India will bounce back faster- Mr RC Bhargava

Update on the Indian Equity Market:

On Thursday Nifty closed marginallyhigher at 8,993. Among the sectoral indices NIFTY IT (-1.8%), NIFTY FMCG (-O.59%) closed lower. NIFTY Media (+2.6%), NIFTY Bank (+1.8%) and NIFTY Pharma (+1.8%) closed higher. NTPC (+6.9%), VEDL (+5.2%) and Hindalco (+5.1%) closed on a positive note.HCL Tech (-4.0%), Tech M(-3.8%) and Kotak Bank (-3.3%) were among the top losers.

Excerpts from an interview of Mr.R.C.Bhargava, Chairman, Maruti Suzuki India with ET Now on 15th April 2020:

• Speaking about the partial lockdown, Mr. Bhargava said starting their own undertaking or factory is not enough as all other components required in cars must be available. That means all the company’s vendors must be functioning anywhere in the country.
• But as per the current situation, this is not likely to happen because several vendors are in the containment zone and that is one issue.
• If the company can get all the components by finding alternative sources and get the retail going, then all systems will be in place for starting production.
• According to him, even if the lockdown is lifted on May 3^rd, still the company will have to monitor the situations in red zones.
• He refrained from giving any guidance as it will depend on the productions and kind of demand that gets developed in the market.
• Speaking on change in consumer behavior of a car buyer, he said there is one school of thought which says that there is a likelihood of consumers holding back because of the uncertainty about what is happening and not making big-ticket purchases. There is another school of thought which points out what happened in China where after the lockdown was lifted, consumers started to buy more and more personal transport because they are reluctant to use public transport. Now here in India, the situation could be either of the two or something in between.
• Cost-cutting and becoming more competitive was even earlier a very important thing for India but now, it is something which has become much more important now than it ever was.
• It is an area where both industry, as well as governments, should pay attention because competitiveness is going to be the key going forward.
• In his opinion, it will be a challenge for companies which are not cash rich. The promoters and management will have to live a frugal life so that more cash can remain within the company.
• Speaking about the changes in the way a car is sold, he said the company had experienced a sharp uptick in the number of digital enquiries. People will still come to showrooms and the company will ensure every possible safety measure is taken.
• India will bounce back much faster because of the demand situation in India and if the measures taken by the government do resolve in making the manufacturing more competitive, then the economy will bounce back faster in India than any other place in the world.
• Speaking about launching new models he said people are developing new models and they are in different stages of development and there is no particular reason for postponing the introduction of a new model.
• The lower end vehicles will recover faster. On Job losses he added, 2020-21 may not be very exciting but there will be a lot of opportunities. It is not the time to get rid of people as it is not easy to get people with skills.

Consensus Estimate: (Source: market screener and Investing.com websites)

• The closing price of Maruti Suzuki was ₹ 5,148/- as of 16-April-2020.  It traded at 26.4x/ 23.5x/ 18.2x the consensus earnings per share estimate of ₹ 195/219/282 for FY20E/ FY21E/ FY22E respectively.
• The consensus average target price for Maruti Suzuki is ₹ 6,830/- which implies a PE multiple of 24.2x on FY22E EPS of ₹282/-.

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