Moneycontrol
Get App
Last Updated : Mar 25, 2019 05:25 PM IST | Source: Moneycontrol.com

Sell Maruti Suzuki India; target of Rs 6000: ICICI Direct

ICICI Direct is bearish on Maruti Suzuki India has recommended sell rating on the stock with a target price of Rs 6000 in its research report dated March 22, 2019.

Broker Research @moneycontrolcom
Representative image
Representative image
 
 
live
  • bselive
  • nselive
Volume
Todays L/H
More

ICICI Direct's research report on Maruti Suzuki India


The demand situation in the domestic auto space has got aggravated post the recent muted festive season (Dussehra, Diwali 2018) with inventory levels in the system showing no signs of abatement. Consumer sentiment is muted primarily tracking higher penetration of connected mobility (ride sharing), higher insurance costs incidence, etc. As per recent FADA release, total passenger vehicles retail sales domestically are down 8.25% YoY in February 2019 with inventory in this segment at 50-60 days vs. the normal range of ~30 days. This will warrant less production at OEM level to stabilise channel inventory leading to de-growth in dispatches in March 2019. Moreover, Q1FY19 was a very high growth period for the industry given the transitory phase in the base quarter (Q1FY18) before GST implementation. This will eventually result in nearly no growth for next four months and test inventor patience. The management commentary also suggests muted sentiments with demand recovery seen only post Union elections. Empirically, it has been observed that one year forward P/E multiples expand (>20x) at Maruti Suzuki India (MSIL) whenever their volume growth is >=10% and contract towards its mean i.e. ~20x whenever volume growth is <10%.


Outlook


Hence, with volume growth expectation of mere ~3% in FY19E & ~7% in FY20E, we expect valuation multiples to contract towards its mean. Conservatively, we value Maruti at Rs 6,000 i.e. 22x P/E on FY20E EPS of Rs 272.6 and downgrade the stock to SELL. On the valuations front, the risk reward is adverse at the moment.


For all recommendations report, click here


Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

First Published on Mar 25, 2019 05:25 pm
More From
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant