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Investing.com -- Shares of Suzuki Motor popped following the announcement of an ambitious new mid-term plan, which exceeded market expectations with a robust operational profit target for the fiscal year ending March 31, 2031.
The company’s shares reacted positively to the strategic initiatives and financial goals outlined in the plan, which was presented on February 20.
Suzuki Motor aims to achieve significant growth by the fiscal year ending March 31, 2031, with sales targets set at ¥8 trillion, an operating profit (OP) of ¥800 billion, representing an operating profit margin (OPM) of 10%, a return on equity (ROE) of 13%, and a sales volume of 4.2 million units in the four-wheeler business.
The ambitious targets are based on an exchange rate assumption of ¥1.7/INR. In its crucial Indian market, Suzuki Motor plans to maintain its production capacity at 4 million units per year by the fiscal year ending March 31, 2031, and has set a longer-term goal of achieving an OPM of at least 10% and an ROE of at least 15% by the early 2030s.
The company’s financial strategy includes allocating ¥2 trillion for capital investment, with ¥1.2 trillion invested in India, ¥2 trillion for research and development, and ¥600 billion for dividends from FY25 to FY30.
Suzuki Motor has revised its dividend policy from a 30% payout ratio to "3% DOE", with a focus on dividends for shareholder returns and the potential for treasury stock acquisition based on ROE and price-to-book ratio (PBR) considerations.
In India, Suzuki Motor plans to expand its SUV/MPV segment, introduce four battery electric vehicle (BEV) models by the fiscal year ending March 31, 2031, and align its product strategy with customer income levels. The company anticipates a powertrain ratio of 15% BEV, 25% hybrid electric vehicles (HEV), and 35% compressed natural gas (CNG) vehicles for the same fiscal year.
While EV batteries will initially be supplied by BYD (SZ:002594)’s subsidiary FinDreams Battery, Suzuki is considering in-house production in the future.
Suzuki Motor’s briefing highlighted its intention to focus on internal combustion engine (ICE) and CNG vehicles to meet its OP target, despite the investment requirements for connected, autonomous, shared, and electric (CASE) and BEV technologies.
The company sees growth potential in the Middle East and Africa as export destinations from India. Additionally, the 3% DOE dividend policy would result in a 20% payout ratio if an ROE of 15% is achieved, indicating a preference for investing business-generated cash flow into growth rather than shareholder returns.
Morgan Stanley (NYSE:MS) commented on the targets, noting, "the F3/31 OP target appears to have met market expectations, and its premise of meeting the F3/31 sales target of ¥2.54mn units in India (CAGR of 5% from F3/24 to F3/31) looks conservative. In addition, we think that the improved content of the presentation materials for the new MTP (with more detailed disclosure of strategies and initiatives per business/region) will be well received."
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