Maruti Suzuki shares down 30%; buying opportunity for you?

Oct 03, 2018, 06:03 PM IST

Maruti Suzuki share prices have corrected 30% in past one month owing to concerns about (1) fuel price inflation, (2) JPY appreciation and (3) decline in waiting period for its model. Maruti’s inventory at the end of Sep -18 increased to 6 weeks from an average normal inventory level of 4 weeks. 


However, Maruti Suzuki is less affected from rising fuel price and interest cost given the widest product portfolio of factory -fitted CNG vehicles (six products, Alto 800, Alto K10, Eeco, Wagon R, Celerio and Ertiga), better mileage products along with price competitiveness.


HDFC Sec expects industry volumes to recover in coming months driven by revival in Kerala volume, ramp up in rural sales and festive season demand (Navratra and Diwali). 


In addition high aspirations, improving affordability and low penetration (<30 cars per 1,000 population provides long term growth visibility Better mileage and resale value in addition to price competitiveness and good after-sales support, provides MSIL a competitive advantage MSIL has 4-5% direct and ~12% indirect imports (half in JPY). 


In addition to a 5.5% royalty outgo (mainly JPY); Yen has appreciated sharply (up 5% from 1QFY19 avg.), which should negatively impact Maruti in coming quarters. As a result, we are trimming our margin estimates by 70- 80bps.



HDFC Securities says, “We believe all negatives are already priced in; hence we upgrade rating from Neutral to BUY.”


Change in target price: Given commodity inflation pressure along with risk of higher discounts owing to inventory build-up, we reduce target price of Maruti Suzuki. (Rs 8,252).

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