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Are Maruti Suzuki’s shares factoring in a rosy scenario on volumes?

Maruti’s current market capitalisation indicates about 10% compound annual growth rate in PV volumes over FY2022-52, as per analysts. (Photo: Mint)Premium
Maruti’s current market capitalisation indicates about 10% compound annual growth rate in PV volumes over FY2022-52, as per analysts. (Photo: Mint)

Maruti’s declining market share in the PV segment due to its weak presence in the sport utility vehicle (SUV) space has weighed on investor sentiment in the past. In FY22, Maruti’s market share stood at 43%, down from 48% in FY21

Shares of Maruti Suzuki India Ltd., the country’s largest carmaker, were on Friday flirting with the 52-week high of 9,233.65 apiece seen on the National Stock Exchange in the previous session. The passenger vehicle (PV) maker benefits from strong demand environment and improving chip supply situation. However, volumes in August declined 6% sequentially to 165,173 units, which significantly lags analysts’ estimates.

What’s more, the company’s market share also fell. “On a month-on-month basis, Maruti Suzuki’s market share (excluding sales to Toyota) declined by 50-100 basis points to about 41% in August 2022," said analysts at Kotak Institutional Equities in a report on 2 September. One basis point is 0.01%.

Recall that Maruti’s declining market share in the PV segment due to its weak presence in the sport utility vehicle (SUV) space has weighed on investor sentiment in the past. In FY22, Maruti’s market share stood at 43%, down from 48% in FY21. Nonetheless, it augurs well that the recent SUV launches have garnered attention. This is expected to add to volumes and help it regain the lost market share. Share prices have rallied recently on this optimism.

Analysts at Kotak carried out a reverse discounted cash flow exercise for the Maruti Suzuki stock, which implied improbable volumes in the medium term. They said that current market capitalisation indicated about 10% compound annual growth rate in PV volumes over FY2022-52. “This may not look very high for the next few years, but the implied PV volumes 20 and 30 years later look simply unachievable at 12 million for FY2042 and 31 million for FY2052 in the context of the likely size of the Indian PV market," said Kotak analysts in another report on 1 September. For perspective, Maruti’s PV sales volume stood at 1.62 million units in FY22.

Given the intense competition in the segment from the likes of Mahindra & Mahindra Ltd and Tata Motors Ltd, it remains to be seen if there is a meaningful turnaround in SUV segment for Maruti Suzuki.

In the near term though, softening commodity costs should offer some respite on margins for the industry as a whole and Maruti, too, would benefit from this trend.

ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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