Maruti to witness improvement in market share and margins in FY22
Premium- Maruti Suzuki India Ltd's operating profit and margins will also recover due to increase in vehicle prices and reduction in discounts offered
NEW DELHI: Country’s largest passenger vehicle (PV) manufacturer, Maruti Suzuki India Ltd is expected to witness improvement in its market share in the domestic market in FY22 on the back of multiple new product launches. The company’s operating profit and margins will also recover due to increase in vehicle prices and reduction in discounts offered.
The New Delhi-based vehicle manufacturer witnessed a swift recovery in volumes after the unlocking of the economy in FY21 due to better-than-expected economic recovery and shift towards personal mobility. Margins though came under pressure due to increased input costs like steel, copper and other metals.
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1 min read . 06:35 AM IST“The MSIL stock has underperformed (27% v/s Nifty and 23% v/s NSE Auto Index) in the last six months, impacted by market share loss and pressure on margin, despite a strong volume recovery. We see both these concerns abating as: a) product life cycle improves, and b) price increase/discount moderation drives a recovery in profitability. We expect 30% volume growth in FY22E and positive evolution of margin," said analysts of Motilal Oswal Institutional Equities.
One of the reasons for market share loss for Maruti, from 48.1% in FY21 to 51.2% in FY19, has been the lack of new product launches, especially in the fast-growing compact sports utility vehicle segment.
Exponential rise in Covid19 infections across the country though could derail the recovery in volumes and financials for Maruti and overall industry during the June quarter.
“FY22 looks far more promising for MSIL, with several launches lined up for the next two years, with a mixture of full upgrades of existing models (Alto, Celerio, Brezza, Ciaz, and Baleno) as well as new model launches (Jimny, Grand Vitara, and mid-sized MUVs). These launches are focused on SUVs (all new models and Brezza), but would also address its key entry-level model Alto after a gap of 10 years," added the analysts.
On Friday, Maruti announced decision to increase price of its vehicles by around 1.6% on an average, across its product portfolio, as a result of sustained increased in input cost. The company had increased prices of its offerings in January and the management had guided for another round of price increase if the input cost keeps rising.
“After a gap of almost 20 months, we expect new product launches to resume with a mixture of complete product upgrades (five in 2-3 years) and new model launches (three in two years). This should drive volumes and market share growth. Profitability is near the trough and margin improvement should be seen from the lows of 3QFY21," the analysts added in the note.
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