Maruti’s stock is Suzuki’s worry
Maruti Suzuki’s market cap has slid to near parent Suzuki’s level as a weak rupee, high oil prices and slow sales take the toll
Mumbai: For India’s largest carmaker that hit a record valuation of ₹ 3 trillion in December, all it took to surrender 40% of that value was a mere 10 months. At $28 billion, a three-year-low, Maruti’s market cap is now close to that of its Japanese parent, Suzuki Motor Corp. Against its peak share price of ₹ 10,000 on 20 December 2017 and a market cap of $46 billion, Maruti shares closed at ₹ 6,904 on Monday. Investors, who have been exiting Maruti Suzuki shares during this period, continued to sell after the company reported subdued sales in the quarter ended 30 September. Maruti Suzuki has cited the falling rupee and a sharp rise in oil prices as reasons for the toll on its stock price.
To be sure, Maruti Suzuki continues to be India’s undisputed car market leader, with a share of nearly 51%.
Domestic passenger vehicle (PV) sales of Maruti Suzuki grew 13.19% in the July-September quarter. Between 2011-12 and 2017-18, its domestic PV sales grew from 1.01 million to 1.65 million, while overall PV sales in India grew from 2.02 million to 3.29 million.
“Maruti was earlier given premium valuations due to its near monopolistic position in PV and its cost efficiencies. This is getting back to normalcy, fearing a bump in its growth trajectory,” said Deepak Jasani, head of retail research at HDFC Securities Ltd. “The pay commission, especially of states, was a big stimulus for auto sales over the past two years. Now, this tailwind is getting exhausted. Sentimentally, auto stocks are in a mild downtrend and may not revive in a hurry.”
Ajay Seth, chief financial officer at Maruti Suzuki, said the company was concerned about the weakness in the rupee, which closed at 74.07 against the dollar on Monday. “Dollar-yen is pretty stable... dollar rupee is a concern... it is a steep depreciation. It reflects in the stock price but there, oil price is also a factor,” Seth said, highlighting a sharp increase in the prices of petrol and diesel in the last six months.
Any increase in fuel price prompts price-sensitive India buyers to defer their purchase decisions. On Monday, Brent crude was trading at $82.97 a barrel.
The rupee has fallen nearly 13.77% against the dollar in the year so far, while it weakened about 13.27% against the yen, Bloomberg data showed.
In the meantime, car loans have turned costlier too, with interest rates at India’s largest lender, State Bank of India, rising from 9.4% per annum in January to 9.7% in September.
Prices of petrol and diesel in the last six months have risen 5.4% and 10.3%, respectively.
Maruti’s foreign currency exposure is about 5% of net sales, Seth said in an analyst call on 26 July. He said the largest forex exposure was on the yen due to royalty payments to parent Suzuki, in addition to imports from Japan, followed by the dollar at 18-20% of imports and a “small balance” comprising the euro.
A 1% gain in the yen versus the rupee leads to a 0.7% drop in Maruti’s earnings per share, Deutsche Bank said in an early September note, as it cut profit forecasts for FY19-21 by as much as 5%.
A weaker rupee hurts both automobile and component makers in India as they are importers of primary raw materials such as steel, aluminium and crude oil, which have dollar-denominated prices.
Due to all these factors—and the floods in Kerala—consumer sentiment has been weaker than expected in the last two months.
In the same period that Maruti lost nearly 40% of market value, Tata Motors Ltd lost 50.66%, while Mahindra and Mahindra Ltd gained 3.12%.
“These challenges coupled with high base of festive sales during the same period last year limited wholesale growth across OEMs (original equipment manufacturers). However, with the onset of festive period from October, OEMs are hopeful of a recovery in consumer sentiment,” JM Financial said in a report on 1 October.
Maruti Suzuki chairman R.C. Bhargava said stock movement does not define his company’s strategies. “I can’t see what we can do different from what we are doing. I don’t understand the share market. I don’t know why they went up to ₹ 10,000 and why it came down,” he said. “We are still doing what we have been doing. We have slightly increased market share, profit levels are quite reasonable. Financial position is as sound as ever. My business is to run the company as efficiently as possible and I can’t have an eye on the stock market.”
“We keep an eye on the stock markets, but that does not affect our decision-making,” he added.
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