Maruti Suzuki vs M&M: Which auto stock should you buy for long term?

Amid this positive environment and on the back of October auto sales reported earlier this week, let’s find out between Maruti Suzuki and Mahindra & Mahindra (M&M), which auto major is a better investment for the long term.

Stock Price Trend

In the last one year, both Maruti and M&M gave decent returns but underperformed the benchmark. While Maruti rose almost 12 percent in this period, M&M advanced over 10 percent. In comparison, the benchmark Nifty Auto gained around 20 percent in the last 1 year.

Meanwhile, in 2023 YTD, Maruti and M&M rose 23 percent and 18 percent, respectively, again underperforming the benchmark Nifty Auto, which added over 26 percent in this period.

Maruti has given positive returns in 7 of the 10 months so far in this current calendar year, falling only in 3 – October (down 2 percent), March (down 3.85 percent) and January (down 3 percent). Meanwhile, it gave positive returns for 6 straight months between April and September, up 28 percent in that period.

On the other hand, M&M has given positive returns in 6 of the 10 months of the current calendar year. It fell over 6 percent in October after a 1.3 percent loss in September. It also declined 8.7 percent and 7.9 percent in March and Feb, respectively. The stock gave positive returns for 5 straight months between April and August, up 36 percent in this period.

Maruti hit its record high of ₹10,845 last month, on October 27, 2023. Currently trading at ₹10,303.60, it has gained only 27 percent from its 52-week low of ₹8,076.05, hit on December 26, 2022.

Meanwhile, M&M hit its record high of ₹1,670 on September 18, 2023. Currently trading at ₹1,469.70, it has advanced 31 percent from its 52-week low of ₹1,123.40, hit on March 28, 2023.

Meanwhile, in the long term, 3 years, M&M has emerged as the winner, giving multibagger returns of around 148 percent while Maruti advanced over 49 percent.

Earnings

Maruti recorded its highest-ever quarterly sale volume, net sales, and net profit in the quarter ended September 2023 (Q2FY24). It posted a standalone net profit that jumped over 80% to ₹3,716.5 crore in Q2FY24 versus ₹2,061.5 crore in the same quarter last year. Its standalone revenue in Q2FY24 grew 23.8% to ₹37,062.1 crore from ₹29,930.8 crore, YoY. The operational performance of the company improved as EBITDA rose 72.8% to ₹4,784 crore from ₹2,768 crore, while EBITDA margin expanded by 360 basis points (bps) to 12.9% from 9.3%, YoY.

The company highlighted that increased non-operating income, lower commodity prices, improved net sales, and cost-cutting initiatives were the major driving factors for the surge in its net profit. During the quarter, the company sold 5.52 lakh vehicles (up 7% YoY), with domestic sales at 4.82 lakh units

For the first half of the current fiscal, the company clocked a profit of ₹6,202 crore, more than doubled compared to ₹3,074 crore in the same period of the previous fiscal. The company registered net sales of ₹66,380 crore in H1FY24, compared to ₹53,830 crore a year ago, showing an increase of 24%. Sales volume in the first half rose 7% to 10.5 lakh units.

M&M has not yet reported its September quarter numbers.

In the June quarter, the firm reported a standalone net profit of ₹2,773.73 crore, registering a sharp growth of 97.6% from ₹1,403.61 crore in the same quarter last year. The company’s standalone revenue from operations during Q1FY24 jumped 23% to ₹24,368 crore from ₹19,813 crore, YoY. Other income increased to ₹658 crore from ₹140 crore in the year-ago quarter.

Operating profit or earnings before interest, taxes, depreciation and amortization (EBITDA) during the quarter under review rose 46.5% to ₹3,547 crore from ₹2,421 core, while the EBITDA margin improved to 14.6% from 12.2%, YoY.

“In SUVs, we continue to be leaders in revenue market share for the 6th consecutive quarter with SUV Volume crossing the 1L milestone. In the tractor business, we have achieved 42.9% market share, the highest since Q2 F20. Our E-3W business continued market leadership with 65.5% market share,” said Rajesh Jejurikar, Executive Director & CEO (Auto and Farm Sector), M&M Ltd.

October Sales

Maruti Suzuki India reported its highest-ever monthly sales at 1,99,217 units in October 2023. The company has witnessed 19% year-on-year growth as it had sold 1,67,520 units in the same month last year. The company also reported its best-ever domestic monthly sales in October’23 at 1,77,266 units, up 21% from 1,47,072 units in October 2022. Maruti Suzkuki’s total exports also registered an uptick of about 7% to 21,951 units in October.

M&M reported total auto sales for the month of October 2023 at 80,679 vehicles, a growth of 32% from 61,114 units in the same month last year. Its domestic passenger vehicle (PV) sales in October 2023 rose 35% to 43,708 units from 32,298 units in October 2022. The firm reported the highest-ever monthly sales in the sports utility vehicle (SUV) and commercial vehicle (CV) segment. In the commercial vehicle and three-wheelers category, M&M reported a jump of 85% in October. In the month, it sold 9,402 three-wheelers compared to 5,081 units last year.

Which stock has better long-term investment opportunities? Here’s what experts say:

Vinit Bolinjkar, Head of Research, Ventura Securities, prefers Maruti Suzuki over M&M.

Both MSIL and M&M are well-established and robust players in the Indian automobile market. However, we recommend considering MSIL for long-term investment due to its strong position in the domestic passenger vehicle (PV) industry, extensive product range spanning from entry-level small cars to mid-segment SUVs/MUVs, and its expanding presence in the export market.

In October, MSIL’s PV wholesale numbers experienced a YoY growth rate of 19.7%, reaching 168,047 units. The SUV segment’s contribution to MSIL’s total PV sales also rose from 42% in FY23 to 48.7% in April-October FY24.

On the other hand, M&M reported a YoY growth rate of 35.3% in PV wholesale numbers, reaching 43,708 units in October (which is just 25% of MSIL’s monthly sales volume). Additionally, the company’s commercial vehicle (CV) wholesale figures increased by 22.6% YoY to 25,715 units in the same month. However, M&M faced challenges in its tractor sales, which remained stagnant and saw a marginal YoY decline of 0.03%, totaling 50,460 units in October.

Parul Rao, Research Analyst, SAMCO Securities, also prefers Maruti.

Maruti Suzuki is firing on all cylinders, positioning itself as a promising long-term investment. The company’s ability to effectively sell higher-priced products has been encouraging, driven by the success of its recent SUV launches. Looking ahead, domestic market share gains are expected to propel by increasing production capacity, optimising operating leverage, benefiting from favorable raw material costs, enhancing the product mix, securing higher average selling prices through its SUV portfolio, and introducing new innovative products to the market. 

Furthermore, Maruti is consistently achieving new milestones in the export market, opening up substantial opportunities for future growth. In addition, the company’s 2030 plan looks ambitious. Given these compelling factors, Maruti stands out as a stock worth monitoring closely.

Akshay Tiwari – Fundamental Analyst, Religare Broking, has also picked Maruti over M&M.

Amongst these two stocks, our preference will be Maruti Suzuki over M&M as its new launches in the SUV portfolio have performed extremely well with the YTD participation of SUVs increasing to 30% of the overall volume as compared to 17% in the last year. Consequently, it has outpaced M&M in SUV volume growth of 87.8% so far while its market share rose to 23.3% in the same category. Besides, Maruti has a diversified range of products that cater to a wide range of customers with different fuel options like petrol and CNG. Maruti is also India’s leading exporter and it aims to increase its exports further and will also foray into EVs which will prove to be the next leg of growth for the company. Financially, it has stable return ratios and has higher dividend payout as compared to M&M.

On the contrary, Narendra Solanki, Head – Fundamental Research – Investment Services, Anand Rathi Shares and Stock Brokers, has chosen M&M between the two.

Currently, we are bullish on M&M’s growth prospects because its mobility launches in the SUV space have witnessed higher acceptance from the customers plus it has recently launched a new Scorpio-N that has got a good response. The company is planning to foray into the EV space which shows its vision to increase the size of volume pie. Therefore, we believe that its focus on the execution of new launches and acceptance of vehicles in such a competitive SUV industry will lead to market share gains in the long term. Also, its leadership position in the tractor industry and high penetration across regional areas will enable it to reap profitability in the coming years.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 03 Nov 2023, 12:02 PM IST