Maruti Suzuki

Expect a substantial price hike due to spike in input costs – Maruti Suzuki

Update on Indian Equity Market:

On Thursday, NIFTY ended at 17,234 (+0.9%) as it closed near its high at 17,243. Among the sectoral indices, OIL & GAS (+0.8%), CONSUMER DURABLES (+0.6%), and FMCG (+0.6%) ended higher, whereas PSU BANK (-0.5%) and AUTO (-0.2%) ended lower. Among the stocks SHREECEM (+6.0%), HDFCLIFE (+5.8%), and CIPLA (+3.5%) led the gainers while M&M (-1.9%), ONGC (-0.9%), and BAJAJ-AUTO (-0.9%) led the losers.

Excerpts of an interview with Mr. Shashank Shrivastava, Executive Director of Maruti Suzuki (MARUTI) with CNBC TV18 on 31st August 2021:

  • MARUTI is looking to cut production in September due to a shortage of semiconductors. The auto manufacturer is also getting ready for a substantial price hike in the upcoming month and this will be the fourth one since January due to a sharp rise in commodity costs.
  • Commodity prices started going up from April-20 and they impacted MARUTI’s material cost, which is 75 percent of the total cost of manufacturing. The increase in prices of commodities like steel and copper was close to 50% and precious metals like Rhodium had a price hike of 257%.
  • Since they were already coming out of a bad year (FY20) which was 18% less than FY19 and Covid-19 had badly affected 1QFY21, they did not wish to compromise demand and hence there was no price hike.
  • However, they did increase prices in January by 1.4% in the hopes of some softening in commodity prices which did not pan out as expected. This made them deploy an additional price hike of 3.4% in April and another hike of 0.3% in CNG vehicles in August.
  • Shrivastava confirmed that the upcoming price rise would be substantial and it would be deployed across all models produced by MARUTI.
  • He did not reveal any production numbers for September since that depends on how the shortage situation pans out for their semi-conductor vendors.
  • The number of electronic components varies from product to product and model to model within MARUTI’s large portfolio and for the past few months, they have been trying to adjust production to maintain high levels of production.

 

Asset Multiplier Comments

  • Semiconductors are silicon chips that cater to control and memory functions. The shortage of such a crucial component has been impacting the automotive industry globally along with other industries, forcing them to cut down on production.
  • MARUTI reported a decline of 20% in sales in August, as compared to July 2021.
  • Owing to a supply constraint of electronic components due to the semiconductor shortage situation, MARUTI expects a decline of 60% in vehicle production in the month of September in Haryana and Gujarat. As certain fixed costs are to be incurred, margins could be affected in the short term.
  • With the festivities coming up, there could be a rise in demand for vehicles and how MARUTI is able to match this festive buying with its supply remains to be seen.
  • MARUTI is in no rush to join the electric vehicle bandwagon until they make it feasible for customers in terms of affordability.

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

  • The closing price of MARUTI was ₹ 6,780/- as of 02-Sept-2021. It traded at 40x/27x/21x the consensus EPS estimate of ₹ 188/280/354 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 7,560/- implies a PE multiple of 21x on FY24E EPS of ₹354/-

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.”

 

Inquiries and booking coming back as more states are unlocking- Maruti Suzuki

Update on the Indian Equity Market:

On Thursday, NIFTY closed up at 15,790 (+0.6%). Top gainers in NIFTY50 were Infy (+3.5%), TCS (+3.3%), and JSW Steel (+2.2%). The top losers were Reliance (-2.6%), IOC (-1.3%), and Coal India (-1.1%). The top sectoral gainers were IT (+2.8%), PVT BANK (+0.8%) and BANK (0.7%) and sectoral losers were PSU BANK (-1.4%), MEDIA (-1.1%), and REALTY (-0.8%).
Excerpts of an interview with Mr. Shashank Srivastava, ED, Maruti Suzuki (MARUTI) with ET Now dated 22nd June 2021

  • Car is a discretionary product. It is a very large-item product; it is probably the second-largest purchase people make in their lifetime in India. As a result, future demand depends on the economy in general — the per capita income growth and the sentiment.
  • Per capita income growth is expected around 10% as RBI had indicated, lower than the budget figure which was indicated around 14% or so. After the second wave, there has been a lowering down of expectations of economic growth.
  • The rural sentiment is a little more negative at this time of the year compared with last year. The fundamentals of the economy in the rural area are still strong. There can be a good bounce back.
  • OEMs are a little apprehensive of making forward projections at this time because of all this uncertainty. People are talking of a third wave. Unless the sentiment related to Covid becomes negative, there can still be a bounce back.
  • Inquiry levels are getting better. Last week’s levels were almost similar to what they had at the beginning of April. That is pretty good.
  • Closure of outlets, because of weekend lockdowns or whatever, naturally causes a dip. Having said that, inquiries and bookings seem to be coming back as more and more states are unlocking.
  • Cost of running and fuel efficiency are important criteria for the Indian buyer. There are substantial savings if you use CNG. Besides, the availability of CNG now is also much better. They have had good traction on that front.
  • A couple of years back, they were making about 100-1,000 CNG cars a year. In FY21 they did something like 1,58,000-1,60,000. This year they are projecting sales of almost 2,50,000 for CNG.
  • The percentage of electric vehicles being sold in India as well as globally is still very small. The primary reason for it is that the cost of acquisition of electric vehicles is extremely high, largely because the battery costs are very high. There is also the distance-per-charge limitation.
  • Cheaper technology is currently not available, which is one of the basic hindrances to the progress of EVs. The other major factor is the lack of charging infrastructure.
  • In hatchbacks their market share is 65-66%, in sedans almost 50%, in PVs segment, they are more than 60% now, and in vans, they are 90-95%. The one area which seems to be a weak area for them seems to be SUVs.
  • There too, in the entry-level, they are sitting pretty with the Brezza, the number one model there in the entry-level SUV segment.
  • In the mid-SUV segment where competition has the Seltos and the Creta, they have the S Cross. Their numbers are not so great yet. They are quite conscious of this fact and they are watching this SUV segment very closely.
  • After April’s plant shut down owing to the oxygen issue, they restarted production on May 17. They brought forward the maintenance shutdown from June to May. Since the restart, they have been ramping up rapidly. Their utilization is pretty strong at the moment.
  • About semiconductors, there is a global shortage. Maruti has been able to manage production well largely because they have the advantage of a large portfolio — different vehicles using different levels of semiconductors.
  • If semiconductors are not available of a particular type in a particular variant, they then go and produce more of the other. They are just hoping that the situation will normalize in a while.

Asset Multiplier comments:

  • There has been a good bounce back in volumes for auto companies in 4QFY21 and volume data is showing good recovery.
  • In a post-COVID-19 environment, the entry-level hatchback segment, national scrappage policy, and new launches are expected to drive sales.
  • The Indian electric vehicle (EV) market also might see positive movement in 2021-2022.

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

  • The closing price of MARUTI was ₹ 7,531/- as of 24-June-2021.  It traded at 35x/ 27x the consensus earnings estimate of ₹ 214/ 284 for FY22E/23E respectively.
  • The consensus price target is ₹ 6,367/- which trades at 22x the earnings estimate for FY23E of ₹ 284/-

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.”

A long way for us to reach volume levels of FY19 – Maruti Suzuki

Update on Indian equity market:
Another day, another all-time high! Indian markets were in full swing today as Nifty50 closed 209 points higher at 14,346. Within the index, MARUTI (5.8%), TECHM (5.8%), and WIPRO (5.7%) led the gainers while HINDALCO (-1.6%), TATASTEEL (-1.2%), and INDUSINDBK (-1.1%) were the highest losers. Among the sectoral indices, IT (3.8%), AUTO (3.6%), and MEDIA (3.3%) led the gainers while METAL (-0.6%) and PSU BANK (-0.5%) were the only losing sectors.
Excerpts of an interview with Mr. Shashank Srivastava, Executive Director, Maruti Suzuki India Ltd (Maruti) published on Economic Times dated 7th January 2021:
On the retail side, the demand has been pretty good but not at the levels seen the year before last. This year is a unique year. This December is different from the earlier Decembers because the availability of vehicle stock across the industry has been a constraint for retail for the month.
In terms of vehicle availability, the company has been working at peak production for the last couple of months and still the stocks are low.
There is definitely a bounce-back in the last couple of months, but if the April to December cumulative figure is compared to that of last year’s, there is an 18% YoY decline. Last year itself was 17-18% less than the previous year. If compared to the same period two years ago, this year is almost 33% down.
In the previous five years (2015-2020), the CAGR growth in industry volumes is just 1.6-1.7% compared to 5.9% during 2010-2015 and 12.9% during 2005-2010.
The big reason for the slowdown in growth is that the cost of acquisition has gone up for various reasons. One is because taxation has gone up substantially. Extremely high road taxes along with an increase in insurance taxes increased the cost of acquisition for vehicles. Another factor is a shift from BS-IV to BS-VI norms which increased the cost of owning a vehicle substantially.
Just like BS-VI, two major regulations are coming up in near future; the CAFÉ 2 which is applicable from 22nd April 2021, and BS-VI phase II, RDE which will start from April 2023. This will result in a further increase in the cost of ownership.
In the entry SUV space, Vitara Brezza continues to be the leader. For the mid SUV, the company has S-Cross which was launched recently with a 1.5-liter BS-IV petrol engine. The company has a weaker spot in the upper SUV space.
Consensus Estimate: (Source: market screener and investing.com websites)
The closing price of Maruti was ₹ 8004/- as of 8-Jan-2021. It traded at 53x/ 32x/ 26x the consensus EPS estimate of ₹ 152/ 248/ 311 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 7,670/- implies a P/E multiple of 25x on FY23E EPS of ₹ 311.
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.”

Price hikes will vary from model to model – Maruti Suzuki

Update on the Indian Equity market:
On Friday, Nifty50 ended the week with gains at 13,514 (+0.3%). Among the sectoral indices, METAL (+1.1%), PSU BANK (+1.0%), and FMCG (+0.9%) ended with gains, while PHARMA (0.6%), IT (-0.4%), and AUTO (-0.1%) were the only losers. ONGC (+5.5%), NTPC (+5.2%), and GAIL (+5.0%) were the top gaining stocks while AXISBANK (-2.3%), DIVISLAB (-2.2%), and ADANIPORTS (-1.3%) were the top losing stocks.

Excerpts of an interview of Mr. Shashank Srivastava, ED- Marketing & Sales, Maruti Suzuki India Ltd (MARUTI) with CNBC TV18 on 10th December 2020:
• MARUTI has announced a hike in the prices of its vehicles from January 21 to offset the impact of rising input costs. The quantum of price hikes is still being discussed and will vary from model to model.
• Largely the input cost increases have been because of steel and precious metals (Palladium) increasing.
• Due to the shift from BS-IV to BS-VI, the consumption of precious metals used has increased, worldwide. As a result, the demand for these metals has gone up worldwide.
• Due to the mismatch in higher input costs and lower production in CY20, there has been a sharp increase in input costs and it has become imperative to hike prices.
• He believes the pent-up demand still exists. The long-term demand would depend on the fundamentals of the economy and Covid sentiment.
• This year has been a little unusual and the auto industry was recovering from supply chain disruptions. When the demand finally came in, inventory levels are lower and due to this demand-supply gap, he expects lesser discounts compared to last year.
• According to FADA registration numbers, MARUTI sold 143,554 vehicles in November which was lower than the numbers company expected. This is due to the difference in the number of RTOs from which data is collected by VAHAN (which FADA uses) vs the number MARUTI uses. VAHAN takes data from 1252 RTOs whereas there are 1465 RTOs in India. About 15% RTOs are not a part of VAHAN data and these are in the states of Telangana, Madhya Pradesh, and Andhra Pradesh. These 3 states comprise about 13-15% of MARUTI’s sales.
• Another problem with using the VAHAN numbers is that it used permanent registration. There are about 18 states which give temporary registration and the permanent registration comes in as late as 30 days.
• For loans to customers, MARUTI is planning to add 4 more banks and 5 more in 4QFY21E. There will be 17 banks integrated on the website, which disburse about 95% of auto loans.

Consensus Estimate: (Source: market screener website)
• The closing price of MARUTI was ₹ 7,715/- as of 11-December-2020. It traded at 51x/ 31x/ 25x the consensus earnings estimate of ₹ 150/ 247/ 308 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 6,367 implies a PE multiple of 21x on FY23E EPS of ₹ 308/-.

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.”

We import as there is little choice, should be self-reliant – Maruti Suzuki

Update on the Indian Equity Market:

On Monday, NIFTY ended down 71 pts (-0.7%) at 10,312 amid weak global cues.
Among the sectoral indices, FMCG (+0.7%) was the only gainer while REALTY (-3.6%), PSU BANK (-3.3%) and METAL (-2.6%) were among the top losers.
Among the stocks, BRITANNIA (+2.1%), HDFCBANK (+1.8%) and CIPLA (+1.4%) were the top gainers. COALINDIA (-5.0%), AXISBANK (-4.7%) and TECHM (-3.2%) were the top losers.

We import as there is little choice, should be self-reliant – Maruti Suzuki

Edited excerpts of an interview with Mr. R C Bhargava, Chairman, Maruti Suzuki with Business Standard dated 28th June, 2020:

• The answer to calls for boycotting Chinese imports lies in making Indian manufacturing much more competitive, deeper and widespread, but people should remember that shunning products from the neighboring country may lead to them paying more for goods.
• While stating that importing continuously for long period is not really in anybody’s commercial interest, he also asserted that certain products continue to be imported as there is little choice in the matter due to their non-availability in India, or because of quality and pricing issues.
• Everybody knows that importing products over time actually becomes more and more expensive as the rupee gets weaker. If you were importing something 10 years ago, the same product today will cost 60-70 % higher. So it is not really in anybody’s commercial interest to continue to import, you import because you really have little choice in the matter.
• The answer to the sentiments which are being expressed is to make Indian manufacturing much more competitive, much deeper, and much more widespread. What the Prime Minister has said about ‘Atmanirbhar’ means exactly that. If you start making more products in India at competitive prices, people will not import those products.
• Asked if companies, including those in the automotive sector, need to worry in the wake of rising voices against Chinese imports following Indo-China border clashes in Ladakh, Mr. Bhargava commented that this is a natural reaction to what has happened on the border. We had this happen with Pakistan also. It doesn’t become policy. He thinks the policymakers think carefully before they make or unmake a policy. They don’t react to popular sentiments.
• Explaining why industries in India import, he said that the reason why anybody imports is that either the product is not made in India, not available or what is made in India is not at the right quality or the product made in India is too expensive.
• He also underlined the need to understand whether stopping import will hurt or benefit India. If it is non-essential products it will not hurt us, but if it is essential then stopping imports is going to hurt us much more than it will hurt China. We need to see what the import is, what does it do to our whole industry, whether stopping imports is going to hurt us or benefit us.
• When asked if importing from China is inevitable under the current circumstances, Mr. Bhargava stated that it is inevitable unless we can find alternative sources of imports and which do not raise the prices to a level that consumers will get hurt.
• We should remember that consumers ultimately pays the price of imports, the same people who are asking for a boycott have to remember that in some cases it may lead to them being asked to pay more for the same product and asked are they ready for that.
• He also called for a comprehensive understanding of the circumstances and taking informed decisions on the pros and cons of importing from China before being swayed by sentiments.
• In case of stopping imports from China consumers will not get a car if a car has 2 per cent Chinese imports. He asked that if we stop that 2 per cent and stop making the car, who will it hurt, India or otherwise, how many jobs will Indians lose, how many people will lose a living, how much taxes will be lost.
• Commenting on instances of consumers cancelling bookings of vehicles from a Chinese auto firm, he said that it is the expression of a sentiment and he understands popular sentiment.

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

• The closing price of Maruti was ₹ 5,701/- as of 29-Jun-20. It traded at 39x/25x the consensus EPS estimate of ₹ 147/231 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 5,519/- implies a PE multiple of 24x on FY22E EPS of ₹ 231/-.

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.”

Expect supply shortage in June-July– Maruti Suzuki

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,116. Within NIFTY50, INDUSINDBK (+10.0%), HINDALCO (+3.1%), and AXISBANK (+2.8%) were the top gainers, while HEROMOTOCO (-3.5%), GAIL (-2.9%) and COALINDIA (-2.4%) were the top losers. Among the sectoral indices, PSU BANK (+3.5%), PVT BANK (+2.1%), and Realty (+1.9%) gained the most.  The losing sectors were AUTO (-1.1%), METAL (-0.6%), and MEDIA (-0.3%).

 

Expect supply shortage in June-July– Maruti Suzuki

 

Excerpts of an interview with Mr.R C Bhargava, Chairman–Maruti Suzuki published in Business Standard dated 10th June 2020:

  • Maruti will not be able to assemble more than 30-40 % of normal levels of production in June. So there will be no issue in selling what is produced as he expects demand will be higher than supply in June and July.
  • Maruti depends on 370-380 vendors and tier 2 and tier 3 suppliers in order to assemble cars. The supply chain is impacted if the vendors are facing issues in terms of labor, logistics, or are still in restricted zones. If the suppliers cannot produce the required components, Maruti cannot assemble cars.
  • Due to this supply issue and demand being higher than supply, Mr. Bhargava does not expect that Maruti will have to sell its cars at a discount.
  • However, Mr. Bhargava is not certain of the trend post-July and if the current demand scenario is only due to some pent-up demand from the lockdown period.
  • As per the Society of Indian Automobile Manufacturers (SIAM) data for the month of May, the volumes saw an 88% decline. Mr. Bhargava believes that the sales will go up gradually.

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

  • The closing price of MARUTIwas ₹ 5,686/- as of 10-June-2020. It traded at 38.4x/ 24.6x the consensus EPS estimate of ₹ 148/ 231 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 5,564/- implies a PE multiple of 24.1x on FY22E EPS of ₹ 231.

 

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.”

 

Maruti Suzuki to resume production with 50% workforce at Manesar plant: RC Bhargava

Update on the Indian Equity Market:

On Tuesday, Nifty ended 0.5% lower at 9,196. The top gainers for Nifty 50 were Vedanta (+12.4%), NTPC (+5.9%) and ITC (+4.5%) while the losing stocks for the day Reliance (-5.7%), GAIL (-3.7%) and Asian Paints (-3.0%). The gaining sectors for the day were Media (+1.7%), Metal (+1.2%) and Realty (+0.8%). The worst performing sectors were Pvt Bank (-0.7%), Pharma (-0.6%) and Bank (-0.5%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki India; dated 12th May 2020 from CNBCTV18:

  • The carmaker will resume partial operations at their Manesar plant in Haryana with a 50% workforce. Manpower permission is around 75% with one shift only.
  • The Company is allowed to start operations with one shift now and it will focus on a limited number of models.
  • The Company will be able to assess the demand-side situation only after a few weeks. He added that it is difficult to predict the demand side as it is too early. The dealerships have started functioning, but not all of them are functioning. The level of inquiries is also respectable but at this moment there is some supply-side constraint.
  • The overall volumes are bound to be impacted because of the ongoing restrictions and reduced manpower capacity. Normally the workings hours for the Company are 8 hours in one shift but with the various restrictions, the working hours are expected to come down to 6.5 hours in a shift. This reduces the capacity according to him. At the same time, the Company will be operating in only one shift with all other restrictions impacting the production quantity.
  • For a clear demand side pictures, dealers should at least work for 2-3 weeks.
  • Some of the suppliers for Maruti are in the containment zones. Therefore, the suppliers cannot produce in those areas. Maruti had to look for some alternative supplier for some components. Some models of the Company cannot be produced because those components cannot be found. Thus, the Company has to adjust the production volumes and models in accordance with the supply chain.
  • There is no certainty as to which supplier will remain a supplier and that he will not come under a containment zone in the next 10 days according to Mr Bhargava.
  • The Company may also face issues because the temporary workers at their Manesar plant have gone back to their villages.
  • Maruti has given cash advance against supplies to many of its vendors.
  • Overall, the auto industry could end up with 20-25% less sales compared to last year.
  • The cars are taxed very heavily in India, making the affordability of cars an issue. He expressed hope that the government will keep taxes on cars at a reasonable level.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Maruti Suzuki India Ltd was ₹ 4,955/- as of 12-May-2020. It traded at 24.9x/ 19.0x the consensus EPS estimate of ₹ 199/260 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 6,308/- implies a PE multiple of 24.3x on FY22E EPS of ₹ 260/-.

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