Maruti Suzuki: Major gains, more to follow

New launches, rural expansion, preference for petrol vehicles to aid volume growth

The Maruti Suzuki stock continues to go northward, gaining eight per cent over the fortnight, due to the anticipated pick-up in automobile sales, including in rural markets in the current financial year, proposed product launches and market share gains going ahead. On Thursday, it scaled to an all-time high of Rs 4,050 before closing at Rs 4,030.75 on the BSE.

The passenger vehicle segment, which grew 3.9 per cent in FY15, is expected to grow at seven-eight per cent in the current financial year, with Maruti Suzuki expected to outperform the sector with growth upwards of 10 per cent. With monsoon concerns receding and the company expanding its distribution reach, analysts expect it to post a strong rural growth in line with the 23 per cent recorded in FY15. Share of rural sales have grown from 20 per cent in FY11 to 34.5 per cent in FY15. This trend is expected to sustain, given that the company is planning to increase its distribution points in FY16 by 20 per cent to 1.5 lakh.

  The company has been gaining market share on the back of new launches, strong rural growth as well as the shrinking of price gap between petrol and diesel. Maruti gained 292 basis points in the market share in FY15 to 45 per cent in passenger vehicles with gains in almost all segments that it operates in. In the key entry level hatch segment, its market share grew from 48 to 59 per cent. While Maruti has always been a strong player in this segment, the success of premium sedan Ciaz has helped it go up the value chain. The product is selling about 5,000 units a month (launched in October 2014) with its market share in sedans climbing to 29 per cent in March’15 quarter from low single-digits earlier.

On the product launches front, in addition to the S-Cross which is based on its SX4 platform, Maruti will also launch a premium hatchback and a compact SUV in the later part of the year. While the crossover will compete with Hyundai i20 Active and Toyota Etios Cross, the premium, premium hatchback and SUV products will have competition in the form of i20, Honda Jazz and Ford Ecosport, respectively.

Overall, what is expected to aid Maruti going ahead is the shift in industry demand back to petrol-based vehicles. Despite the stock more than doubling over the last one year, nearly 90 per cent of analysts have a buy with the consensus price target of Rs 4,341.