Maruti Suzuki India Limited (MSIL) shares lost nearly 2 per cent to Rs 9,660 at 9:20am on August 1 on concerns over the cash buyout of Suzuki Motor stake in Suzuki Motor Gujarat (SMG). The Q1 numbers too failed to match the expectation of most analysts.
The company’s net profit surged more than 2-fold on-year to Rs 2,485 crore in Q1FY24. Q1 sales stood at 4,98,030 units, a growth of 6.4 per cent compared to the same period last year. Maruti Suzuki’s domestic sales stood at 4,34,812 units, growing 9.1 per cent on-year.
Meanwhile, Maruti Suzuki’s board has approved the termination of the contract manufacturing agreement with Suzuki Motor Gujarat (SMG). Presently, Suzuki Motor Corporation holds 100 per cent equity capital of SMG. The acquisition of 100 per cent equity capital by Maruti Suzuki India from SMC is a related party transaction and is expected to be completed by FY24.
RC Bhargava, Chairman of Maruti Suzuki India, said that Maruti Suzuki will take over EV production at the Gujarat unit, replacing Suzuki Motor. “EV production at the Gujarat facility will now be done by Maruti Suzuki, instead of Suzuki Motor Corporation. Acquisition of Gujarat Plant will be completed by FY24 end,” he said.
The valuation of Suzuki’s stake has not been determined yet, as it depends on the book value. The battery plant will remain separate from this deal, Bhargava said, adding that though they are open to purchasing the battery plant from Suzuki, a final decision has not been made yet.
What Should Investors Do Now?
However, several brokerages, however, remained upbeat on the company’s first-quarter earnings.
Motilal Oswal Financial Services Limited has said that stable growth in domestic passenger vehicles and a favourable product lifecycle augur well for Maruti. “We expect market share gains and margin recovery in FY24, led by an improvement in supplies, a favourable product mix and operating leverage.”
“We increase our FY24E EPS by 3 per cent to factor in better ASPs and higher other income. However, we cut our FY25E EPS by 1%, as the benefits of higher ASP and higher other income are more than offset by the acquisition of SMG (assuming consideration of Rs 130b paid in cash). Maintain Buy,” it added.
Analysts at Nirmal Bang Institutional Equities are of the view that MSIL’s plan to expand production will help it to increase its overall market share. The company’s increased focus on SUVs in its overall portfolio will boost margins. “We expect the sales momentum to continue in the coming quarters.”
Meanwhile, Kotak Securities, said: “We expect its market share to remain at ~42 per cent over FY2024-25E owing to increased competitive intensity in the SUV and CNG segments by competitors, whereas MSIL has no launches in the pipeline. Maintain SELL.”
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