Maruti Suzuki gains as brokerages cheer stellar Q2
Maruti Suzuki India Limited demonstrated a trading increase of over one percent, reaching Rs 10,700 during the morning trading session on October 30. Brokerage firms maintained an optimistic stance following the impressive financial results reported by the leading automobile company for the September quarter.
In its assessment, domestic brokerage house Motilal Oswal highlighted that the company’s gains in the second quarter were driven by several factors, including cost savings in raw materials, advantageous foreign exchange rates, a robust product mix, and the benefits of operating leverage.
The brokerage firm has upheld a “buy” rating on the stock, setting a target price of Rs 12,300, representing an upside potential of approximately 17 percent.
According to the analysts’ report, the stable growth in Maruti Suzuki’s domestic passenger vehicles (PVs) segment, along with a favorable product lifecycle, bodes well for the company’s future performance. The analysts anticipate that the company will likely achieve market share gains and experience a recovery in margins throughout the fiscal year 2023-24.
However, the analysts also cautioned that some of the positive factors contributing to the company’s recent performance might experience a deceleration in the forthcoming quarters, signaling a need for careful monitoring and assessment of potential challenges and opportunities on the horizon.
The significant improvement in margins during the recent period surpassed the initial expectations of analysts. In a recent investor meeting, the manufacturer of Wagon-R, Maruti Suzuki, clarified that there were no exceptional events or one-time occurrences that influenced the quarterly results. Notably, the company experienced a remarkable increase in margin, amounting to a substantial 380 basis points quarter-on-quarter.
This improvement was primarily attributed to a combination of factors, including enhanced capacity utilization, as well as a favorable trend of softening commodity prices. However, the exceptional performance also included a benefit from inventory management, which further contributed to the overall margin enhancement.
Analysts from Prabhudas Lilladher emphasized that this specific benefit is likely to revert to its usual pattern in the subsequent quarters, highlighting the temporary nature of this positive impact. This acknowledgment indicates the need for careful assessment and monitoring of the company’s future performance, particularly in terms of its margin dynamics, as well as the potential influences of various market forces on its operations.
Over the course of the quarter, Maruti Suzuki observed a notable improvement in its utility vehicle (UV) mix, which surged to 33 percent compared to the preceding quarter’s figure of 28 percent. Analysts at HDFC Securities highlighted Maruti’s proactive approach to launching new models over the past few quarters, which contributed significantly to the company’s achievement of a substantial 26 percent market share in the utility vehicles segment during the first half of the fiscal year. This impressive performance further solidified Maruti Suzuki’s position as a key player and the leading contender in the competitive utility vehicles market.
The analysts emphasized the resounding success of the Grand Vitara, with monthly sales crossing the 9,000-unit mark, serving as a testament to the fact that customers now perceive Maruti’s products as formidable contenders in the market. This success represents a significant milestone, especially in light of previous investor uncertainties regarding the company’s competitive standing and its ability to maintain a leading position within the industry. The endorsement of Maruti’s product offerings by customers and the subsequent market share gains underscore the company’s competitive prowess and growing acceptance among consumers, signaling a promising outlook for the company’s future performance and market position in the utility vehicles segment.
With a positive outlook reflected in its “buy” rating, the brokerage firm has set a target price of Rs 12,052 for Maruti Suzuki, indicating a potential upside of 15 percent from the closing price recorded on October 27. Analysts at Prabhudas Lilladher, including Himanshu Singh, emphasized Maruti’s successful strategic transition from primarily operating within the small car segment to establishing itself as a leading contender in the Sports Utility Vehicle (SUV) market. They anticipate this trajectory to persist, positioning Maruti favorably in the market and contributing to its continued growth and success in the future.
For the September quarter, Maruti Suzuki reported a net profit of Rs 3,716.5 crore, representing a substantial 80 percent increase compared to the same period the previous year. The company’s performance surpassed analyst expectations by a significant margin, as analysts had initially anticipated a growth rate of approximately 43 percent. Additionally, the company demonstrated a robust Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin of 13 percent for the quarter, surpassing the estimated margin of 11 percent. On a year-on-year basis, Maruti Suzuki witnessed a notable 73 percent increase in EBITDA, contributing to a 360 basis points expansion in the margin. These strong financial results underscore Maruti Suzuki’s exceptional performance and its ability to capitalize on market opportunities, positioning it as a leading player within the automotive industry.
