Production levels improving gradually – Maruti SuzukiPratik Mate
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/-
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