Price hikes will vary from model to model – Maruti Suzuki

Update on the Indian Equity market:
On Friday, Nifty50 ended the week with gains at 13,514 (+0.3%). Among the sectoral indices, METAL (+1.1%), PSU BANK (+1.0%), and FMCG (+0.9%) ended with gains, while PHARMA (0.6%), IT (-0.4%), and AUTO (-0.1%) were the only losers. ONGC (+5.5%), NTPC (+5.2%), and GAIL (+5.0%) were the top gaining stocks while AXISBANK (-2.3%), DIVISLAB (-2.2%), and ADANIPORTS (-1.3%) were the top losing stocks.

Excerpts of an interview of Mr. Shashank Srivastava, ED- Marketing & Sales, Maruti Suzuki India Ltd (MARUTI) with CNBC TV18 on 10th December 2020:
• MARUTI has announced a hike in the prices of its vehicles from January 21 to offset the impact of rising input costs. The quantum of price hikes is still being discussed and will vary from model to model.
• Largely the input cost increases have been because of steel and precious metals (Palladium) increasing.
• Due to the shift from BS-IV to BS-VI, the consumption of precious metals used has increased, worldwide. As a result, the demand for these metals has gone up worldwide.
• Due to the mismatch in higher input costs and lower production in CY20, there has been a sharp increase in input costs and it has become imperative to hike prices.
• He believes the pent-up demand still exists. The long-term demand would depend on the fundamentals of the economy and Covid sentiment.
• This year has been a little unusual and the auto industry was recovering from supply chain disruptions. When the demand finally came in, inventory levels are lower and due to this demand-supply gap, he expects lesser discounts compared to last year.
• According to FADA registration numbers, MARUTI sold 143,554 vehicles in November which was lower than the numbers company expected. This is due to the difference in the number of RTOs from which data is collected by VAHAN (which FADA uses) vs the number MARUTI uses. VAHAN takes data from 1252 RTOs whereas there are 1465 RTOs in India. About 15% RTOs are not a part of VAHAN data and these are in the states of Telangana, Madhya Pradesh, and Andhra Pradesh. These 3 states comprise about 13-15% of MARUTI’s sales.
• Another problem with using the VAHAN numbers is that it used permanent registration. There are about 18 states which give temporary registration and the permanent registration comes in as late as 30 days.
• For loans to customers, MARUTI is planning to add 4 more banks and 5 more in 4QFY21E. There will be 17 banks integrated on the website, which disburse about 95% of auto loans.

Consensus Estimate: (Source: market screener website)
• The closing price of MARUTI was ₹ 7,715/- as of 11-December-2020. It traded at 51x/ 31x/ 25x the consensus earnings estimate of ₹ 150/ 247/ 308 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 6,367 implies a PE multiple of 21x on FY23E EPS of ₹ 308/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”