17% fall in volumes expected in FY21e; TP revised to Rs 4,500 due to rollover to Sept ’22; ‘Sell’ maintained.
Maruti Suzuki reported Ebitda loss of Rs 8.6 bn in Q1FY21 due to significant lockdown-led volume decline. The Ebitda loss was significantly worse than expected because of lower-than-expected gross margin and higher other expenses. We expect PV industry volumes to remain under pressure in FY2021e given economic uncertainty and tight financing conditions. Maintain Sell with a revised FV of Rs 4,500 (from Rs 4,300 earlier) due to rollover to September 2022e. The FV is based on 23X September 2022e core EPS.
Q1FY21 Ebitda loss significantly higher than expected: MSIL saw Q1FY21 Ebitda loss of Rs 8.6 bn (-32%y-o-y) due to lower-than-expected gross margin and higher-than-expected other expenses. Net revenues declined by 79% y-o-y led by (i) 81% y-o-y decline in volumes; and (ii) 3.2% y-o-y increase in ASPs led by passing of regulatory cost pressures to customers.
Gross profit per vehicle came in at Rs 152,757 in Q1FY21 versus Rs 139,806 per vehicle in Q1FY20 due to a richer product mix. This quarter was also impacted due to lower production versus sales (Rs 1.1 bn impact on gross margin, -300 bps impact). The company indicated that demand is back to 85-90% of pre-Covid levels in June/July 2020. The company is currently producing 4,000 vehicles per day. Net loss came in at Rs 2.5 bn, which was lower than our estimate due to higher other income and tax write-back.
FY2021 to be a challenging year for PV industry; expect MSIL to gain some market share: After 16% y-o-y volume decline in FY2020, we expect MSIL’s volumes to further decline by 17% y-o-y in FY2021e due to weak demand amid the pandemic. We forecast the company to report sales volumes of(i) 350,000 units in Q2FY21; and (ii) ~142,000 units per month for H2FY21.
However, we expect MSIL to gain market share in FY2021e given its (i) higher presence in rural areas (rural demand should recover first); (ii) a wide distribution network; and (iii) preference for lower-end hatchback cars (MSIL is the leader) given the weak economic environment.
We expect Ebitda margin to remain at around 10% in FY2021e but recover to 11-13% levels in FY2022/23e as volumes pick up. We have tweaked our EPS estimates largely for FY2022-23e while FY2021 EPS estimates have gone up due to higher other income assumptions.