Maruti Rallies As Brokerages Raise Target Price

India’s largest carmaker Maruti Suzuki Ltd. stands to gain the most from higher sales and consolidation in the market, said two brokerage houses--Nomura and Kotak Institutional Equities.

Maruti’s sales grew by 15 percent in the first two months of this calendar year, and with a long wait list for existing models and new launches lined up, the carmaker will maintain its leadership position in the domestic passenger vehicles space, said the two brokerage houses.

The Stock is one of the best performing large-cap auto stock with 1-year returns of 80 percent till date, as per Bloomberg data.

Nomura On Maruti

• Rating: Buy
• Price Target: Increased to 8,824 from Rs 7,412

• It is the highest ever target price given by a brokerage firm.
• Maruti remains the top pick the in auto sector with nearly 50 percent market share.
• Maruti's dominance in small and big cars make India a tough market for global carmakers.
• General Motors announced that it will stop selling its Chevrolet vehicles in India by the end of 2017, after nearly 21 years of existence.
• Maruti has four times more dealers than its competitors and it is expected to grow till 2020.
• Estimate 13 percent compounded annual growth rate in financial years 2017-19.
• New launches and strong model cycle in coming quarters imply 23 percent upside in stock price.
• Expect the stock to trade at premium valuations given healthy trajectory and consistently improving free-cash-flow.
• Passenger vehicle segment to see 12-14 percent compounded annual growth rate over the next 5 years.
• Maruti is best placed to capitalise on the strong growth expected in India’s passenger vehicle segment.
• Launch of the new Wagon R and new Alto is likely to keep volume momentum strong.
• Benefits under the goods and services tax and better product mix is expected to aid margins.

Kotak On Maruti

• Rating: Cautious
• Price Target: Increased to Rs 7,700 from Rs 6,600

• Expect capacity utilisation in the passenger vehicle industry to go up over the next three years from 67 percent to 82 percent.
• Increase in Gujarat plant production could result in operating leverage benefit.
• Expect improvement in pricing in the passenger vehicle industry.
• Revenue share of higher margin vehicles like Baleno and Brezza likely to increase to 32 percent by financial year 2020 from 20 percent in the last financial year.
• Have increased earnings per share estimate for financial year 2019 by 4 percent and volume estimates by 3 percent.
• Capacity constraint will help Maruti to push higher margin models.