Nomura cuts Maruti Suzuki target price; stays 'buy'

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Nomura Financial Advisory and Securities India maintained its "buy" rating on Maruti Suzuki, but cut its target price on the stock to Rs 1,805 from Rs 2,259, saying the overall outlook for the rest of the year has "toughened" with a slower GDP growth and higher fuel prices than previously expected. The investment bank also cut Maruti Suzuki's FY14 volume estimates to flat from 6 percent growth, it had projected earlier. "With a third year of slowdown now built in, FY11-FY14 is likely to be one of the toughest periods for the passenger car industry in the last 20 years. Passenger vehicle volumes are likely to grow by only 0.7 percent over this time," analysts Kapil Singh and Nishit Jalan said. The India's largest passenger car maker reported a better-than-expected first quarter net profit growth of 49 percent year-on-year at Rs 632 crore, helped by favourable foreign exchange (Yen and Rupee depreciation), which boosted export realisations, and synergies from the merger of Suzuki Powertrain India. Its net sales, however, declined 5 percent in April-June to Rs 9,900 crore as total volumes declined 10 percent to 2.66 lakh vehicles. The analysts have also reduced their FY14 margin estimates on Maruti Suzuki to 11.5 percent from 13 percent and have cut EPS (earnings per share) estimates by 25 percent, citing Japanese Yen appreciating to 0.59 to a Rupee from 0.55 earlier. Singh and Jalan, however, give a thumbs up to Maruti Suzuki for maintaing its leadership position in the market. Its market share in the domestic car segment in the first quarter rose to 48 percent from 45.7 percent in FY13, helped by strong 19 percent growth in rural markets. Its overall passenger vehicle market share was at 42 percent in April-June. The Nomura analysts expect the company to maintain this market share by launching new models in the utility vehicles space in the next 1-2 years, starting with the XA Alpha by the end of the current financial year, uplifts for currently low selling models like A-Star and SX4 and a possible launch of a new entry-level hatchback next year. At 9:30hrs, Maruti Suzuki shares were down 0.8 percent at Rs 1,402.25 on NSE. Also Read: Buy, sell or hold? How to trade ITC post Q1 earnings?