Excerpts from an interview of Mr Shashank Srivastava, Executive Director – International Operations, Maruti Suzuki with CNBC-TV18 dated – 2nd March 2020:
Update on the Indian Equity Market:
NIFTY continued its losing streak on Monday, it closed at 11,133 (-0.6%). The top gainers in NIFTY50 were HCL Tech (+2.5%), Eicher Motor (+2.5%) and Nestle (+2.2%). Whereas Yes Bank (-6.7%), SBI (-5.1%) and Tata Steel (-4.7%) were the top losers. All the sectors ended losers except NIFTY IT (+1.4%). The top sectoral losers were Media (-4.6%), PSU (-4.5%) and Metal (-2.2%)
- Speaking about the coronavirus impact on disrupting the supply chain, Mr. Srivastava says, there is no effect on the international operation as far as supply production is concerned.
- On the domestic front, he says, as the first half (H1) figures were negative for the industry and also for Maruti Suzuki, somewhere in the range of like 16-17 per cent. The thirds quarter figures were positive for Maruti though the industry was negative.
- February seems to be negative across the space, except for a couple of manufacturers like Ford and Renault.
- Speaking about the BS-IV to BS-VI transition he says, the had some transition issue in February which would continue in March as well.
- About the rural-urban split he says, Rural like last year was around 36 per cent of total sales. This year so far 38.5 -39 per cent is coming from rural areas. There has been an uptick in the second half.
- The monsoon ending up with a positive 4% has led to the expectation of bumper rabi crop and therefore the sentiments in the rural areas are much better and that is reflected in the sales of the past few months.
- Speaking about growth expectations, he says, the company is positive for the next year as rural demand sentimentally has been better. However, the consensus growth expectations seem to be in the range of 3-5 per cent for the industry.
- The company has stopped BS-IV production altogether in January and now they are only producing BS-VI vehicles. The company started this transition almost a year ago.
- The inventory of BS-IV stock is around 2500 units, which seems to be a half-day stock for the company.
Consensus Estimate: (Source: market screener website)
- The closing price of Maruti Suzuki was ₹ 6,300/- as of 02-March-2020. It traded at 31x/24.6x/ 20x the consensus earnings estimate of ₹ 202 / 256 / 314 for FY20E/ FY21E/ FY22E respectively.
- The consensus target price for Maruti is ₹ 7,227/- which implies a PE multiple of 23x on FY22E EPS of ₹ 314/-.