MSIL new products in the past couple of years continues to perform strongly with robust demand. Baleno/Dzire/Brezza and Ignis accounts for 40% of the company’s domestic sales volumes (up from 32% in FY17).
Maruti Suzuki India (MSIL) market share in FY18 has increased to 50.3%. Despite higher base, strong product portfolio and robust after sales network has helped the company grow its volumes at a healthy rate. We expect MSIL’s volumes to grow by 12% over FY17-FY20E driven by current portfolio and new products. MSIL’s EBITDA margin is expected to improve gradually over the coming years. Operational leverage from high capacity utilisation at Gujarat plant and cost reduction measures is expected to translate into EBITDA margin expansion over FY18-FY20. We introduce FY20E earnings and roll over our target price to FY20 estimates. We retain ‘BUY’ on the stock with increased target price of Rs 10,749, valuing the stock at 25x (unchanged) PER on FY20E earnings.
New products have been the key volume growth driver for MSIL over the past few years. MSIL new products in the past couple of years continues to perform strongly with robust demand. Baleno/Dzire/Brezza and Ignis accounts for 40% of the company’s domestic sales volumes (up from 32% in FY17). We expect new products and a slew of major upgrades (including Swift) from the company over next two years and that is expected to keep volume growth healthy. In February 2017, MSIL will provide some inputs on the all new compact car design language in the form of “ConceptFutureS”. Suzuki Motor Corporation has plans to launch around 15 new models between 2015-2020 in India. MSIL’s market share continues to remain high, despite new products from competitors. From 47.4% in FY17, MSIL’s market share has increased to 50.3% in FY18 (April-December). In the existing portfolio, the company has few models on high waiting period. MSIL success ratio of new launches/major upgrades is significantly higher than that of competition. Company will be launching new products/various upgrades in the next two years.
We thereby expect MSIL to successfully fend off competition and keep its market share at elevated levels in the next few years. Given strong product portfolio and robust demand for its products, demand is not a worry for the company.