MUL performance to be subdued for 2 qtrs: Sabarad

“The volume growth could remain tepid and that is why I have been reckoning that for two more quarters, we would not see surpass the single digit EBITDA margin. That is two quarters of single digit EBITDA margins more to go,” says Mahantesh Sabarad, independent market expert.





The margin hit in Maruti was something which the Street is factoring in but from here on, when the commodity prices have cooled off, should we expect this to be the bottom for all of these auto companies, with the margin profile being lower or do you expect this to be the story for the rest of the year as well?

I am a bit surprised that the management is talking about electronic component shortages. We had known that there were chip shortages affecting production but if production continued to remain slow in the sense that the adequate components were not available, the margin performance from here onwards also continues to remain subdued.

So I do not think we have seen the bottom yet.

Is it fair to say that it is reflecting in the price because recently we have seen the target price to the tune of Rs 10,000 as well on Maruti. Where do you see the stock headed here onwards?

It will be very difficult for the company to perform at least for two quarters. The component shortages being one aspect, there is also the other issue in terms of their ability to pass on the huge commodity cost increases that we have seen. So unless we find a sharp reduction on the commodity cost side, the performance will continue to remain subdued for two more quarters.

With that huge miss on the EBITDA margin front this time around, the high promotional and sales expenses and margins coming in at about 7.2% versus our Street expectations of 8.4%, do you think that is going to be a lingering worry for Maruti for some more quarters to come?

Yes, Definitely this is a worry that Maruti will have to overcome. It is not easy. Commodity prices are sharply high, particularly for an automobile company. So, they get affected on the material cost side at all fronts be it steel, be it on the hydrocarbon side that is primarily led by crude oil price increases.

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Moreover, they also have a lot of import content that comes into their cars both directly as well as indirectly. All things are stacked up against Maruti for any margin performance improvement to happen quickly. The only way they can possibly improve the margins is by raising prices but that means that they will have to take a hit on the volume front.

The volume growth could remain tepid and that is why I have been reckoning that for two more quarters, we would not see Maruti surpass the single digit EBITDA margin. That is two quarters of single digit EBITDA margins more to go.


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