Japan-based brokerage firm Nomura said sharp price cuts may help improve market share of Maruti Suzuki but also hit its margin by 100 bps near term.
Maruti Suzuki may have to incur inventory losses due to price cuts, ET Now reported the brokerage as saying on September 19.
Maruti Suzuki India on September 18 announced a reduction in prices of its entire model range by up to Rs 1,29,600 from September 22 to pass on the GST rate cut benefit to customers.
The country’s largest car manufacturer also said it has cut down prices of small cars over and above the GST benefit of 8.5% to make vehicles more affordable for two-wheeler users.
With effect from September 22, the company will pass on the full benefit of the recent reduction in GST rates on automobiles to customers, in line with the revised GST regulations taking effect on that date, the country's largest carmaker said in a regulatory filing.
To provide a further stimulus to the Indian passenger vehicle industry, the company has reduced the prices of entry-level cars, it added.
Meanwhile, Morgan Stanley has maintained an 'overweight' rating on Maruti Suzuki India with a target price of Rs 18,360, implying a potential upside of 16% from the current levels. The company is working to revive its first-time car buyers segment, which will be a growth driver, NDTV Profit reported the brokerage as saying. The financial impact will be neutral to positive when aggressive discounts are removed once volumes revive, it added.
Nomura said the price cuts exceed GST reduction as the weighted-average price reduction due to GST should have been 6.5% but the company has taken an average price reduction of 7.5%.
Nomura maintained 'Neutral' rating on the stock with target price of Rs 15,031.
At 10:17 am on September 19, Maruti Suzuki shares on NSE were trading nearly flat at Rs 15,835 apiece.
The prices of entry-level model S Presso will go down by up to Rs 1,29,600; Alto K10 by up to Rs 1,07,600; Celerio by Rs to 94,100; Wagon-R by up to Rs 79,600 and Ignis by up to Rs 71,300, the auto major said.
Price of premium hatchback Swift is reduced by up to Rs 84,600; Baleno by up to Rs 86,100; Tour S by up Rs 67,200; Dzire by up to Rs 87,700; Fronx by up to Rs 1,12,600; Brezza by up to Rs 1,12,700; Grand Vitara by up to Rs 1.07 lakh; Jimny by up to Rs 51,900; Ertiga by up to Rs 46,400 and XL6 by up to up to Rs 52,000, it added.
Similarly, prices of Invicto will reduce by up to Rs 61,700; Eeco by up to Rs 68,000 and Super Carry LCV by up to Rs 52,100, the company said.
In a virtual press conference, Maruti Suzuki India Senior Executive Officer (Marketing & Sales) Partho Banerjee said the company has reduced prices on small cars over and above the GST benefit of 8.5 % to help two-wheeler users upgrade to cars.
"There can't be any better time than to really go for the motorisation in the Indian market. And as the car penetration in India is so low, at 34 per 1,000 people, it makes it all the more compelling reason that, being a market leader, we are taking this initiative to put India on wheels," he said.
The move of cutting prices on entry-level cars would help the segment stabilise after volume decline in the last few years, he added.
He noted that the company will pass on the GST rate cut benefit on car parts used in service and maintenance to reduce the overall total cost of ownership.
The company will also compensate its channel partners for the "strategic pricing" initiative, Banerjee said.
He noted that in the next financial year, the passenger vehicle market is going to bounce back to the earlier CAGR of 6 to 7%.
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