Maruti Suzuki
x CMP: 8481.85
Why Buy
x PE: 33.895
n Strong growth in domestic sales
and exports in October
n Market dominance with cost
advantage in the small car segment
and strong pipeline of new launches
*As on Nov 23
In Top Gear
Watch out
Maruti Suzuki looks set for a great ride,
but capacity constraints could call for deft
manoeuvering, says Preeti Kulkarni
n Capacity constraints could lead to
lower growth in rest of FY 18
n Sharp jump in commodity prices
could mean lower earnings
`253.83
250
Net Sales (` crore) PAT (`crore)
Maruti Suzuki
BSE Sensex
200
150
`122.10
100
50
Jan 1, 2015
Nov 23, 2017
Graphics: Praveen Kumar .G
T
he bellwether of India’s au-
tomobile industry, Maruti
Suzuki has emerged as the
top pick for analysts on
the back of strong domestic sales, ex-
ports, demand, and a healthy pipeline
of new launches.
Foreign brokerage firm JP Morgan
is overweight on the stock, while No-
mura maintains a ‘Buy’ recommenda-
tion because the company is on track
to premiumisation of its portfolio.
This will drive profitability. The fes-
tive demand was up 15-20 per cent
YoY. Nomura expects volumes, rev-
enues, and earning per share (EPS) to
grow at CAGR of 13 per cent, 17 per
cent and 21 per cent respectively over
financial year 2017-18 to FY19-20.
The stock got a thumbs-up from
JP Morgan for a similar reason. The
automaker’s domestic sales were up
9.9 per cent YoY in October and ex-
ports grew 4 per cent YoY. “Maruti’s
Financials
October 2017 wholesales were up
9.5 per cent YoY to 146000 units and
YTD volumes are up 15 per cent YoY,”
the report says. The line-up of model
launches will keep the demand mo-
mentum going. “This should continue
into FY18 with the launch of Ignis,
Dzire, recent facelift of S-Cross, and
the likely launch of Swift later in the
year,” JP Morgan analysis reckons.
Edelweiss Securities too is upbeat
on the stock as it sees the auto giant
sustaining its market share, thanks
to long waiting periods for key
products, superior franchise and
strong financials. During the second
quarter of FY18, Maruti posted
EBITDA `36.7 billion (growth of 21
per cent YoY), 17 per cent higher
than Edelweiss’ estimates, primarily
due to lower discounts and benefits
of product mix. Demand for new
models - Baleno, Brezza and Dzire -
remained healthy. According to the
FY17 68085 FY17 7338.2
FY16 57589 FY16 5378.3
FY15 50801.4 FY15 3790.6
OP (`crore)
12647.7 FY17 248.672
FY16 10369.3 FY16 181.99
FY15 7709.1 FY15 126.073
FY17
EPS (`)
OP: Operating profit; PAT: Profit after tax;
EPS: Earnings per share
brokerage firm, 50 per cent buyers
of new Dzire were first-time buyers.
Higher share of these models will
help Maruti’s cause further as it will
boost margins by lowering dis-
counts. As per Edelweiss, discounts
for older models too could see a
dip in the backdrop of weakening
competitive intensity and a revival
in macro demand. JP Morgan fears
lower growth over remainder of FY
18 due to production constraints.
Given that the second phase of
Suzuki’s plant is likely to be commis-
sioned only by early 2019, capac-
ity issues will continue in the next
financial year.
Even as it maintained a ‘Buy’ rec-
ommendation, Edelweiss Securities
has raised EPS estimates for FY19 by
only 4 per cent after factoring in the
sharp jump in commodity prices.
With inputs from Himali Patel
www.outlookmoney.com December 2017 Outlook Money
57