Maruti ends FY23 with record profit; Launch of SUV expected to capture market share

In addition, the year saw the launch of Sport Utility Vehicles (SUVs), the Grand Vitara and the new Brezza, which will help Maruti recover its market share.

Declining passenger vehicle market share due to weak presence in SUVs has been a major concern for investors. According to analysts at Jefferies India, the company’s market share in the passenger vehicle (PV) segment declined for the third time in a row to 41% in FY23. In FY20, the measure was 51%, he added.

looking ahead, Maruti The trend of declining market share is expected to be reversed with the launch of two new SUVs, the Frons and the Jimny. The company aims to grow its FY24 volumes ahead of the Society of Indian Automobile Manufacturers’ (SIAM) forecast of 5-7% growth in the passenger vehicle industry.

But, Maruti’s focus on gaining market share has come at a cost. Net realization per vehicle flat sequentially in Q4FY23 622,379. Analysts at ICICI Securities said in a report on April 26, “We believe Maruti Suzuki had to focus on both market share and profitability and allocate available semiconductor supplies to vehicle production accordingly, resulting in an average Limited attention was paid to the selling price.”

However, Maruti’s Q4 EBITDA (earnings before interest, tax, depreciation and amortization) margin rose 70 basis points year-on-year to 10.5%, led by higher operating leverage. A basis point is one hundredth of a percentage point. Better mix augurs well for margins going forward.

To be sure, some headwinds remain. For one, steel prices are rising, which will put a weight on profit margins. Second, the chip shortage will have an impact on production in the first quarter. Furthermore, the company expects demand in the entry-level segment to remain flat in FY24. Note that this segment contributes a significant portion to the volumes.

But thanks to new launches and growing traction in the Compressed Natural Gas segment, Maruti’s order book grew by about 13% sequentially to 412,000 units. Nevertheless, the trajectory of PV demand needs to be closely monitored.

Analysts at Jefferies India said, “While demand momentum has slowed in recent months, we see lower penetration, tailwinds from use of older vehicles and reverse shift from sharing to personal mobility, which is driving 11% CAGR. ” A reported CAGR on April 26 is the compound annual growth rate.

Market share recovery and margin improvement could boost sentiment for Maruti shares, which are currently down about 13% from their 52-week high. October saw 9,769 pieces.