On Wednesday, BofA Securities revised its price target for Maruti Suzuki India Ltd, listed as MSIL:IN shares, to INR 13,000.00, down from the previous INR 14,200.00, while keeping a Neutral rating on the stock.
The adjustment follows Maruti Suzuki's second-quarter operating earnings, which did not meet expectations, with an EBIT of Rs 36.7 billion, marking an 8% year-over-year decline. The EBIT margin was reported at 9.9%, a decrease of 70 basis points quarter-over-quarter, contrary to the anticipated 10.8%.
The shortfall in gross margin, which fell by 170 basis points quarter-over-quarter, was highlighted as a significant factor behind the earnings miss.
The analyst attributed this decline to three main factors: increased promotional spending, which rose to approximately Rs 29.7k per car or 4% of the average selling price compared to 3.3% last quarter; commodity price pressures that accounted for a 50 basis points impact; and a slightly favorable operating leverage that contributed positively by 30-40 basis points quarter-over-quarter, helping to offset some of the gross margin reduction.
Furthermore, the company's overall model mix has shown a positive trend with a higher share of SUVs and premium models. Despite these positive aspects, Maruti Suzuki's reported profit after tax (PAT) of Rs 30.7 billion, which is a 17% increase year-over-year, included one-off items such as the adverse impact of a tax change and a foreign exchange hedge gain of Rs 2.8 billion.
In light of these results, BofA Securities has adjusted its margin assumptions for Maruti Suzuki to 10-10.2%, down from the earlier projection of 10.5-10.7%. This revision has led to a decrease in the estimated earnings per share (EPS) by 4-5%. The new price target reflects these updated estimates and the recent performance of the company's stock.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.