Update on the Indian Equity Market:
On Monday, NIFTY ended 290 points in the red and closed at 17,173. FMCG (+0.6%), AUTO (+0.4%), and METAL (+0.3%) were the gainers, whereas, IT (-4.6%), PSU BANK (-2.5%), and FINANCIAL SERVICES (-2.2%) were the losers. Among the stocks, NTPC (+6.4%), SBILIFE (+2%), and HDFCLIFE (+1.7%) were the gainers and INFY (-7.2%), HDFC (-4.8%), and HDFCBANK (-4.6%) were the top losers.
Excerpts of an interview with Mr. Hisashi Takeuchi, MD & CEO, Maruti Suzuki published in Business Standard on the 18th April 2022:
- The shortage of necessary electronic components and semiconductors has resulted in a backlog of 270,000 units – the equivalent of nearly two and a half months of the company’s domestic sales.
- For sourcing the semiconductor chips, the company is working with the parent, Suzuki Motor Corporation as well as placing bulk orders directly with chipmakers.
- The market share of the company has come down to 43.4% from 47.7% two years back. Despite clocking a 13% YoY sales growth in FY22, the loss in domestic market share was due to the total industry growing at a similar pace.
- The company deals predominantly in the small car market and has lagged in the SUV segment. It has strategies to make a comeback by introducing multiple models in the SUV space.
- With Suzuki announcing investment in Gujarat to manufacture electric vehicles, the company is targeting localisation which will help in end-product cost reduction.
- To manufacture electric vehicles and batteries by setting up greenfield projects takes around two to three years. The company thinks, a launch in 2025 is achievable.
Asset Multiplier Comments:
- We believe, the company will continue to face competition from other existing as well as new players. The company’s goal of regaining its lost market share is a big challenge for the new CEO.
- The semiconductor shortage is likely to persist at least for a few months which will create a hindrance for most automobile companies. The players who can rationalize the short supply by prioritizing selling the premium category models will turn out to be better performers.
Consensus Estimate: (Source: Tikr website)
- The closing price of MARUTI was ₹ 7,579 /- as of 18-Apr-2022. It traded at 35x/22x the consensus earnings estimate of ₹ 219/343 for FY23E/FY24E respectively.
- The consensus target price of ₹ 9,150/- implies a P/E Multiple of 27x on the FY24E EPS estimate of ₹ 343/-
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