Sharekhan has upgraded the target price of Maruti Suzuki shares and also said that it expects the share price of the company can jump over 10 per cent in the next few quarters. On August 28, Friday, the share price of the auto maker was at Rs 4,204.95.
The management of Maruti Suzuki has set out a target of two million annual sales by 2020 and is focusing on new products and segments to achieve the same. The recently launched premium crossover S-Cross, an upcoming compact sports utility vehicle (SUV) and a premium hatchback are aimed at expanding segments. The next generation, premium Nexa outlets are aimed at providing a differentiated buying experience for discerning customers and gain a foothold in segments wherein it has little presence.
The management has also laid out a roadmap for expansion of its sales and service network to achieve its two-million-unit target. It added 309 sales outlets in FY2015 which is the highest addition in the last ten years. Importantly, the expansion was targeted at increasing geographical spread and the company managed to add 300 cities to its coverage.
According to the brokerage house, the domestic automobile industry turned a corner in FY2015 and posted a growth of 3.9 per cent vis-à-vis a sharp 6.6 per cent decline in the preceding year. The election of a stable government at the centre aided in boosting consumer confidence especially in urban India. However, the growth was not broad-based as only six of the eighteen passenger vehicle (PV) manufacturers posted a growth and sales had to be supported by high discounts and promotions.
Maruti Suzuki India (MSIL), pulled further ahead of the rest of the pack and reported a growth of 11.1 per cent as compared with a 1.3 per cent fall for the rest of the industry. The strong performance was on the back of a strong product line-up, new model launches, shift in preference towards petrol models and excellent distribution network especially in rural India.
Sharekhan in a research note said, “In FY2015, MSIL has demonstrated the strength of its business model with the quantum of the outperformance as compared with its peers. The management plans of launching new models and entering new segments especially the compact SUV segment are expected to further aid in a market share expansion. Additionally, the strong network expansion would lay the foundation to achieve its 2020 target.”
The brokerage house continues to remain positive on the stock and revised its target price to Rs 4,700 (from Rs 4,650) earlier. Sharekhan said, “In our estimates we have not yet factored in a demand boost due to the payout from the seventh pay commission pending clarity on the timeline for the same.”