Volumes, margins to drive gains for Maruti Suzuki

Brokerages expect recovery in H2, aided by easing commodity/supply concerns

- RAM PRASAD SAHU

The growth outlook for India's largest passenger carmaker - Maruti Suzuki India (MSIL) is turning the corner. While robust volumes and price hikes will drive revenue growth, moderating commodity prices and improving leverage are expected to rub off on its operating profit margins.

Brokerages have tweaked their volume growth and earnings estimates upwards after the JanuaryMarch quarter results (2021-22, or FY22) to incorporate favourable trends for the market leader.

In addition to the outlook, valuations are below the long-term average, the 14 per cent increase in its stock prices since the lows in March notwithstanding.

While supply disruption has led to a loss in production, demand trends remain strong, aided by new product launches as reflected in the order book-rising over the past few months. The order book is now at 320,000 units, compared with 240,000 in December 2021.

Since November 2021, the carmaker has launched a raft of updated and refreshed products - the Baleno, Celerio, WagonR, Dzire compressed natural gas (CNG), Ertiga, and more recently, the XL6.

The demand for CNG vehicles continues to be sturdy, with over 40 per cent of MSIL's bookings coming from this segment. The company has five cars offering CNG.

While these launches are encouraging, what the Street will be eyeing is new products in the sport utility vehicle (SUV)/multipurpose segment, whose share in the overall car market (currently at 38 per cent) continues to climb.