overall, we expect domestic PV segment demand to sharply moderate in FY2024E due to cost headwinds and waning pent-up demand. We also expect the Ebitda margin to remain below 11% over FY2024-25E, as we expect discounts to inch up, especially in the entry level segment, unfavourable FX (yen appreciation) and an uptick in base metal prices.

Other expenses were down 6% q-o-q, whereas employee cost increased 6% q-o-q in Q3FY23. Ebitda margin came in at 9.8%, broadly in line with our estimates in Q3FY23. Net profit came in at Rs 2,350 crore ( 132% y-o-y and 14% q-o-q), 21?ove our estimates due to a marginal beat at Ebitda level, higher-than-expected other income, and lower tax rate.
Expect Ebitda margin to remain below 11% over FY2024-25E

Although we expect Ebitda margin to recover from Q3FY23 levels, mainly led by operating leverage benefits, we expect the Ebitda margin to remain below 11% over FY2024-25E; mainly owing to higher discounts, uptick in base metal prices and negative impact of Yen appreciation. We expect discounts as a percentage of ASPs to inch up from 9MFY23 levels, as pent-up demand fades amid an improving supply chain situation. We expect demand growth to moderate, especially in the entry level segments, amid the rising interest rate and higher CNG prices, which will increase discounts, in our view.

Fine-tune our FY2024-25E Ebitda estimates; maintain SELL

We have fine-tuned our FY2024-25E Ebitda estimates. However, we have raised our FY2023E EPS estimates by 10%
on higher ASPs and other income assumptions, and lower tax rate assumptions. We believe that the company will find it challenging to regain lost market share in the domestic PV segment , despite multiple new launches across segments.

Expect growth moderation in domestic PV segment volumes

We expect MSIL’s domestic PV volumes to grow 9% in FY2023E; however, we expect domestic volumes for the company to increase at a CAGR of 7% over FY2024-25E. We expect the domestic PV segment’s volumes to grow 3% y-o-y in FY2024E owing to upcoming cost pressures due to mandatory emission and safety norms raising the upfront cost of a vehicle further, higher prices of CNG continuing to impacting the entry level segment, waning of pent-up demand, and higher inflation further denting the household savings. As a result, we expect discount levels to inch up for the industry, which will weigh on the overall profitability.

MSIL market share in domestic PV segment continues to hover around 41% for past 3 quarters

MSIL’s market share remained below 42% for the third consecutive quarter owing to a drop in mark  et share in the hatchback segment by 400 bps q-o-q in Q3FY23. The company’s newly launched mid-size SUV (Grand Vitara) clocked in volumes standing at 18.6k units in Q3FY23. In the compact SUV segment, Brezza volumes plummeted 20% q-o-q in Q3FY23. Overall,
the company gained 200 bps market share in the SUV segment q-o-q in Q3FY23.

The company has a pending order book of about 363k vehicles at end-Q3FY23, out of which 119k bookings are from recently launched models (Brezza and Grand Vitara). Although Maruti expects to gain market share in the SUV space, with two recent launches, i.e., Jimny and Fronx; however, the demand for the Fronx appears to be tepid currently. We expect the company to gain 150-200 bps market share y-o-y to around 43.5% in FY2024E; however, we believe it will be challenging for the company to cross 45% market share levels due to a lack of diesel offering in the mid-size SUV segment and premium pricing of its strong hybrid variant versus

Toyota’s offering. Launch of CNG variant of Carens by Kia Motors will weigh on MSIL’s market share in the MUV segment and it will be challenging for MSIL to reach a 40% market share level.