While retaining a buy call on Maruti Suzuki India, Nomura has raised target price on the stock to Rs 8,824 (from Rs 7,412 earlier), implying 22.8 percent upside as it believes the stock will continue to trade at premium valuations. The stock gained nearly 2 percent intraday Wednesday.
"The stock currently trades at 25.7x FY18 EPS. With FY18-19 EPS CAGR of around 20 percent, secular growth trajectory, healthy return on equity/return on capital employed (23/31 percent in FY19) and consistently improving free cash flow due to limited capex requirements, we believe MSIL will continue to trade at premium valuations," it explained while lifting target P/E to 25x FY19 EPS (from 21x earlier).
Maruti Suzuki (MSIL), with nearly 50 percent market share, is a key stock to play this theme and remains top pick in the sector, Nomura said.
India’s car industry appears to have significant growth potential. The research house thinks it can reach around 15 million units by FY30, which is around 60 percent of China at similar percapita income levels.
MSIL & Suzuki have focused on investing more in India for the longer term. With the R&D center scaling up in India and plans to double capacity and network in the medium term, competition seems to have been left behind, it feels.
Nomura expects volumes at around 13 percent CAGR in FY17-19, largely in line with the industry, to which there could be upside given the success of new models and strong model cycle.
Company's new launches have met with much success, with a waiting period of around 3-4 months for the new Dzire (depending on the variant), around 4.5 months for Baleno, 5 months for Brezza and around 1 month for Ignis.
The research house estimates outstanding bookings at around 1.8-2 lakh units now.
While it retains FY18/19 EBITDA margins at 14.7/15.2 percent, it sees several near-term catalysts which may lead to upside risks - cost savings under GST; lower discounts on better mix; and no cess on royalty.
At 13:19 hours IST, the stock price was quoting at Rs 7,260.80, up Rs 69.40, or 0.97 percent on the BSE.
Posted by Sunil Shankar Matkar
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