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Last Updated : Apr 26, 2019 10:31 AM IST | Source:

Don’t give up on Maruti Suzuki yet; brokerages say stock could touch Rs 8,000

Analysts at top brokerage firms feel that there are near-term growth challenges but that should give investors entry point.

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Maruti Suzuki | Closing Price: Rs 6,962.30 | Closing Price on Jan 31: Rs 6,641.15 | %Gain: 4.84 (Image: Reuters)
Maruti Suzuki | Closing Price: Rs 6,962.30 | Closing Price on Jan 31: Rs 6,641.15 | %Gain: 4.84 (Image: Reuters)
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Global brokerage firms such as Credit Suisse, Jefferies, and Macquarie maintained their rating on Maruti Suzuki post March quarter results even though the country's largest passenger vehicle maker reported a 5 percent year-on-year degrowth in profit.

The net profit during the quarter declined to Rs 1,795.6 crore from Rs 1,882.1 crore in the same period last year.

"This quarter was marked by adverse foreign exchange rates and commodity prices, higher depreciation and higher sales promotion expenses partially offset by cost reduction efforts," the company said.

The big news coming from the management was on diesel vehicles. Maruti India will phase out all diesel vehicles from April 1, 2020, RC Bhargava, chairman of the company, said on April 25.

The car maker recommended a dividend of Rs 80 per share for the financial year 2018-19, the same as that of last year.

Shares of Maruti Suzuki hit a 3-week low on April 25 after declining for five consecutive days ahead of the results which were expected to be muted.

Analysts at top brokerage firms feel that there are near-term growth challenges but that should give investors entry point.

Most brokerage firms are of the view that margin could improve in coming quarters but on the lower side which could hamper EPS estimates.

“The PV industry demand is expected to remain subdued in the near term given the uncertainty before the general elections. Maruti has scaled down its FY20 production and sales guidance from double-digit growth earlier to 4-8% range,” Bharat Gianani, Research Analyst - Auto/Auto Ancillaries, Sharekhan by BNP Paribas.

“Subdued volumes and pricing pressures (due to regulatory changes and increased competitive intensity) will continue to maintain pressure on earnings in the near term,” he said.

The most aggressive target price is Rs 8,000 in the next 12 months which translates into an upside of nearly 16 percent from April 25 close of Rs 6,905.

Here is what global brokerage firms are recommending:

CLSA: Buy| Target: Rs 8,000

CLSA maintained buy rating on Maruti post March quarter results with a target price of Rs 8,000. The demand remains weak but the franchise is strong and the valuations are also finding support.

The demand is weak and we don’t expect a big recovery in FY20, cautions CLSA. The competition in passenger vehicles remains benign.

Margins are likely to improve in coming quarters as a benefit of lower commodity flows through but it will be on the lower side. CLSA cut FY20 EPS estimate by 3 percent on the lower margin.

Jefferies: Buy| Target raised to Rs 8,000 from Rs 7,600 earlier

Margins are likely to disappoint again, as growth is likely to remain weak in Q1FY20. The near-term cyclical challenges provide good entry opportunity to long term investors.

The shift to BS-6 spread across FY20 which is well ahead of the deadline. Jefferies slashed FY20 EBITDA/EPS estimate by 10 percent, and FY21 estimates by 2-4 percent.

Macquarie: Outperform| Target raised to Rs 7,600 from Rs 7,400 earlier

Q4 EBITDA stood at 12 percent which was lower than Macquarie’s expectations. Lower volumes and higher discounts led to a 370 bps decline in margins.

The global investment bank slashed FY20-21 EPS estimate by 8-9% to factor in lower volumes and margins.

The company may launch 2 new models (sub-compact suv & mid-sized suv) in H2FY20. The volume growth to drive margin improvement.

Morgan Stanley: Overweight| Target cut to Rs 8,149 from 8,188 earlier

The margins are at cyclical low and may rebound sharply as volumes turn in H2FY20. The global investment bank expects FY20 margin of 9.3 percent to remain flat on a YoY basis.

Morgan Stanley trims FY20 eps estimates but maintains estimates for fy21.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.

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First Published on Apr 26, 2019 10:31 am
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