Maruti Suzuki: Healthy prospects

Increase in prices, however, could dampen volume growth in the near term

The Maruti Suzuki scrip recouped some of the losses it had sustained over the past week on better-than-expected sales volumes in December 2014. The stock was earlier trading weak due to expectations of a price rise and the decision to pass on the impact of excise duty rises to the consumer. Given the muted demand, the moves are expected to negatively impact the company in the near term.

For December, the company posted a strong 21 per cent growth, year-on-year. Gains were driven by a 13 per cent improvement in domestic sales and a 171 per cent increase in exports, while expectations were for eight-to-nine per cent domestic growth and nearly doubling of export volumes.

Analysts believe the likely implementation of price increase, rollback of excise duties, and higher discounts led to the spurt in sales. Volumes in the current month would convey whether the higher sales were a one-off or can sustain in future. While analysts say the near-term outlook is muted, there are multiple tailwinds that could boost volumes.

  Ambit’s Ashvin Shetty believes economic revival, and softening interest rates, among others would likely drive healthy demand from FY16, with the passenger vehicles segment growing at 15 per cent.

Further, as first-time buyers come back to the market, Maruti is expected to score over its rivals, given its larger petrol portfolio. The company is expected to improve its 52 per cent market size in the small-car segment. Its new launches such as the Ciaz and the Celerio have had some success, with the former — launched in October 2014 — grossing about 5,000 units a month. The success of new products and a strong launch pipeline will add to the overall market share. The firm is expected to launch a crossover, a mini sports utility vehicle, and a small commercial vehicle in FY16.

The scrip has been one of the major outperformers in calendar 2014, giving nearly 90 per cent returns. At the current Rs 3,341, the stock is trading at 18 times its FY16 estimates. Eighty per cent of the analysts covering the stock, according to Bloomberg, have a ‘buy’ on the scrip, with a consensus target price of Rs 3,632, which translates into an upside of nine per cent. While the company’s long-term prospects are strong and it has scored over rivals on market share, given the stock’s sharp run-up, investors could look at accumulating it.