During the last fortnight, Maruti Suzuki India Ltd introduced the new Brezza and shared information on unveiling another SUV in the mid-size category on 20th July. While the new product introductions are moving ahead in-line with our key thesis, during the last one month there has also been favourable movement on the forex exposure (majorly JPY & EUR).
The company has direct exposure (10 per cent of sales) towards imports of components, steel, etc. and indirect exposure (16 per cent of sales) towards import of components by vendors. USD is a natural hedge between the exports (15-20 per cent of sales) and direct/indirect exposure from INR/USD leg on imports. Basis the recent currency movement, we estimate 70bps/10bps favourable impact on margins on weakening of JPY/EUR against USD.
We believe, this will help partly mitigate the negative impact of steep rise in commodity costs in Q1-FY23. Further, recent softening of commodity costs owing to weak global demand is likely to start reflecting favourably on margins from Q2-FY23. Basis the new/announced product launches and the tailwind from favourable movement in currency and commodity, we revise our margin estimate by 100bps for FY23/FY24 and EPS estimate by 21 per cent/14 per cent for FY23/FY24.
We reiterate our Buy stance on MSIL with a revised price target of ₹10,300 (₹9,050).
July 13, 2022