Export Of Made-in-India FRONX SUVs To Japan Will Expand Global Presence

Key Takeaways

• Strategic expansion of sales networks and international exports could boost future revenue growth and improve overall earnings.
  
• Sustainability and operational synergies may enhance net margins and long-term profitability.
  
• Challenges in the domestic market and high expenses are straining profitability, while reliance on exports and EV sector inaction present growth risks.

Catalysts

Engages in the manufacture, purchase, and sale of motor vehicles, components, and spare parts primarily in India.

• Maruti Suzuki's ongoing expansion of its NEXA and ARENA sales networks, along with the recent inauguration of 500 NEXA sales outlets, may enhance its reach and sales potential, positively impacting future revenue growth.
  
• The growing consumer preference for CNG vehicles, supported by the introduction of the S-CNG powertrain and a comprehensive lineup of CNG models, could support revenue growth and lead to better net margins due to potentially lower costs associated with traditional fuel supply chains.
  
• The company's strategic exports, such as the commencement of exporting made-in-India FRONX SUVs to Japan, demonstrate potential to boost future revenue and improve overall earnings via international market expansion.
  
• Initiatives like the use of railway logistics for vehicle dispatching help reduce fuel costs and promote sustainability, which can enhance net margins and earnings over the long term.
  
• The amalgamation of Suzuki Motor Gujarat Private Limited with Maruti Suzuki may offer operational synergies and efficiencies post-April 2025, leading to improved operating margins and overall earnings.

Maruti Suzuki India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Maruti Suzuki India's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.7% today to 9.5% in 3 years time.
• Analysts expect earnings to reach ₹182.7 billion (and earnings per share of ₹582.7) by about December 2027, up from ₹140.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹202.0 billion in earnings, and the most bearish expecting ₹158.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.1x on those 2027 earnings, up from 24.7x today. This future PE is greater than the current PE for the IN Auto industry at 20.9x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.64%, as per the Simply Wall St company report.

Maruti Suzuki India Future Earnings Per Share Growth

Risks

• Declining demand for electric vehicles (EVs) in the domestic market poses a risk to future revenue growth, as the company has yet to capitalize on the EV sector potentially impacting its market share and sales.
  
• While the domestic volume saw a decline of 3.9%, there was an increase in export volume by 12.1%. This reliance on export growth rather than domestic market growth could create revenue risks if international market conditions change or become challenging.
  
• The company experienced a decrease in net profit from ₹37,165 million to ₹30,692 million, attributed to a provision due to the withdrawal of indexation benefit and change in tax rate on long-term capital gains, indicating a potential impact on net margins.
  
• The increase in sales promotion expenses has affected operating margin performance by about 80 basis points, indicating a potential challenge in maintaining profitability and net margins amidst high competitive pressures.
  
• Commodity price volatility and its adverse effects on operating margins (about 50 basis points) reflect a risk to controlling costs and maintaining stable profit margins over time.

Valuation

• The analysts have a consensus price target of ₹13303.86 for Maruti Suzuki India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹16600.0, and the most bearish reporting a price target of just ₹10800.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹1922.0 billion, earnings will come to ₹182.7 billion, and it would be trading on a PE ratio of 38.1x, assuming you use a discount rate of 18.6%.
• Given the current share price of ₹11002.45, the analyst's price target of ₹13303.86 is 17.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.