With highest-ever total sales, is Maruti Suzuki the next big money magnet? What stock investors should know

Investors were quite upbeat on automaker Maruti Suzuki, as the stock has surged by over 2.50% on exchanges with an intraday high of Rs 7,056 per piece. This is despite, Maruti increasing prices of its entire cars. At around 1438 hours, Maruti was trading at Rs 7,031.90 per piece up by Rs 149.05 or 2.17% on BSE. Such optimism was due to the company recording the highest ever sales by the end of fiscal year FY19. But did you know Maruti has exceeded expectations in terms of March 2019 month, compared to peers. Even though there have been major shocks in automobile sector, which has impacted sales of various companies, Maruti is still among the most preferred stock as an investment. In fact, recently, CLSA has given Buy target on the company. Not only this, one can still stay invested in Maruti, as the company is seen to rise by nearly Rs 1,000 ahead. 

On Monday, Maruti posted its highest ever total sales of 1,862,449 units a growth of 4.7 per cent. This comprises the highest ever domestic sales of 1,753,700 units. The export sales were 108,749 units between April 2018 - March 2019 period. 

While announcing its sales’ numbers, Maruti also mentioned that, a price increase upto Rs. 689/- (Ex- Showroom - Delhi) across models on account of regulatory compliances.

Talking about Maruti sales, analysts at Motilal Oswal said, “MSIL’s volumes were down 1.6% YoY to 158.1k (our estimate: 142.1k) in Mar’19 due to a decline in both domestic (-0.7% YoY to 147.6k units v/s our estimate of 132.8k units) and export (-12.9% YoY to 10.5k units v/s our estimate of 9.3k units) volumes. Sales of new WagonR are reported under the compact segment, while those of old WagonR are reported under the mini segment. Hence, sales of both the segments are not comparable YoY.”

Highlighting top picks, Motilal said, “We prefer PVs over CVs/2Ws as the segment is better placed to face BS-6 challenge and a stable competitive environment. Our top picks in autos are MSIL and MSS among large caps, and ENDU and EXID among midcaps.”

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On the other hand, CLSA said, “Indian auto demand has weakened sharply in the last 6M and we now see signs of a broader consumption slowdown. New safety and emission regulations over the next 1Y will push up vehicle costs posing further headwinds, although petrol cars should see a lower cost impact than other vehicle segments, making Maruti less vulnerable.”

With Toyota and Suzuki making progress in product development since tie-up, CLSA says, “which mitigates the key risk of electrification for Maruti, but vehicle cross-badging could eat into Maruti’s volumes to some extent.”

Uptil March month, Maruti stocks were down by 33% from its peak valuations, which as per CLSA, is now finding support at ~20x PE. We cut FY19-21CL EPS by 3-10% on lower volumes but retain BUY with TP of Rs8,000 (Rs 8,500 earlier).

If we compare the current market price and CLSA target, then Maruti will rise over 13% ahead.