Maruti Suzuki’s shares close over Rs7,000-mark for the first time
Mumbai: Shares of Maruti Suzuki India Ltd closed over the Rs7,000 mark for the first time on Friday, stretching their gains to above 33% so far this year, as investors continued to buy the stock on hopes of sustainable strong sales.
The stock touched a record high of Rs7,091.95 a share, gaining as much as 1.56%. The stock closed up 1.47% at Rs7,085 on the BSE. India’s benchmark Sensex index rose 0.9% to close at 31,028.21 points.
To be sure, the recently announced goods and services tax (GST) regime favours the broader car market and Maruti, with its wide range of products including sedans and compact SUVs, is well-positioned to enjoy the benefits. This, too, has added heft to the stock.
“Maruti’s dominance over the Indian passenger vehicle (market) with a staggering 47% market share is unparalleled in any other major growing market. We believe the company’s success can be attributed to a perfect inter-play of significant cost leadership, extensive distribution reach and wide product portfolio. These factors have created several self perpetuating virtuous cycles and a strong moat for Maruti, enabling it to consistently enjoy complete monopoly over industry profit pools,” SBICap Securities said in a note to investors.
“New launches have been the main growth driver for industry volumes over the last five years, and we expect the trend to continue. Maruti plans to launch four products in FY18 and two annually by FY20. This along with the doubling of distribution network and the benign competitive environment would help the company strengthen its market share”, the SBICap Securities report added.
On 27 April, the company reported a strong 16% growth in its March quarter on the back of higher sales from its Baleno and Vitara Brezza models. Its market share inched up to 47.9% from 47.4% a year ago despite demonetisation.
“We remain positive on Maruti, as we expect strong volume growth in FY18-19 driven by implementation of the 7th Pay Commission and a strong model cycle. We expect valuation multiples to remain at the present level, as Maruti has demonstrated its ability to keep up with the premiumization of car demand and has increased its market share in higher-priced segments,” UBS said in a 28 April note to investors.
“Our analysis of industry volumes by price point indicates Maruti has improved its market share in higher-priced segments over FY10-15. Maruti’s new launches, the Baleno and Vitara Brezza, have received a strongly positive market response, and there is a long waiting period for both models,” the report added.
Out of 54 brokerages covering the stock, 41 have a “buy” rating on Maruti, 10 have “hold”, while three have “sell”, according to Bloomberg data.
“The company to continue to outperform industry, helped by its outstanding order book and strong model launch pipeline. Despite the margin miss, we believe it would be able to maintain margin at around 15%, driven by lower discounts as share of new models increases”, wrote IIFL Institutional Equities in a 28 April report for investors.