Can Maruti’ SUV drive trigger renewed optimism in the stock?

The widespread demand for Maruti's SUV segment has created a wide space to expand and potentially drive higher volumes and market share.

Maruti Suzuki Ltd. is determined to make its mark in a domain that has never been its stronghold – the sports utility vehicle (SUV) market. With new additions such as Jimny, Fronx, and Invicto, analysts suggest that Maruti is on course to challenge and potentially outperform major SUV players such as Tata Motors, Mahindra and Mahindra, and Hyundai.

At a time when electric vehicles seem to be the next big thing in the auto industry, Maruti Suzuki is choosing to tread the SUV path, taking on auto majors ruling the SUV space!

Maruti, the country's leading automobile manufacturer, did lose marginal market share in the SUV segment on the back of strong competition and global recessionary fears that dented supply chains and demand in the market. However, macroeconomic headwinds now seem a thing of the past as the company is now all geared to go head-to-head with other players to own the lion's share in the domestic market.

"There is an Improved overall demand environment and the visibility for the company is much stronger given the order book the company has," says Kumar Rakesh, lead analyst at BNP Paribas.

"Till last year there were concerns about how successful Maruti will be in the SUV space and since then the company has launched 3 models and the initial response has been quite encouraging," Rakesh adds. "It alleviates the concerns that the automobile major would lag behind other players."

Over the last few years, Maruti has consistently launched new models, which has significantly helped the company gain the market share it enjoys today. The widespread demand for Maruti's SUVs has created a space for the carmaker to expand its horizons and potentially drive higher volumes and an even bigger market share.

Presently, the company has captured 17 percent of the SUV market. Tata Motors has a 31 percent market share, the highest in the country.

Evaluating the performance of Maruti’s new models, BNP Paribas estimates suggest that Maruti will become the overall volume market share leader in the SUV space by the end of this fiscal year. Rakesh goes a step further to say he won’t be surprised if Maruti comes to be known more as a full-blown SUV player than as a leader in the compact car segment, which it has been historically.

"New product launches by Mahindra, Hyundai, and Tata Motors are largely done with. But for Maruti Suzuki, the product cycle has just started", Varun Baxi, an analyst at Antique Stock Broking says.

Fronx and Jimny have an outstanding order book of 55,000 units. Invicto, an adaptation of Toyota's Hycross, also looks promising and is on course to sell 2,000-2,500 units per month. Baxi predicts that a total of 25,000-30,000 incremental sales will come from newer models on a monthly basis.

Baxi also expects a 14 percent increase in volume growth in FY24 and an 11 percent volume growth in FY25. A realisation growth of 2-3 percent is also forecast. Antique Stock Broking is positive about Maruti and is targeting a price of Rs 11,000 per share, an upside of 14.5 percent from the July 14 closing price.

The bullishness is also reflected in the recommendations analysts have given to the stock. As per Bloomberg data, Maruti has 38 buy calls, 7 hold, and 5 sell calls. The 12-month consensus target is Rs 10,408 apiece, commanding an 8.4 percent upside from Friday's trading session.

Given the higher average selling price (ASP) for the SUV vertical, Himanshu Singh, an auto analyst at Prabhudas Lilladher, believes that it will lead to an increase in revenue and the ASP of its products, a positive for the company.
While analysts do point out the lag in volumes in Maruti's SUV sales, they estimate the positive momentum will help the carmaker outperform other players in the coming years.

In the month of June, sales of utility vehicles such as Brezza, Grand Vitara, and Ertiga showed an impressive increase, more than doubling to reach 43,404 units. This is in comparison to the 18,860 vehicles sold in the same month of the previous year.

The automobile major also announced a 2 percent increase in its wholesale figures for June. As per an official company statement, approximately 1,59,418 units were dispatched to dealers, compared to 1,55,857 units in June 2022.

Moreover, Maruti Suzuki's domestic passenger vehicle sales also recorded an 8 percent growth, reaching 1,33,027 units, as against the 1,22,685 units sold during the corresponding period last year.

While there's an uptick in SUV sales for the company, it remains to be seen how this battle between the automobile giants will unfold.

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