Maruti Suzuki gets ‘Hold’ rating over GST, monsoon outlook

By: | Updated: June 24, 2016 7:21 AM

It expects 2H to be better than 1H as the impact of good monsoons, GST and overall demand recovery should benefit industry demand. In our view, 10-12% is conservative guidance.

Competition has been moderating in the 4W industry and Maruti’s successful launch of multiple products has further boosted Maruti’s competitive positioning. (Reuters)Competition has been moderating in the 4W industry and Maruti’s successful launch of multiple products has further boosted Maruti’s competitive positioning. (Reuters)

It expects 2H to be better than 1H as the impact of good monsoons, GST and overall demand recovery should benefit industry demand. In our view, 10-12% is conservative guidance. We expect c14% growth for Maruti in the domestic market in FY17e. The company is already selling 126k/month currently (ex-capacity constraint for new models, it would be 135k). Annualising this monthly run-rate would beat the higher end of the guidance. Demand for Baleno and Brezza remains solid with order backlog of more than 70,000 cars.

It should not just benefit the overall economy, but should also lead to a reduction in car prices. Assuming 18% GST rate, prices for smaller cars can decline by 10%. On the cautionary side, a GST passage this year could delay the purchase of cars to next year as implementation would only happen next year (from April 2017) and customers may delay their purchases to get lower prices.

We continue to see Maruti as the best positioned domestic auto company in India among our coverage. Competition has been moderating in the 4W industry and Maruti’s successful launch of multiple products has further boosted Maruti’s competitive positioning. Further, investments in building dealerships (from 1,700 to 3,000) should create a significant lead to the competition. We maintain hold with a TP of `4,200 (from `4,150), due to the pressure on margins and we believe valuations are not cheap.

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