Maruti Suzuki: The Engine’s Hot And Running
The Maruti Suzuki Ltd. stock closed in on the Rs 7,500 mark in Friday’s trade. More significantly, the automaker is now the eighth most valuable company in India, by market capitalisation. No other automobile maker in India comes close, with Tata Motors Ltd. at the seventeenth spot.
A quick check on the valuations of global auto companies reveals that Maruti is the most expensive auto stock in the world, at least among the top 30 companies by market capitalisation.
The stock trades at about 30 times earnings in the last completed financial year, and the Indonesian giant Astra Otoparts is the closest to Maruti with a price-to-earnings ratio of 24 times.
Such valuations are not without reason, for Maruti must be one of the few large auto companies in the world expecting strong double-digit volume growth in FY18. Maruti’s FY17 market share, at 47 percent, was higher than the next 13 players in India combined.
GM’s India exit, and the possibility of other players exiting, would mean that more customers could stick to a solid incumbent like Maruti, allowing the company to improve its grip on a growing market.
Aside from the usual activities that a market leader would do, the company has embarked upon some interesting allied acts. This includes buying land for dealers to set up their operations, which in turn strengths the dealer base. Such moves could give Maruti an edge over its competition.
To be fair, the stock has seen a few downtrends. From a high of Rs 5,900 per share on October 30, 2016, it corrected to below Rs 4,800 per share in less than 30 days. The demonetisation-led fear had some role to play in this fall. But aside from that fall and some other small downticks, Maruti has only zoomed ahead in the last year. The sign of a strong stock is the way in which investors buy into dips, and Maruti scores heavily on that front, with 79 percent returns in the last 12 months. That ranks second only to Indian Oil Corporation Ltd.’s 102 percent returns in the last year, among the top 20 large caps.
In the global auto industry, the buzz is around Tesla, which has had a 61 percent upmove in the last 12 months, on its promise of clean-energy cars. That may well become a trend globally, but in India, the fossil-fuel dependent Maruti is making all the right moves. And the shareholders aren’t complaining.
Niraj Shah is Markets Editor at BloombergQuint.