Maruti Suzuki Ltd’s shares fell by 2.8% in a flat market on Thursday. This could be construed as the markets’ disappointment with the company’s vehicle sales for September. Domestic sales grew by 10.7% last month, much lower than the 30% growth in the preceding two months.
But this is purely a function of a “base effect”. In July and August 2008, domestic sales had averaged 53,512 units, while in September they jumped to 64,682 units. In July and August this year, domestic sales averaged 68,745 units, while sales last month grew to 71,594 units. Sales have been growing on a month-on-month basis.
Sales had jumped last year owing to stocking ahead of the festive season.
If Maruti is able to maintain sales at last month’s levels in the coming three months, sales in the October-December quarter will grow by an impressive 35%. The base, will, however, pick up considerably early next year, since sales had jumped in January this year thanks to the government’s sops.
Maruti’s valuation of over 23 times estimated earnings for the current year, meanwhile, is pricing in a prolonged period of high growth. Maruti is one of the few stocks to trade near an all-time high, and now trades about 40% higher compared with its peak in end-2007. While valuations are stretched, analysts expect the stock to do well as long as the markets are headed up.'
This is because it is the only available company to participate in the growth of the Indian passenger car market. While Tata Motors Ltd and Mahindra and Mahindra Ltd have a presence in the Indian passenger vehicles market, their portfolio consists of many other products and they aren’t a pure passenger vehicles play on the market. Also, news flow both in terms of volume and profit growth is expected to be impressive for the company.