In a weak economic environment, it’s hard to predict whether there will be a strong pick-up in demand.
March has been a good month for Maruti but it would be surprising if India’s biggest car maker is able to sustain the last quarter’s momentum, of around 70,000 cars a month, this year.
For one, a fair part of the spurt in volumes in the March 2009 quarter is the result of pent up demand in the previous quarter — there were those who wanted to wait for the news flow to get more encouraging before they took the plunge. No doubt, the news is better to the extent that the environment may not be showing signs of further deterioration and demand appears to have picked up in some sectors.
However, the macro economic environment isn’t showing signs of any major improvement either — the State Bank of India chairman himself has admitted that the pick up in credit growth hasn’t been up to expectations — so it seems unlikely that prospective buyers will take the plunge very soon.
In other words, even though fuel prices may be lower and interest rates come down further customers aren’t really expected to rush to buy big ticket items because they’re only slightly more comfortable with the economic outlook than they were three or four months back.
It’s true that Maruti has come up with a couple of winners in the Swift and the Dzire and their diesel versions will sell in bigger volumes this year since the engines will be more easily available. Also the Star should be able to clock reasonably good volumes in overseas markets. Despite this, however, it doesn’t seem like Maruti will be able to grow volumes by more than 10-11 per cent this year. The Maruti stock has rallied by about 45 per cent since January and the stock is a no doubt a great play on the rising incomes and aspirations of middle-class Indians. At the current price of Rs 795 though, it trades at around 14 times estimated 2009-10 earnings. That’s not too expensive except that there isn’t enough of a cushion in case demand doesn’t come through.
