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

Oct 03, 2018, 18:03 PM IST
GPlus

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. 

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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.

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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). 

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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). 

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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.

 

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

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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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