Tag - Auto

Production levels improving gradually – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, the benchmark index NIFTY 50 closed at 17,805 (+1.0%), 180 points higher. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.2%), and FINANCIAL SERVICES (+1.2%) led the gainers while HEALTHCARE (-0.8%), PHARMA (-0.8%), and REALTY (-0.5%) led the losers. Among the NIFTY50 components, NTPC (+5.2%), ONGC (+3.7%), and SBIN (+2.8%) were the top gainers while TATAMOTORS (-1.7%), COALINDIA (-1.7%) and TATACONSUM (-1.2%) led the laggards.

Excerpts of an interview with Mr. Shashank Srivastava, ED-Marketing & Sales of Maruti Suzuki (MSIL) with CNBC-TV18 on 03rd January 2022:

  • In December, MSIL could produce almost 90% of its planned production which was an improvement over the previous months. In September, the company did only about 40% of the production. In October it was about 60%. In November it was about 83-84% and it was close to 90% in December.
  • There seems to have been a progressive improvement on the supply side as well because of the improved situation on the semiconductor front. Going forward, the situation is still not expected to be normal and it is very difficult to pinpoint exactly at what time it will become normal. The company doesn’t believe January-22 will be normal.
  • 100% Normal Utilisation levels is a dynamic that involves the global supply chain and is a very complex issue involving not just Maruti Suzuki and India, but all the OEMs across the globe.
  • On the demand side, the momentum seems to be still pretty strong and it is across all segments. The company saw a good improvement in booking numbers as well as the overall inquiry level even in December.
  • The demand seems to be strong but in the last few months there was a supply disruption because of the semiconductor issue and that has led to the building up of waiting periods and the pending payments had gone up. Currently, MSIL has 2.3 lakh pending bookings. The demand for CNG seems to continue growing. The waiting periods for CNG models are much longer than that for the Petrol/Diesel models.
  • MSIL is very bullish about the Indian market in the long term and the company is planning to strengthen the portfolio in one of the areas where it is a little weaker as far as product portfolio is concerned. The Company plans to launch many new models in the mid SUV segment.
  • The company has no plans to launch an EV before 2025 because it believes the ecosystem which is required for sustainable large-scale, large-volume build-up in the industry is still not there. With regards to the product and investments in the product, Maruti Suzuki has been a very strong presence and along with its parent organization Suzuki Motor Corporation, the company plans to make robust investments in the e-product portfolio.
  • Commodity prices are pretty strong and there is no real relief on the cards. As a result, the company has announced a price hike. Most of the OEMs have announced a price hike in January-22 and the company plans to announce a price hike in line with that.

Asset Multiplier Comments

  • Auto Industry is undergoing a lot of turmoil due to high pent-up demand, increasing fuel prices, supply chain issues, and commodity inflation. As India’s largest carmaker- MSIL is at an inflection point as it navigates through these critical issues while maintaining its market share.
  • The migration to EV has already been started by MSIL’s peers, however, with the company delaying EV Launch to 2025, it remains to be seen how it reacts to aggressive expansion by its competitors in this segment.

Consensus Estimate: (Source: market screener and Tikr website)

  • The closing price of Maruti Suzuki was ₹ 7,630/- as of 04-January-2022. It traded at 56x/30x/25x the EPS estimates of ₹ 136/251/304/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 8,172/- implies a P/E Multiple of 27x on FY24 EPS estimate of ₹ 304/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

Product Development for Next-Gen EVs under Focus – Sona Comstar

Update on the Indian Equity Market:

After Monday’s freefall, Indian equities recovered on Tueday as the NIFTY 50 closed at 16,771 (+0.9%). None of the sectoral indices ended with losses. METAL (+2.9%), MEDIA (+2.5%), and CONSUMER DURABLES (+2.0%) were the best performers of the day.

Among the NIFTY 50 components, HCLTECH (+4.3%), WIPRO (+3.8%), and UPL (+3.6%) were the gainers. POWERGRID (-1.7%), AXISBANK (-1.1%), and BAJFINANCE (-0.7%) led the laggards.

Excerpts of an interview with Mr. Sunjay Kapur, Chairman of Sona Comstar with CNBC-TV18 on 20th December 2021:

  • Sona Comstar has inaugurated a new state of art research and innovation center in Chennai. This facility is dedicated solely to electric vehicles with an aim to foster the development of advanced products for next-generation electrified vehicles.
  • The semi-conductor shortage situation has not improved much over the past few weeks, as the number of chips required per vehicle are increasing as OEMs shift focus towards more digitally integrated systems in vehicles.
  • This is a trend across other industries as well, where the demand for more complex and efficient chips is increasing, adding to the supply issues. Currently, the Auto industry consumes 7% of semiconductor supply, which is slated to go up to 20% in the next 5 years.
  • There’s no immediate relief in sight as there’s no anticipation of a slowdown in demand, so until the supply catches up this issue will persist in the medium term.
  • Logistics, CIF, and Raw Material Inflation are near-term headwinds for the company, the demand persists the challenge lies in solving the supply-side issues in the medium term.
  • The company has set up a state-of-the-art Testing and R&D Facility in Chennai to develop 30-50 Kw Motors and Controllers for EVs. The company is in talks with global OEMs to gauge the demand arising from a shift towards EVs.
  • Conversion from ICE to EVs in terms of the 2 Wheeler market provides a once-in-a-lifetime opportunity for all auto-ancillary companies. The company believes that in a market of this size, competition can co-exist with significant market share

Asset Multiplier Comments

  • The shift to EVs provides a massive growth opportunity for all auto and auto ancillary companies and Sona Comstar is perfectly placed to take advantage of its unique R&D-led product portfolio.
  • The Auto Industry is reeling from the semi-conductor shortage crisis and with no respite in sight, we believe the company will be under pressure in the medium term until the supply side issues are sorted out.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Sona Comstar was ₹ 709/- as of 21-December-2021.  It traded at 118x/ 75x the EPS estimates of ₹ 6.0/ 9.5/- for FY22E/FY23E respectively.
  • The consensus target price of ₹ 708/- implies a P/E Multiple of 75x on FY23 EPS estimate of ₹ 9.5/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

No Plans to Sell Stake – Escorts

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 17,503 (+0.5%). The top gainers in NIFTY50 were BHARTIARTL (+4.0%), JSWSTEEL (+4.0%), and ASIANPAINT (+4.0%). The top losers were BAJFINANCE (-2.6%), BAJAJFINSV (-2.6%), and TATAMOTORS (-1.8%). Sectoral gainers were METAL (3.3%), REALTY (2.4%), and MEDIA (2.3%). There were no sectoral losers for the day.

Excerpts of an interview with Mr. Nikhil Nanda, Chairman and Managing Director, Escorts with Economic Times dated 19th November 2021:

  • Escorts has announced the onboarding of Japanese tractor maker Kubota as a joint promoter of the company along with the Nanda family. Kubota will infuse over Rs 94 bn into Escorts, including an open offer to its shareholders, to increase its stake to 53.8% becoming the majority shareholder of the company.
  • This deal was the best partnership for the company, with the kind of ability and strength that Kubota already has as a global brand it is possible to bring the best in the world to India and use Escorts’ platform to serve the needs of the farming community globally.
  • There’s no change in the stake of the promoter family, it’ll continue to stay the same, Mr. Nanda categorically denied media reports that claimed the Promoter family was selling its stake in Escorts. The family is absolutely honoured to have a chance to partner with Kubota and It looks forward to building this partnership between Kubota and Escorts.
  • The focus of the promoter family was to create an institutionalised company that can survive the fluctuations many family-held companies go through over generational shifts. The company aspires to be a market leader but to achieve that growth trajectory institutionalising was the need of the hour.
  • The partnership with Kubota is not a new one, the relationship started in 2018 with the announcement of a JV. This is just the next step of the partnership after the tremendous success that the company has witnessed over the past 3 years.
  • With the common philosophy and the alignment of interest that the promoter family shares with Kubota, The Promoter family will become joint Promoters with Kubota and as a testament to the respect and mutual admiration, the promoter family will not hold a golden share in the company.

Asset Multiplier Comments

  • Kubota is a Japanese tractor manufacturer which is one of the largest in the world, this partnership will help Escorts leverage the technological prowess of Kubota to provide best in class products.
  • With Kubota’s global presence, India can become a launch pad of Escorts’ Tractors as it aims to aggressively expand its exports portfolio.

Consensus Estimate: (Source: market screener and Tikr.com websites)

  • The closing price of Escorts was ₹ 1,803/- as of 23-November-2021.  It traded at 22x/20x/16x the consensus earnings estimate of ₹ 81/89/111 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,766/- which trades at 16x the earnings estimate for FY23E of ₹ 111/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Investments in EV Business a priority – Mahindra and Mahindra

Update on the Indian Equity Market:

 

On Thursday, Indian benchmarks declined for the third consecutive session with NIFTY closing at 17,874 (-0.8%). Among the sectoral indices, METAL (+0.4%),  CONSUMER DURABLES (+0.3%) were the only gainers. REALTY (-2.3%), PSU BANK (-1.8%), PHARMA (-1.4%) led the laggards. Among the stocks, TITAN (+1.7%), HINDALCO (+1.1%), and JSWSTEEL (+0.6%) led the gainers, while SBIN (-2.8%), ONGC (-2.6%), and SBILIFE (-2.5%) led the laggards.

 

Excerpts of an interview with Mr. Manoj Bhat, CFO, Mahindra and Mahindra (M&M) with CNBC-TV18 on 10th  November 2021:

  • Raw Material Inflation has been a key headwind for the industry due the commodity cycle turning, However the company is taking a calibrated approach to passing on the costs to consumers through price hikes as the commodity cycles are transient in nature.
  • The company already has taken 3 price hikes in the farm segment and 2 in the auto segment, and there’s still robust demand and thus the company plans to adopt a wait and watch policy.
  • The entire auto industry has seen margins getting contracted severely and the company thinks that the margins have bottomed out at these levels. However the impact was seen in this quarter due to volume loss as a result of semiconductor issue and new product launches which are margin dilutive in the first few quarters.
  • The Company expects margins to improve over 2HFY22 due to scale benefit from volume recovery as the semiconductor situation improves, and calibrated price hikes if necessary.
  • The semi-conductor issue is a global one and it peaked in Q2FY22, but there’s signs of improvement across the world with improving visibility and the company expects normalcy in 1HFY23.
  • Tractor volumes were impacted due to erratic monsoons, however even on an inflated base of FY21, the company expects high single digit growth in FY22. The demand fluctuation is short term the company expects demand to stabilise in 4QFY22 led by market share gain by the company.
  • EV Three Wheelers segment has shown tremendous growth of 317% YoY in Q2FY22 with a 63% market share. The company expects 20% of current 3 wheeler segment to shift to EV by FY25, and the company has plans to invest Rs 30 bn over FY23-25 to expand its dominant position.

Asset Multiplier Comments

  • We expect the raw material inflation to impact the bottom line in the medium term.
  • Notwithstanding the semiconductor shortage, it has received a positive response for its new launches such as Thar, XUV 300, and Bolero Neo. The company has indicated its loyal customers are willing to wait as long as 9-12 months to get the new cars. We like the customer loyalty and expect the company’s top line to benefit in the medium to long term.
  • While its revamping its SUV portfolio, the company has ambitious plans to launch electric varients in its UV and 3W portfolio. This may help improve the product penetration.

 

Consensus Estimate (Source: market screener and tikr.com websites)

  • The closing price of M&M was ₹ 925/- as of 11-November-21. It traded at 24x/ 20x/ 17x the consensus EPS estimate of ₹ 39/ 46/ 54 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,050/- implies a PE multiple of 19x on FY24E EPS of ₹ 54/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

No Plans to enter EV Segment in the short term: Maruti Suzuki

 

Update on Indian Equity Market:

On Wednesday, markets ended flat with Nifty closing 10 points lower to close at 16,634.  EICHERMOT (3.7%), HDFCLIFE (2.6%), HINDALCO (2.4%) were the top gainers on the index while BAJAJFINSV(-2.9%), TITAN (-2.2%) and MARUTI (-1.3%) were the top losers for the day. Among the sectoral indices,  OIL & GAS (1.1%), IT (0.7%) and FMCG (06%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

 

Excerpts of the Address by RC Bhargava, Chairman, Maruti Suzuki at 40th AGM dated 24th August 2021:

 

  • The Company will not enter electric vehicles in the short term and will enter “only when it is feasible” to sell reasonable numbers. The sales volume of existing EV (Electric Vehicle) Players is not significant enough to threaten Maruti’s Market Share.
  • The company is a market leader in ICE (Internal Combustion Engine). It has plans to be a market leader in EVs as well but the company feels, the conditions for EV penetration in India are not adequate yet.
  • The company’s short term focus is on Hybrid CNG to manage the headwinds raised by rising fuel prices until EVs reach their inflexion point.
  • The company plans to launch an SUV in this high growth segment with the aim to capture more market share in this highly competitive field consisting of a lot of players.
  •  The company is currently facing production issues due to semiconductor shortages. This is expected to continue till the end of FY22. There’s a significant reduction in production, however, no major operational loss is evident.  
  • The Company’s planned Capex is Rs. 45 bn but the company expects there will be a significant deviation in actuals by the end of the year.
  • There’s very low penetration per capita when it comes to the passenger vehicles segment. He feels that in order for India to be fully developed, India should not be pressured to meet its carbon emission reduction norms.

 

Asset Multiplier Comments:

 

  • Maruti Suzuki has a great brand presence across all segments in the Indian markets. With its cautious stance on EV, it risks losing out on market share to more aggressive EV players like Tata Motors.
  • ICE Vehicles are not still being phased out at a very rapid pace and a complete transition to EV is still a long way off. Till then Maruti Suzuki will likely continue to enjoy its position as the market leader.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Maruti Suzuki was ₹6711/- as of 25-August-2021.  It traded at 36x/24x /19x the EPS estimate of ₹189/₹ 279/₹ 351  for FY22E/23E/24E.
  • The consensus price target is ₹ 7912/- which will put it at 23x the EPS estimate for FY24E of ₹ 351/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

2 Wheeler EV Segment at a growth inflexion point: Hero Electric

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 46 points to close at 16,569. EICHERMOT (+2.7%), ULTRACEMCO (+2.4%) BAJFINANCE (+2.1%) were the top gainers on the index while KOTAKBANK (-2.3%),HINDALCO (-2.3%) and ICICIBANK (-2.0%) were the top losers for the day. Among the sectoral indices,  FMCG (0.7%), CONSUMER DURABLES (0.6%) and PSU BANK (0.3%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

Excerpts of an interview with Mr Naveen Munjal, MD, Hero Electric on ET Now dated 17th August 2021:

  • Electric 2 Wheelers are the most lucrative segment in the EV Industry due to a lot of factors such as fewer infrastructure demands, simpler charging requirements, and ride distances.
  • The biggest tailwind for this segment is government support, FAME II ratings, state-specific concessions, and production-linked incentive schemes for EV Manufacturers.
  • The Total Cost of Ownership gap between ICE and EV is increasing daily due to the rise in fuel prices. Hence, the company expects demand to shift to EVs in the upcoming years to the point it’ll be 20% or a 4 billion unit segment in the next 5 years.
  • The consumer sentiment is shifting towards Electric Mobility not just in urban areas. The penetration is increasing in tier-3, tier-4, and some rural areas as well, so the sales would only go northwards from hereon.
  • The range is adequate for regular usage and for heavy usage the company offers multiple batteries as a backup. Most customers charge their bikes at home. However, the range anxiety can be addressed by installing charging stations, in which the company is investing heavily.
  • The company has also trained 6,000 mechanics and plans to train another 25,000 to solve any potential issues that may arise due to EV Malfunctions thereby creating an entire ecosystem.
  • India is leapfrogging technologies to have the most upgraded know-how as compared to other countries who took the traditional approach of innovating through the years, which is why the performance of Indian EV 2 Wheelers is best in class.
  • R&D that is being done is immense. So the vehicles in the future are going to be far better than what they are at this point. This range of vehicles is already better than what was three or five years back. This demonstrates the huge improvement in technology,

Asset Multiplier Comments:

  • Electric Vehicles are a thing of the future due to the headwinds faced by ICE Vehicles, the transition has already begun and India stands to be one of the biggest EV markets in the upcoming decade.
  • There are no pureplay EV Manufacturers that are listed on the bourses. However many 2 Wheeler Manufacturers are planning their foray into this segment. It should be noted that Hero Electric and Hero Motorcorp are two legally distinct entities with no connection to each other.
  • Hero Motorcorp has its own plans to manufacture Electric 2 Wheelers as it wants to expand into this lucrative growth-driven segment.

Consensus Estimates (Source: market screener website): 

  • The closing price of Hero Motorcorp was ₹2763/- as of 18-August-2021.  It traded at 17x/14x /12x the EPS estimate of ₹167/₹ 201/₹ 225 for FY22E/23E/24E.
  • The consensus price target is ₹ 3235/- which trades at 14x the EPS estimate for FY24E of ₹ 225/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Have very low inventory at dealerships Maruti Suzuki

Update on Indian Equity Market:

The markets closed the weekly expiry day on a positive note as Nifty ended the day 0.5% higher at 15,179. Within the index, HINDALCO (5.4%), RELIANCE (4.2%), and ADANIPORTS (2.6%) were the highest gainers while EICHERMOT (-3.0%), TITAN (-2.5%), and LT (-1.4%) were the laggards. Among the sectoral indices, FMCG (0.8%), METAL (0.8%), and IT (0.6%) led the gainers while PSU BANK (-1.3%), AUTO (-0.5%), and REALITY (-0.3%) were the losing sectors.

Excerpts of an interview with Mr. Shashank Srivastava, Executive Director, Marketing & Sales- Maruti Suzuki India Ltd (Maruti) with CNBC TV18 dated 11th February 2021:

  • Mr. Srivastava mentioned that the Vaahan data comes with a lag. In October-November, it was said that the dealers are carrying very high inventories based on the Vaahan data which on the ground was incorrect.
  • The states like Telangana and Andhra Pradesh, which contribute about 12% to the sales are not part of Vaahan numbers. About 14% of the RTOs (Regional Transport Office) are not part of the data issued by Vaahan.
  • The company is currently not facing any difficulty caused by a global shortage of semiconductor chips. Production was normal in January and continues to be so in February.
  • The auto sales recovery has continued. The company is now only 15% below last year’s volume levels. The same number was -78% and -34% during 1QFY21 and 1HFY21 respectively.
  • The company has kept very low inventory levels at dealerships. He said that the company needs to undertake extra production to fill the inventory levels.
  • Price rise in precious metals leading to input cost inflation for the auto sector. He mentioned that one has to take a hit on the bottom-line to protect the top-line.

Consensus Estimate: (Source: market screener)
•The closing price of Maruti was ₹ 7,665/- as of 11-February-2021. It traded at 49x/ 31x/ 24x the consensus earnings estimate of ₹ 156/ 245/ 313 for FY21E/FY22E/23E respectively.
• The consensus price target of ₹ 7,620/- implied a PE multiple 24x of FY23E EPS estimate of ₹313/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Making structural changes to diversify from auto industry – JSW Steel

Update on Indian equity market:
Nifty remained muted on the weekly expiry day, ending 8 points lower at 11,300. Within NIFTY50, TATAMOTORS (+4.5%), LT (+4.4%) and HINDALCO (+4.2%) were the top gainers while SUNPHARMA (-2.1%), EICHERMOT (-2.1%) and BHARTIARTL (-2.0%) were the top losers. Among the sectoral indices, MEDIA (+1.4%), AUTO (+1.2%) and METAL (+1.1%) were the highest gainers whereas PSU BANKS (-1.0%), PHARMA (-0.9%) and BANK (-0.3%) were the laggards.
Excerpts of an interview with Mr. Seshagiri Rao, Joint Managing Director & CFO, JSW Steel (JSW) published in Economic Times dated 04th August 2020:
•Mr Rao said that in the normal scenario, the company was supplying about 2 million tonne to the Auto sector from the total annual capacity of 15 million tonne. During the pandemic lockdown, the number had dropped by as much as about 65%.
•The company is witnessing demand for steel picking up in tractors and two-wheelers. The demand from top-2 passenger car makers, Maruti and Hyundai has been improved in July over June. The demand for steel in the commercial vehicles segment however remained depressed.
•The company’s alloy steel plant at Salem produces about 1 lakh tonne out of which 70,000 tonne capacity is on rolling basis. There is one bloom mill completely dedicated to the auto sector, and there is a bar mill which can have multiple applications, and finds use in the sectors other than the auto also.
•In the lockdown, the bar mill production was not reduced, whereas the bloom mill production came down to 0 in the month of April, which is currently operating at 10,000- 15,000 tonne a month.
•The changes that company is making on the Auto side are not temporary, they are all structural. The growth in demand for steel from the Auto sector is not the same as the industry has witnessed in the past. He expects it to never be the same and therefore diversification has a strategic component with itself.
Consensus Estimate: (Source: market screener website)
•The closing price of JSW Steel was ₹ 259/- as of 13-Aug-2020. It traded at 38x/13x/ 9x the consensus EPS estimate of ₹ 6.8/ 20.5/ 27.8 for FY21E/ FY22E/ FY23E respectively.
•Consensus target price of ₹ 233/- implies a PE multiple of 8x on FY23E EPS of ₹ 27.8.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Auto demand picking up as the festive season nears – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.9%, higher than the previous close at 11,095. The top gainers for Nifty 50 were Reliance (+7.4%), Zee (+6.4%), and HDFC Bank (+3.8%) while the losing stocks were Tech M (-2.8%), BPCL (-2.5%), and IndusInd Bank (-2.0%). The sectoral gainers for the day were Media (+3.8%), Financial Service (+2.3%) and Pvt Bank (+2.0%) while the losers were IT (-0.9%) and PSU Bank (-0.02%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki; dated 04th August 2020 from CNBC TV18:

  • Auto sales in the month of July have seen a substantial improvement as compared to June and the demand is seen picking up ahead of the festive
  • Demand is beginning to pick up as the festival season is coming up. Maruti is gradually ramping up production but there are still problems as the factories are working at anywhere near 100% capacities. Safety regulations limit the capacity utilization. So with all of that, Maruti is trying to meet the demand and get up to last year without any forecast or guarantees of what is going to happen.
  • He highlighted that the number of enquiries was large and bookings were going along quite normally, compared to last year.
  • There is the pent-up demand from last year as there is some requirement of people to have mobility as the economy is opening up. However, he expects the situation for six months down to remain uncertain because of negative factors such as lower income levels of people caused by the shutdown in business activities.
  • Hospitality and travel businesses have closed down which were users of vehicles.
  • In terms of the cost of a vehicle in relation to per capita income, he believes that has gone up probably a little faster because of new regulations on safety and emissions.
  • The steel prices have never been on a straight line. There has been a period when steel prices have gone up sharply than they have flattened out and come down and then the cycle reverses. In the last two years, there were periods when steel prices were declining and they are benefited from that. Thus, he is not so worried about the increase in steel prices.
  • Talking on the personal mobility issue he said that the percentage of buying cars which are the smaller entry-level hatchbacks has gone up. The increase in the percentage of people wanting to buy small hatchbacks is an indicator that there is a requirement of people to have a small car for doing all kinds of things, going to school, going shopping and other forms of transport. So he thinks that there is some section of the consumers that needs to have personal transport instead of using shared transport or some other form of transport.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Maruti Suzuki India Ltd was ₹ 6,361/- as of 04-August-2020. It traded at 45x/27x the consensus EPS estimates of ₹ 141/239 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 5,698/- implies a PE multiple of 24x on FY22E EPS of ₹ 239/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Focus on cash conservation & tightening capital allocation – M&M

Update on the Indian Equity Market:

Markets remained muted amid monthly F&O expiry as Nifty closed the day 0.2% lower at 10,289. The top gainers for Nifty 50 were ITC (+5.6%), HEROMOTOCO (+2.9%) and BAJFINANCE (+1.9%) while the losing stocks for the day ASIANPAINT (-3.1%), HINDALCO (-2.3%) and IOC (-2.1%). The gaining sectors for the day were FMCG (+2.3%), PHARMA (+0.8%) and BANK (+0.4%) whereas IT (-1.2%), REALTY (-1.0%) and METAL (-0.6%) were the losing sectors for the day.

Edited excerpts of an interview with Mr Pawan Goenka, Managing Director, Mahindra & Mahindra Ltd (M&M); dated 15th June 2020 from CNBC TV-18:

  • Mr Goenka said that the board took a decision that the Company needs to be much tighter on  capital allocation and prioritize where they want to put the money.
  • M&M is looking at all the subsidiaries right now to see whether they will be turning around profitable in the next two years. The company will take the decision in the coming few months about its subsidiaries.
  • Speaking about Peugeot Motorcycles, he said it was hit due to the pandemic. As per the plan, it could have been profitable during this year. However, due to COVID-19, the factories in China are down for quite some time. The company has lost the full peak season in Europe. The management will take the decision on the future of Peugeot motorcycles after reviewing its future.
  • Mahindra Electric turned EBITDA positive in FY20 and the company is on the way to become profit positive or cash-flow positive in the coming quarters.
  • He is confident about the strength of the balance sheet to fight the pandemic. The company holds a fairly strong cash position with more than Rs 100,000 mn cash on its balance sheet.
  • In the near term, the company’s primary objective is to find a third party investor in Korean manufacturer SsangYong as it is in need of cash for survival. 
  • The company reported a consolidated net loss of Rs 32,550 mn during the 4QFY20 due to the COVID-19. In the tough economic period, the company is looking to focus on capital allocation strategies.

Consensus Estimate: (Source: market screener, investing website)

  • The closing price of M&M Ltd was ₹507/- as of 25-June-2020. It traded at 20x/ 15x the consensus EPS estimate of ₹ 25.3/ 33.6 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 558/- implies a PE multiple of 17x on FY22E EPS of ₹ 33.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”