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Home / Markets / Mark To Market /  For Maruti Suzuki, late adoption of EV tech a dampener for sentiments

Maruti Suzuki India Ltd’s parent, Suzuki Motor Corp. (SMC), has shared its mid-term management plan for the five years through March 2026.

Some of the key takeaways for Maruti Suzuki from the presentation have left its investors somewhat underwhelmed. SMC has said it will develop electrification technologies by 2025 and fully implement them in products from 2025.

Analysts at a multinational brokerage and two domestic institutional brokerages said the carmaker's plans put it behind some domestic firms such as Tata Motors, who is the market leader in the electric vehicles segment, thanks to the success of the Nexon EV product.

Given that Tata Motors has been ahead of the curve, billionaire investor Rakesh Jhunjhunwala, in a recent interview with CNBC-TV18, said he will play the EV story through his large investment in Tata Motors shares.

Indeed, considering the accelerated push towards electrification globally, the late adoption of EV (electric vehicle) technologies at SMC and Maruti Suzuki appears to be a bit of a disappointment.

Shares of Maruti Suzuki have underperformed broader markets over the past six months
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Shares of Maruti Suzuki have underperformed broader markets over the past six months

Indeed, considering the accelerated push towards electrification globally, the late adoption of EV (electric vehicle) technologies at SMC and Maruti Suzuki appears to be a bit of a disappointment.

“In India, Suzuki will take the initiative in promoting electrification required by society in response to environmental issues in India, and maintain market share of more than 50% in the passenger car segment," according to the presentation.

On product line-up, the focus is on strengthening the SUV (sport utility vehicles) segment and also promoting CNG (compressed natural gas) vehicles, it said.

Commenting on market share, an analyst, requesting anonymity, said, “It is encouraging that they are looking at protecting Maruti’s share."

Meanwhile, near-term demand outlook is decent and investors will watch February volumes numbers closely. Nomura Financial Advisory and Securities (India) Pvt. Ltd analysts estimate Maruti Suzuki’s domestic passenger vehicle volumes (ex Toyota and light commercial vehicle) to be +9% year-on-year, while overall growth at about 13% year-on-year for February 2021F.

From a near-term perspective, higher commodity costs pose a risk to profit margins. Maruti Suzuki has taken price hikes in January, which some analysts believe is not sufficient enough. Accordingly, investors will keep a close eye on the company’s pricing strategy to counter rising costs.

Having said that, higher price increases can indeed hurt demand. “The company will remain cautious while taking further price hikes as the current volume is still 33% below peak levels. Margin in 4Q is likely to be impacted due to continued increase in precious metal/steel prices," said analysts from JM Financial Institutional Securities Ltd in their December quarter results review note.

Additionally, according to an ET Now report, the company is facing a shortage of semi-conductors as well. The report said, citing unnamed sources that Maruti Suzuki has cut its production target by 10% for this quarter owing to supply issues.

To be sure, shares of Maruti Suzuki touched a new 52-week high in January. But since then, the stock has corrected by nearly 17%. The recent correction can be attributed partly to the muted margin performance in the December quarter. Plus, margin outlook isn’t improving in a hurry.

Nonetheless, it’s not as if current valuations are considered reasonable. The stock now trades at around 27 times estimated earnings for financial year 2022, based on Bloomberg data.

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