Launching eVitara Globally Will Strengthen Future EV Market Position

Key Takeaways

• Launching the electric eVitara and expanding EV infrastructure positions Maruti Suzuki to capture growing EV demand, drive revenue growth, and enhance customer adoption.
  
• Strategic export expansion and cost optimization efforts boost production volume, market share, and operational efficiency, contributing to diversified and stable revenue growth.
  
• Subdued demand, competitive pressures, and regulatory challenges could negatively impact Maruti Suzuki's growth, margins, and profitability.

Catalysts

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

• The introduction of Maruti Suzuki's first electric SUV, the eVitara, with advanced features and a strong emphasis on safety and range, positions the company to capture growing EV demand, potentially driving revenue growth from both domestic sales and international exports.
  
• Maruti Suzuki's strategic decision to manufacture the eVitara for export to 100 countries leverages global economies of scale and could significantly increase the company's production volume and market share, contributing to overall revenue growth.
  
• The company's initiative to expand EV infrastructure, including installation support for home chargers and establishing a network of fast charging points in the top 100 cities, aims to enhance customer confidence and adoption of EVs, potentially increasing future sales and revenues.
  
• Strong growth in export sales, particularly in regions like Africa, Latin America, and the Middle East, along with the highest ever export volumes achieved in a quarter, indicates Maruti Suzuki's successful international market strategy, which can enhance revenue diversification and stability.
  
• Maruti Suzuki's continued focus on cost optimization and localization of production, along with participation in PLI (Production Linked Incentive) schemes, can improve operational efficiency and potentially enhance net margins over the coming years.

Maruti Suzuki India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Maruti Suzuki India's revenue will grow by 9.9% 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 ₹182.9 billion (and earnings per share of ₹580.93) by about January 2028, 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 38.0x on those 2028 earnings, up from 26.9x today. This future PE is greater than the current PE for the IN Auto industry at 29.5x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.31%, as per the Simply Wall St company report.

Maruti Suzuki India Future Earnings Per Share Growth

Risks

• The subdued and weak demand scenario, especially in urban areas, could lead to slower growth in retail sales, impacting future revenues and earnings.
  
• Increased sales promotion and higher advertisement expenses due to new model launches can put pressure on net margins and operating profitability.
  
• Competitive market conditions, including the entry of new players and increased production capacity from major OEMs, could negatively impact revenue growth and profit margins if Maruti Suzuki cannot maintain its market share.
  
• Uncertain CAFE III norms and the need for increased EV penetration vis-à-vis competitors may pressure Maruti Suzuki to adjust its product mix and pricing strategies, potentially impacting profit margins.
  
• Foreign exchange movements, particularly adverse yen fluctuations, could adversely affect earnings and operating results, especially given the company's export plans.

Valuation

• The analysts have a consensus price target of ₹13385.62 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 ₹17600.0, 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 2028, revenues will be ₹1930.0 billion, earnings will come to ₹182.9 billion, and it would be trading on a PE ratio of 38.0x, assuming you use a discount rate of 18.3%.
  
• Given the current share price of ₹11977.9, the analyst's price target of ₹13385.62 is 10.5% 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.