Auto major Maruti Suzuki India Ltd (MSIL) has on March 27 become India's 19th listed company to cross Rs 4 lakh crore market capitalisation milestone after its shares surged over 23 percent so far in 2024.
The stock hit a record high of Rs 12,725 on BSE and gained as much as 4 percent. At 12.30pm, the stock was trading at Rs 12,669 on BSE, up 3.4 percent from its previous close.
So far, RIL, TCS, HDFC Bank, Infosys, ICICI Bank, Bharti Airtel, SBI, LIC, HUL, ITC, L&T, Bajaj Finance, Adani Energy, Adani Green, HCL Tech, Adani Enterprises, Kotak Mahindra Bank and Adani Total Gas achieved this coveted milestone.
On Wednesday, yen hit a 34-year low. Despite Japan's exit from negative interest rates, the yen remains the worst-performing major currency this quarter, down over 7% against the dollar. Officials warn against speculative moves, and Finance Minister Shunichi Suzuki stated Japan won't rule out any measures if the yen falls too rapidly.
Analysts say a weaker yen benefits Maruti's EBITDA by cutting costs for imported goods and services. This happens because the company pays fewer yen for the same items. However, these savings typically don't reach consumers.
Apart from Yen weakening, Maruti Suzuki exceeded expectations in Q3FY24 despite concerns over single-digit year-on-year sales growth. A 33% increase in net revenue stemmed from higher realisations, primarily driven by a 60% growth in the premium utility vehicle segment and robust export performance.
However, entry-level car sales remained subdued, dampening overall revenue. Operating leverage from increased UV sales and exports, coupled with lower raw material prices, led to a 200 basis points expansion in EBITDA margin to 11.7%. This resulted in a 33% year-on-year increase in profit after tax. However, concerns linger regarding future margin sustainability due to rising raw material costs and uncertainties surrounding the FY25 product cycle amidst stiff competition.
Analysts said new launches in the SUV segment (particularly the new Brezza, Grand Vitara and Fronx) is helping MSIL to gain market share in the fast growing SUV market.
"We expect the volume of MSIL to continue to move towards the SUV segment to catch up with further industry trends. Increase in SUV mix will continue to help in increase in ASP, service revenue and EBITDA per vehicle. Although, FY25 Industry outlook appears muted amid limited launches, we expect MSIL to outperform industry growth led by gain in market share in SUVs and strong presence in the rural market", said Dolat Capital in its latest note.
JM Financial notes that global electrification, previously driven by strong EV sales, is now moderating despite supply chain normalization and price reductions by OEMs. Major global automakers are scaling back EV investments and turning towards hybrids due to shifting consumer preferences and challenges in charging infrastructure expansion. This trend is observed in India as well, with Tata Motors reducing its EV sales estimate and prices. Maruti with its tech-agnostic approach, is well-positioned amidst the slowing pace of electrification.
Media reports suggest a strong hybrid model launch pipeline for MSIL in the next 2-3 years. Tax rationalization on hybrids could further boost consumer preference for this powertrain option. Given the evolving landscape and MSIL’s approach, JM Financial maintains a positive outlook on the company and recommends a BUY with a target price of Rs 13,000.
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