Maruti Suzuki will have to offer more discounts, says analyst after Q4 results miss estimates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Maruti Suzuki shares were in focus on April 29, after India’s largest passenger carmaker reported earnings for the January to March 2024 quarter that fell short of CNBC-TV18 poll projections on various parameters.

Brokerage firms Nomura and Kotak Institutional Equities have neutral and sell calls on the stock, respectively, with target prices below the last closing price on April 26. However, HSBC and Motilal Oswal have given the stock a buy rating and see a potential upside of 10% and 16%, respectively.

Maruti market share at risk?

Despite the divided stance in terms of ratings and target price, all analysts have highlighted that Maruti Suzuki is likely to witness a decline in market share over FY25-26.

In March 2024, Maruti retained its top spot with a lion’s share of 39.33% in the passenger vehicles segment compared to 40.48% in the year-ago period, according to Federation of Automobile Dealers Associations of India (FADA) data. At the end of FY24, its share stood at 40.66%, down from 40.94% in FY23.

Nomura is of the view that the market share may face risk in FY25-26. Kotak says its market share may decline to 40.5-41% over the financial year owing to newer launches by competitors.

Will Maruti offer more discounts?

Nomura also believes discounts at Maruti will likely rise as inventory has filled up. In its report for March, FADA also pointed out that the downturn in the PV segment was influenced by heavy discounting and selective financing further affected by economic worries and the electoral climate.

(As sales slow down, automakers often offer discounts and other offers to lure buyers.)

In a brokerage note on automobiles, Motilal Oswal pointed out, “Entry-level demand continues to face pressure for Maruti Suzuki, with discounts remaining consistent on a MoM basis. There are no discounts on Maruti’s Brezza/Ertiga and Tata Motors’ Nexon. The waiting period continues to remain under two months for M&M XUV700 and ScorpioN. Inventory for all the key PV OEMs stood at 40-45 days.”

Also Read: Maruti Suzuki declares dividend of ₹125 per share, the highest-ever in its history

Motilal Oswal also noted that Maruti’s operating performance in the fourth quarter of FY24 was below its estimates as benefits from operating leverage (140bp) and lower discounts (80bp) were partially offset by one-off costs (60bp).

Reflecting on demand, Maruti’s management said, its enquiries are growing in high-single digits.

What will drive growth in FY25?

– Improved mix
– GST cuts or favourable policy for hybrids

Kotak expects the volume trajectory for the industry to remain muted over FY25 due to weakness in the entry-level segment’s demand and receding order book in the SUV segment.

However, HSBC sees FY25 growth at 5-6% largely driven by CNG and exports. It also added that a cut in taxes on hybrids is an upside risk.

Even as Maruti reported an EBITDA margin of 12.2% for the quarter, 120 basis points below expectations of 13.4%, due to higher ad spends and higher manufacturing overheads, HSBC says its FY25/26 expectations remain unchanged.

It also said that post-run-up, the stock will likely be rangebound in the near term but the brokerage’s medium-term outlook remains positive.

Motilal Oswal marginally raised its FY25-26 estimates by 2-4% for Maruti, noting that it expects the carmaker to continue to outperform industry growth in the current fiscal. While the bulk of input cost benefits are likely to be behind, MO expects Maruti to post about 70bp margin improvement to 12.5% in FY25, largely led by an improved mix.

“This would, in turn, drive a steady 13% earnings CAGR over FY24-26E. Any GST cuts or favourable policy for hybrids by the government may drive a rerating as Maruti would be the key beneficiary of such changes,” it added.

The firm’s multi-tech approach seems best-suited for India, it further said.

Maruti Suzuki shares traded flat at ₹12,737.10 on NSE at 9:59 am. 

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow