4 reasons why Citi upgraded Maruti rating, target price

Moneycontrol Bureau

Brokerage house Citi has upgraded its rating on Maruti Suzuki from ‘neutral’ to ‘buy’, and raised price target to Rs 1996 from Rs 1677 earlier.

The brokerage has cited four reasons for the upgrade:

* Maruti’s market share in the domestic car segment was around 46, up 300 bps YoY. Over FY14, we expect the company to gain share again in 2HFY14, once its 150,000 diesel engine capacity is commercialized. 

* The industry is showing signs of bottoming out . Moreover, there are some macro tailwinds (notably lower oil prices and slightly lower WPI inflation) which should provide leeway to cut interest rates, which might indirectly stimulate demand.

* The yen helps significantly, and provides substantial downside support. Our
EPS upgrades are driven mostly by yen, and a slightly lower tax rate.

* Valuations are now based on 10 times September 2014 cash earnings per share. Our TP (target price: Rs 1996) is slightly above the long term average, but there is sufficient ’wiggle room’ for the multiple to expand, given the industry growth is still fairly sedate and MSIL’s market share is on a stable to improving trend.