Maruti Suzuki may see rally up to 89%, should you buy?

Of late, Maruti Suzuki has been in the news for production cuts due to semiconductor shortages, followed by price hikes for third time in the current calendar year. Amidst all the chaos, experts can still see a silver lining for  the country’s largest carmaker Maruti Suzuki and believes that the shares have upside of almost 90% and could touch Rs 12,860 over the next two years.

According to Saurabh Joshi of Marwardi Shares & Finance, Maruti has collaborated with Toyota for hybrid and electrification technology leveraging Toyota’s know how and Maruti manufacturing expertise and introduced the ‘Maruti Suzuki Subscribe’ leasing programme to keep up with the industry and discontinued diesel powertrains as they became unaffordable with BSVI for the entry level segment. Measures like these will help the company keep up with new industry trends.

New launches

Driven by the back-to-back introduction of successful products, Maruti Suzuki further consolidated its leadership position with its market share increasing from 38.5% in FY12 to 47.7% in FY21. To further gain market share the company has a strong lineup of new launches that includes products like Jimny, Wagon R electric, XL 5, Swift Hybrid, Grand Vitara, Celerio 2021. That apart the company would continue to facelift and introduce CNG variants combined with expanding product portfolio and acceptance of its BS-VI models has solidified the dominant market position of Maruti.

CNG portfolio

The rising fuel prices is forcing people to look for alternative fuel like CNG which is cost-effective. Maruti Suzuki has a portfolio of 8 models that come with factory-fitted CNG kits which is the largest amongst the competitors.

GST cut

According to reports, the government is favourably considering a cut in GST rates on small cars from 28%. which would result in a lower cost of ownership and higher demand. Maruti being the leader in the entry-level segment would be a major beneficiary of this demand.

Valuation

Joshi estimates that Maruti Suzuki’s revenue to grow at a CAGR (compounded annual growth rate) of ~18% from FY21 to FY25E and the operating margins of the company to improve by 440 basis points in the same period. At the current market price, the stock is trading at 15x times FY25E consolidated earnings.

Citing this, Marwadi Shares & Finance has initiated coverage on the sector with a buy rating and price target of Rs 12,860 per share implying an upside of 89%.

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