Maruti revving up

Maruti Suzuki India Limited (MSIL), formerly known as Maruti Udyog Limited, is the largest passenger vehicle manufacturer in India with products ranging from basic hatchbacks to premium MUVs. As of September 2021 MSIL has a market share of 49% in the Indian passenger car market.

Industry experts indicate lead times for automotive chips have increased notably from normal levels of 8-12 weeks to 36-40 weeks currently, mainly due to the recent spike in Covid-19 cases and restrictions in the Asian countries that are part of the supply chain. Chip supplies are expected to improve in a staggered manner in the next 3-6 months.

Demand remains strong & there is a waiting period for most models. MSIL has a healthy order book of over 150,000 units, and supply-related constraints remain the only challenge in the near term.

Exports have improved notably in recent months on strong demand in Africa and Latin America markets. MSIL has expanded the network by increasing its own distributors and utilizing Suzuki and Toyota’s global networks.

MSIL is likely to initiate an aggressive model action plan in the next two years to fill up the white-spaces like compact SUVs (above 4m), mid-size SUVs/MPVs and xEVs. Upcoming product launches are likely to include new generation Brezza, above-4m SUV, Jimny off-roader, MPV and strong hybrids. MSIL is collaborating with Toyota on products such as above-4m SUV, MPV and strong hybrids.

According to their Q1FY22 con-call, capex guidance for FY22 stands at Rs 4,500 cr. Discounts for Q1FY22 averaged Rs.14,000 per vehicle. Royalty for the quarter stood at about 4% of sales. The Company’s focus on cost-reduction efforts is continuing. It is also working on optimizing the usage of precious metals.

MSIL has cash holdings in excess of Rs.41,000 cr currently.

We believe that the industry will see an up cycle in the next 2-3 years, driven by improving macros, pick-up in replacement demand, positive rural sentiments and low interest rates. 40% of Maruti’s revenues are from rural markets, a major thrust area. Post covid preference towards personal mobility, economic recovery & good monsoons should translate into strong demand in near term.

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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 14 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.