Maruti Suzuki India Ltd (MSIL): Youngsters today find shared mobility economicalAssetmultiplier
Dated 20th September 2019
Update on the market:
After the Aramco drone attack, the market sentiment still seems to be negative. Nifty closed 1.3% lower at Rs 10,704. Tata Motors (+2.0%), Coal India (+0.7%), HDFC bank (0.6%) were among the biggest gainers. Indiabulls housing (-4.6%), Zeel (-7.8%), Yes bank (-15.6%) were the losers. Among sectoral indices Pvt Bank (-1.8%), PSU bank (-2.35%), media (-4.4) closed lower while there were no gainers.
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Maruti Suzuki India Ltd (MSIL): Youngsters today find shared mobility economical
Excerpts from the interview by R.C. Bhargava, chairman, Maruti Suzuki India Ltd
- Indian automakers are now on par with Europe and America in terms of quality but the purchasing power of domestic buyers has not grown enough to afford the increased product prices
- The per capita income in India is almost around $2,200 (per annum) and in Europe, it is approximately $40,000. In terms of all the standards which add to the cost of the product, there is no difference between Europe and India
- In India, the Goods and Services Tax (GST), road tax and others, are much higher than in Europe or even China for that matter. We can’t expect a country with such a low per capita income to have enough customers to have the capacity to pay this kind of money for a car and grow at 10-15% every year (in terms of vehicle sales).
- As automobiles are 50% of the manufacturing GDP, then the sector has to grow by 15-16% per year to propel manufacturing sector to reach 25% of GDP.
- If youngsters buy a car at the beginning of the career then they have to pay the monthly instalments. So, they have to choose what they want to do with the limited amount of money that they get because for buying a car, they may get a loan but have to provide 10% to 20% initial deposit and also pay the EMI.
- Today, a youngster wants to buy a nice smartphone and wants to meet his friends at a restaurant and have a good time. If he buys a car, then he probably can’t do these things. So, he postpones his car-buying by four or five years or whatever time it takes him to reach a stage where he is comfortable owning a car.
- Today, a youngster can still get his mobility through a car from Ola and Uber which is much more economical. So, what the finance minister said is 100% correct. That is what the millennial generation is thinking.
- Regarding Gujarat plant, Company needed the capacity and earlier, they were short of capacity and there were cars on the waiting list all the time. The problem starts with people not buying and doesn’t start with production.
- Each company has its own strategy. At the moment, Maruti hasn’t invested in any of the sharing platforms. They sell a lot of cars to Uber and Ola. They have no stake in them but they do buy their cars.
Consensus Estimate (Source: market screener website)
- The closing price of MSIL Ltd was ₹ 5,988/- as of 19-September-19. It traded at 27x / 22x / 19x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 223 / 273 / 314 respectively.
- Consensus target price of ₹ 6,095/- implies a PE multiple of 19x on FY22E EPS of ₹ 314/-
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