Maruti Suzuki Q3: Analysts expect profitability to weaken QoQ; here's why

Maruti Suzuki news: Analysts expect Q3 earnings to take a hit on a sequential basis on the back of adverse product mix and higher discounts offered during the December quarter.

The auto major is scheduled to announce its Q3FY24 results on Wednesday, January 31. Analysts across brokerages expect the company to take margin hit on a sequential basis owing to adverse product mix and higher discounts offered during the December quarter.

The stock has so far declined 3 per cent in January 2024, as against 1 per cent  dip in the benchmark S&P BSE Sensex. 

Auto as a sector is expected to deliver healthy earnings for the December quarter.  Kotak Institutional Equities in a research note said, it expects automotive OEM  revenue (except for Tata Motors) to improve by 15 per cent year-on-year (YoY) owing  

 

to 20 per cent growth in total two-wheeler volumes and high single-digit YoY growth  in passenger vehicles. 

Here's what major brokerages expect:  

Prabhudas Lilladher

Prabhudas Lilladher expects a healthy year-on-year (YoY) growth numbers for Maruti, while sequentially the company's earnings may take a hit. The brokerage firm expects Maruti's net profit to rise by 19.3 per cent YoY, backed by a 14.3 per cent growth in revenue. 

Sequentially, however, net profit and revenue growth is expected to dip by 24.5 per cent and 10.4 per cent, respectively.

Similarly, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is expected to grow by 28.7 per cent YoY, and report a 23.8 per cent decline on a QoQ (Quarter-on-Quarter) basis.

Even as the brokerage firm has lowered its rating on other auto stocks to 'underweight', it has retained its 'overweight' rating on Maruti.

HDFC Securities

The brokerage firm has projected a 20 per cent YoY growth in net profit, while expected top line to increase by 13.8 per cent for the quarter ended December 2023 when compared with the year ago period. 

Margins for Maruti to see QoQ impact due to high discounts, adverse product mix and one-offs in Q2. EBITDA may dip by 200 bps QoQ, while grow by 130 bps on a YoY basis.

HDFC Securities maintains 'Buy' rating on the stock with a target price of Rs 9,962.

KR Choksey

Maruti sales volume for Q3FY24E grew by 7.6 per cent YoY but declined by 9.2 per cent  QoQ (Quarter-on-Quarter). Analysts at KR Choksey expects the ASP (Average Selling  Price) to be higher by 6.6 per cent YoY but down 1 per cent QoQ due to higher  discounting in the quarter.

EBITDA margins are expected to be higher on a YoY basis (+166 bps) due to input costs  softening, favourable product mix and operating leverage, but they we expect a  decline of 150 bps QoQ due to negative operating leverage and adverse product mix.
 

The brokerage firm expects a 21.6 per cent growth in Q3 net profit backed by a 14.9  per cent increase in sales. EBITDA margin is expected to expand by 166 basis points  (bps).

Among other key monitorables, the focus will be on update on capex plans, outlook on  volume growth for CY24E and reduction in pending orders.

The brokerage firm has a 'Buy' rating on Maruti, with a target price of Rs 12,385.

Axis Securities

Axis Securities pegs the Q3 revenue growth for Maruti at 15.9 per cent YoY, which shall lead to a 21.6 per cent YoY jump in bottom line. EBITDA is seen 33.7 per cent higher on a YoY basis, while a dip of 20.8 per cent is projected on a sequential basis.

The brokerage firm expects EBITDA to outpace the top line growth YoY led by richer product mix (higher share of SUV), price hikes taken during the period and raw material cost tailwinds.

Maurti's Q3 sales had risen by 7.6 per cent YoY, led by 60 per cent surge in the SUV segment and 16 per cent growth in exports.