Will Maruti Suzuki's new launches add more horsepower to its stock price?

Maruti Suzuki, India’s largest passenger carmaker, is looking to extend the gap with its peers on the back of new launches, a development which has got a thumbs up from experts on Dalal Street.

Market watchers believe that over the next two years, Baleno, Vitara Brezza, Celerio and Ciaz are due for a full model change, along with the introduction of the much-awaited Jimny.

Usually, Maruti Suzuki makes a full model change (FMC) every 6-7 years with minor changes every 3-4 years.

Shares of Maruti Suzuki have gained 425% to Rs 7,091 since the beginning of FY13.

Vice-like grip

Driven by the back-to-back introduction of successful products, Maruti Suzuki achieved a volume CAGR of 9% over FY13-19 against industry growth of just 4%. This aided market share expansion by 12 percentage point over the same period to 51%.

In the last two years, the auto industry has been transitioning through the regulatory changes followed by Covid-19 related disruptions.

Brokerage view

JM Financial believes that the new product cycle to drive outperformance with respect to industry growth and aid margin expansion similar to the previous cycle.

The brokerage is positive on Maruti with a price target of Rs 8,000, indicating an upside of over 10% from the current market price.

“We believe this led to a temporary pause in new product launches or the start of the new product cycle. Based on our analysis, Maruti Suzuki is at the cusp of a new product cycle starting FY22,” JM Financial said.

Should you buy?

Of late, the company reported a nearly 10% year-on-year dip in net profit at Rs 1,166 crore for the quarter ended March. Its sales, however, soared 33.6% YoY to Rs 22,958.6 crore.

Commenting on Q4 results, Bank of Baroda Capital Markets said: “Maruti (MSIL) posted in-line Q4FY21 revenue, but an adverse sales mix, higher input costs and lower other income pulled profit after tax down 10% YoY.”

The brokerage expects Maruti Suzuki to sell around 1.9mn vehicles in FY22 (over 28% YoY). “We pencil in robust revenue and PAT CAGR of 22% and 40% over FY21-FY23. Given a stronger outlook on growth and return ratios, we raise our target FY23E P/E from 26 times to 30 times and upgrade to ‘Buy (vs Sell earlier) with a new March 2022 target price of Rs 8,000 (vs Rs 6,900 earlier),” Bank of Baroda Capital Markets said.