Share prices of Maruti Suzuki, the country’s largest carmaker, rose by 2.05% and hit a lifetime high of Rs 6,952.60 on Tuesday as benchmark indexes rose on positive global cues, relatively better fourth-quarter earnings and expectations of a good monsoon. Maruti’s position as a market leader and its consistent growth has also made it an attractive pick. The carmaker posted a net profit of Rs 1,709 crore for the quarter ended March 2017, 15.7% higher than its net profit a year ago. Net sales stood at Rs 1,805 crore, a rise of 20% during the same period in the previous year. The company’s board had also recommended a dividend of Rs 75 per share for the year ended March 2017, against Rs 35 a share in the previous financial year.
In a note after Maruti’s results, Motilal Oswal said it remained positive on Maruti’s stock because of multi- year favourable product lifecycle, improvement in product mix, a reduction in Japanese Yen’s exposure, high free cash flow generation and a sharp improvement in return on investment capital as capex intensity reduces and scope for further improvement in payout. AK Prabhakar, head of research at IDBI Capital, said Maruti posting double digit growth being the market leader makes it an attractive stock .
“Maruti is growing and the Gujarat plant will further let them to grow in the next few years. You don’t have that many stocks which is growing at double digits in the Nifty pack,” Prabhakar added. Regarding the stock’s prospects Prabhakar said rural recovery will be a big trigger apart from the capacity expansion in Gujarat.
“There is a talk that rural recovery will come with expectations of good monsoons and government writing off or subsidising farm loans,” Prabhakar said. Maruti Suzuki’s market cap is around Rs 2.10 kakh crore which is 45% higher than that of its holding company —Japan’s Suzuki Motor Corp. In calendar year (CY) 2017, share price of Maruti rose by 15% while Sensex rose by 1.95 %. According to Bloomberg consensus estimates, Maruti is trading at a trailing price/earnings (P/E) of 27.96 . This is 24% higher than its 10 year average PE of 22.52.
“It is expensive and it will remain expensive till there is a major correction in the market or till major alternative is available. It is good hold, if you are holding it, hold on,” Prabhakar said. Of the 53 brokerages who track the stock, 75.9% has given it a ‘Buy’ rating while 18.5% has given it a ‘Hold’ and the remaining 5.6% has given a ‘Sell’.