13 Feb Why many brokers are giving ‘BUY’ call on Maruti ?

Why are many brokers giving a ‘BUY’ call on Maruti?

After reviewing the  Q3 results and management commentary, 17 analysts have given a ‘BUY’ rating for Maruti Suzuki India Ltd(MSIL), with an average estimated upside of 12% or more.

The Company said In its Conference call after the Q3 results that it is seeing healthy bookings for both the newly launched products Jimny and Fronx and has received a good customer response so far.
Also, receiving bulk orders for the bigger cars will increase the average sales price (ASP)
Resulting in higher revenues.

According to the brokers, MSIL can outperform in upcoming quarters for the following reasons
–       Strong order book
–       Focus on SUVs
–       Expected increase in sales realization

Maruti Suzuki India Ltd (MSIL):
Target price: Rs 9,959|HDFC Securities
Target price: Rs 10,455| ICICI Securities
Target price: Rs 9,750| Axis Direct

Also, see “Fundamentally strong midcap stock” to buy in a market correction

However, the analysts have also stated the Key risks of market competition, chip shortage and inability and lower demand scenario, which may impact sales volumes and growth forecasts of MSIL.

About Maruti Suzuki India Ltd (MSIL)

–       Started as a joint venture between the GOI and Suzuki Motor Corporation
–       Suzuki Motor Corporation owns about 56.2% equity
–       MSIL is Engaged in the Auto Business
–       Company manufactures, markets and export motor vehicles, spare parts, and components
–       Company have a strong network of about 3,500+ sales outlet worldwide
–       Service network has more than 4,000 touch-points

Market Leader
–       43% market share in the domestic passenger vehicles (PV)

Market Leader in Passenger Vehicle sub-segment
Passenger cars – 63.6%
Utility vehicles – 19.5%
Vans – 95.7%

Strong order book:
–       Strong order book as of Q3FY23: About 3.63 lakh units
–       Received ~1.2 lakh bookings for recently launched products

Capital Expenditure Plan:
–       Rs 10000 crore investment planned for Electric Vehicle (EV) in Gujarat
–       To be launched by 2025
–       Will be made for new technologies like BEVs & Flex-Fuel Engine

An expected increase in sales realization:
–       Having bookings for higher-end models for recent launches
–       Increasing Share of SUVs in the overall portfolio
–       Expect total sales volume to grow at the rate of 13% annually (13% CAGR)

Key Risks to the Estimates and Target Price TP:
–       Multiple launches from competitors will make the UV space more competitive
–       Chip shortage and inability may lead to nonfulfillment of orders
–       Lower demand in future may hamper future orders and sales

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