The brokerage firm said that the company is facing dual headwinds of a weak modal cycle and rising commodity inflation. Maruti has been losing market share in the fastest growing segment of compact SUVs.
“We believe it will continue to prioritise market shares over margins in its strong holds of entry and premium compact cars. This make us less sangulne than consensus despite our expectations of a strong cyclical revival in passenger vehicle volumes" CLSA said in its 25 March report.
The brokerage firm has reduced its target price to ₹6550 from ₹6880 a share earlier.
Maruti’s overall PV market-share has declined 300 bps in FY21 YTD. The key driver has been the 570 bps decline in the compact SUV segment which has grown 17% year on year.
The brokerage said this means Maruti is facing a weakening mix as well as the inability to fully pass-on cost inflation. During third quarter of FY21, Maruti operated at full capacity but its Ebit/vehicle was flat YoY. While the company hiked prices in January and announced one for April, its commentary indicates that this would not fully offset the commodity pressures
The brokerage expects Maruti to continue losing market share in fiscal year 2022. This could constrain its market share as well as its ability to improve pricing.