Maruti share price gains about 2% on expansion plans, expected festive season boost

Maruti Suzuki India (MSIL) share price gained up to 1.57% in the morning trades on Tuesday. The news flow related to its investments for growing its Electric vehicle portfolio, launch of new models and also increasing its total production capacity boosted investor confidence on its longer terms prospects. The expectations also remain high for the approaching festive season, that can boost sales in the near term and contribute to the company’s earnings growth.

Maruti Suzuki unveiled its major investment plans of investing as much as $1.25 trillion to develop around 10-11 new models which will also include six electric vehicles and growing its production capacity by 2030-31. In a presentation to investors, analysts and proxy advisors, it said that with the challenges of the last 4 years behind, it is projecting a requirement of 4 million production capacity by 2030-31.

Also Read- Maruti Suzuki eyes ₹1.25 trillion capex to boost EV, SUV play

The major challenges faced by the automakers during the past few years included disruptions caused by the pandemic, chip shortages and also rising input costs with surge in commodity prices. The decline in commodity prices is positive for the margins of the companies, while chip shortage situations have also eased.

The volume of companies such as MSIL though have not seen much uptick during the month of  September 2023 and total vehicle sales at 173,451 units for MSIL were flat on year-on-year basis. Nevertheless, the upcoming festive season is likely to be the next major catalyst for the company's growth prospects.

The analysts at Prabhudas Lilladher said that “The expectations are high and initial trends for regional festive periods have shown positive momentum, a lot depends on the one-month festive period which starts from mid-October". OEMs (Original Equipment Manufacturers) have built inventory in anticipation of strong growth and higher retails would be key to avoid large inventory backlog post the festive season, they added.

As per recent channel checks by analysts at Axis Securities, they expect retail demand for Maruti in Passenger Vehicles during the festive period to be better than peers

The company is also expected to report good growth in net profits during the September’2023 quarter. Analysts at Jefferies India private Limited peg 45% growth in net profit in MSIL during Q2. They also feel Improving the product mix (rising Sport Utility sales for Maruti in its portfolio) is a positive.

Also Read-  Auto Sector Q2 Results Preview: Cheaper input costs, higher realisations to drive revenue, margins

On the EV side MSIL has been preparing in the background and will launch the first model in FY25, said analysts. This will aid medium to long term growth prospects.

Disclaimer: The views shared by analysts and brokerages are their own. Check with a certified financial planner before taking investment decisions.