Maruti Suzuki

11 Jun

Expect supply shortage in June-July– Maruti Suzuki

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,116. Within NIFTY50, INDUSINDBK (+10.0%), HINDALCO (+3.1%), and AXISBANK (+2.8%) were the top gainers, while HEROMOTOCO (-3.5%), GAIL (-2.9%) and COALINDIA (-2.4%) were the top losers. Among the sectoral indices, PSU BANK (+3.5%), PVT BANK (+2.1%), and Realty (+1.9%) gained the most.  The losing sectors were AUTO (-1.1%), METAL (-0.6%), and MEDIA (-0.3%).

 

Expect supply shortage in June-July– Maruti Suzuki

 

Excerpts of an interview with Mr.R C Bhargava, Chairman–Maruti Suzuki published in Business Standard dated 10th June 2020:

  • Maruti will not be able to assemble more than 30-40 % of normal levels of production in June. So there will be no issue in selling what is produced as he expects demand will be higher than supply in June and July.
  • Maruti depends on 370-380 vendors and tier 2 and tier 3 suppliers in order to assemble cars. The supply chain is impacted if the vendors are facing issues in terms of labor, logistics, or are still in restricted zones. If the suppliers cannot produce the required components, Maruti cannot assemble cars.
  • Due to this supply issue and demand being higher than supply, Mr. Bhargava does not expect that Maruti will have to sell its cars at a discount.
  • However, Mr. Bhargava is not certain of the trend post-July and if the current demand scenario is only due to some pent-up demand from the lockdown period.
  • As per the Society of Indian Automobile Manufacturers (SIAM) data for the month of May, the volumes saw an 88% decline. Mr. Bhargava believes that the sales will go up gradually.

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

  • The closing price of MARUTIwas ₹ 5,686/- as of 10-June-2020. It traded at 38.4x/ 24.6x the consensus EPS estimate of ₹ 148/ 231 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 5,564/- implies a PE multiple of 24.1x on FY22E EPS of ₹ 231.

 

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.”

 

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13 May

Maruti Suzuki to resume production with 50% workforce at Manesar plant: RC Bhargava

Update on the Indian Equity Market:

On Tuesday, Nifty ended 0.5% lower at 9,196. The top gainers for Nifty 50 were Vedanta (+12.4%), NTPC (+5.9%) and ITC (+4.5%) while the losing stocks for the day Reliance (-5.7%), GAIL (-3.7%) and Asian Paints (-3.0%). The gaining sectors for the day were Media (+1.7%), Metal (+1.2%) and Realty (+0.8%). The worst performing sectors were Pvt Bank (-0.7%), Pharma (-0.6%) and Bank (-0.5%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki India; dated 12th May 2020 from CNBCTV18:

  • The carmaker will resume partial operations at their Manesar plant in Haryana with a 50% workforce. Manpower permission is around 75% with one shift only.
  • The Company is allowed to start operations with one shift now and it will focus on a limited number of models.
  • The Company will be able to assess the demand-side situation only after a few weeks. He added that it is difficult to predict the demand side as it is too early. The dealerships have started functioning, but not all of them are functioning. The level of inquiries is also respectable but at this moment there is some supply-side constraint.
  • The overall volumes are bound to be impacted because of the ongoing restrictions and reduced manpower capacity. Normally the workings hours for the Company are 8 hours in one shift but with the various restrictions, the working hours are expected to come down to 6.5 hours in a shift. This reduces the capacity according to him. At the same time, the Company will be operating in only one shift with all other restrictions impacting the production quantity.
  • For a clear demand side pictures, dealers should at least work for 2-3 weeks.
  • Some of the suppliers for Maruti are in the containment zones. Therefore, the suppliers cannot produce in those areas. Maruti had to look for some alternative supplier for some components. Some models of the Company cannot be produced because those components cannot be found. Thus, the Company has to adjust the production volumes and models in accordance with the supply chain.
  • There is no certainty as to which supplier will remain a supplier and that he will not come under a containment zone in the next 10 days according to Mr Bhargava.
  • The Company may also face issues because the temporary workers at their Manesar plant have gone back to their villages.
  • Maruti has given cash advance against supplies to many of its vendors.
  • Overall, the auto industry could end up with 20-25% less sales compared to last year.
  • The cars are taxed very heavily in India, making the affordability of cars an issue. He expressed hope that the government will keep taxes on cars at a reasonable level.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Maruti Suzuki India Ltd was ₹ 4,955/- as of 12-May-2020. It traded at 24.9x/ 19.0x the consensus EPS estimate of ₹ 199/260 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 6,308/- implies a PE multiple of 24.3x on FY22E EPS of ₹ 260/-.

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.”

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17 Apr

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 3rd, 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/-.

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.”

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23 Mar

Maruti Suzuki readies strategy to deal with coronavirus impact: CV Raman, Maruti Suzuki

Update on the Indian Equity Market:

Markets bounced back strongly to end a highly volatile week and Nifty closed 5.6% higher at 8,284. During the current week, Nifty traded in the range of 7,833 – 9,602, that’s a lot to digest for the investors! Out of fifty stocks from the index, 8 stocks traded above 10% and 31 stocks traded above 5%. ONGC (17.9%), GAIL (15.4%) and INFRATEL (14.9%) were the highest gainers. Five stocks among the index closed lower with INDUSINDBK (-1.4%), HDFCBANK (-1.3%) and ADANIPORTS (-1.1%) were the biggest losers. All the sectoral indices, FMCG (8.8%), IT (8.5%) and METAL (7.7%) led the gains. None of the sectors ended the day in the red.

Excerpts from an interview with Mr CV Raman, Executive Director, Maruti Suzuki published in CNBC TV-18 on 17th March 2020:

  • As Coronavirus is spreading fast across the world, Maruti Suzuki is working on two-pronged strategy to minimize the impact of the pandemic.
  • He said that officials at the company are assessing the impact of the pandemic on sales. The company has started focusing more on digital marketing and delivery of cars from service centres directly to customers. He mentioned that automakers have already reported a 15 per cent de-growth in FY20.
  • About the measures taken to curb the virus, he said that the company has issued advisories to its employees and suppliers. He added that the company is reducing physical contact by doing meetings through video conferencing and reducing visits of suppliers to Maruti’s offices.
  • While several automobile manufacturers have expressed concern about the impact of the disease on supply chains from China and South Korea, Raman said Maruti was in a position to manage supply chains well. He said that most of the tier-1 suppliers are in India and the company is able to get the supplies as per production requirements.
  • The Federation of Automobile Dealers have moved the court seeking a grace period for sell and registration of BS-IV vehicles after March 31 as dealers are saddled with inventory and coronavirus has impacted sales. Individual companies are also considering moving court to seek an extension. He said that for Maruti which began executing its BS-VI transition a year back does not need any intervention at this stage.
  • Introduction of BS-VI standards are set to make diesel vehicles significantly more expensive. Considering the cost implications, the company has stopped production of diesel cars for the moment but hasn’t ruled out a higher capacity diesel engine in future. The company currently has CNG variants in seven models and planning to increase the range of CNG offerings this year.
  • He refused to comment on future products but said that Maruti would be actively participating in the growing SUV segment.

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

  • The closing price of Maruti Suzuki was ₹ 5,094/- as of 17-March-2020.  It traded at 25x/ 20x/ 16x the consensus EPS estimate of ₹ 202/ 255/ 314 for FY20E/ FY21E/ FY22E respectively.
  • Consensus average target price for Maruti Suzuki is ₹ 7,246/- which implies a PE multiple of 23x on FY22E EPS of ₹ 314/- .
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03 Mar

No effect of coronavirus on supply production – Shashank Srivastava, Maruti Suzuki

Excerpts from an interview of Mr Shashank Srivastava, Executive Director – International Operations, Maruti Suzuki with CNBC-TV18 dated – 2nd March 2020:

Update on the Indian Equity Market:

NIFTY continued its losing streak on Monday, it closed at 11,133 (-0.6%). The top gainers in NIFTY50 were HCL Tech (+2.5%), Eicher Motor (+2.5%) and Nestle (+2.2%). Whereas Yes Bank (-6.7%), SBI (-5.1%) and Tata Steel (-4.7%) were the top losers. All the sectors ended losers except NIFTY IT (+1.4%). The top sectoral losers were Media (-4.6%), PSU (-4.5%) and Metal (-2.2%)

  • Speaking about the coronavirus impact on disrupting the supply chain, Mr. Srivastava says, there is no effect on the international operation as far as supply production is concerned.
  • On the domestic front, he says, as the first half (H1) figures were negative for the industry and also for Maruti Suzuki, somewhere in the range of like 16-17 per cent. The thirds quarter figures were positive for Maruti though the industry was negative.
  • February seems to be negative across the space, except for a couple of manufacturers like Ford and Renault.
  • Speaking about the BS-IV to BS-VI transition he says, the had some transition issue in February which would continue in March as well.
  • About the rural-urban split he says, Rural like last year was around 36 per cent of total sales. This year so far 38.5 -39 per cent is coming from rural areas. There has been an uptick in the second half.
  • The monsoon ending up with a positive 4% has led to the expectation of bumper rabi crop and therefore the sentiments in the rural areas are much better and that is reflected in the sales of the past few months.
  • Speaking about growth expectations, he says, the company is positive for the next year as rural demand sentimentally has been better. However, the consensus growth expectations seem to be in the range of 3-5 per cent for the industry.
  • The company has stopped BS-IV production altogether in January and now they are only producing BS-VI vehicles. The company started this transition almost a year ago.
  • The inventory of BS-IV stock is around 2500 units, which seems to be a half-day stock for the company.

Consensus Estimate: (Source: market screener website)

  • The closing price of Maruti Suzuki was ₹ 6,300/- as of 02-March-2020.  It traded at 31x/24.6x/ 20x the consensus earnings estimate of ₹ 202 / 256 / 314 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for Maruti is ₹ 7,227/- which implies a PE multiple of 23x on FY22E EPS of ₹ 314/-.

 

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21 Sep

Maruti Suzuki India Ltd (MSIL): Youngsters today find shared mobility economical

Dated 20th September 2019
Update on the market:

After the Aramco drone attack, the market sentiment still seems to be negative. Nifty closed 1.3% lower at Rs 10,704. Tata Motors (+2.0%), Coal India (+0.7%), HDFC bank (0.6%) were among the biggest gainers. Indiabulls housing (-4.6%), Zeel (-7.8%), Yes bank (-15.6%) were the losers. Among sectoral indices Pvt Bank (-1.8%), PSU bank (-2.35%), media (-4.4) closed lower while there were no gainers.

We offer research services on the Indian equity market and plan to offer investment advice shortly. For information on our services, please visit our website http://www.assetmultiplier.co.in/ 

Maruti Suzuki India Ltd (MSIL): Youngsters today find shared mobility economical

Excerpts from the interview by R.C. Bhargava, chairman, Maruti Suzuki India Ltd

  • Indian automakers are now on par with Europe and America in terms of quality but the purchasing power of domestic buyers has not grown enough to afford the increased product prices
  • The per capita income in India is almost around $2,200 (per annum) and in Europe, it is approximately $40,000. In terms of all the standards which add to the cost of the product, there is no difference between Europe and India
  • In India, the Goods and Services Tax (GST), road tax and others, are much higher than in Europe or even China for that matter. We can’t expect a country with such a low per capita income to have enough customers to have the capacity to pay this kind of money for a car and grow at 10-15% every year (in terms of vehicle sales).
  • As automobiles are 50% of the manufacturing GDP, then the sector has to grow by 15-16% per year to propel manufacturing sector to reach 25% of GDP.
  • If youngsters buy a car at the beginning of the career then they have to pay the monthly instalments. So, they have to choose what they want to do with the limited amount of money that they get because for buying a car, they may get a loan but have to provide 10% to 20% initial deposit and also pay the EMI.
  • Today, a youngster wants to buy a nice smartphone and wants to meet his friends at a restaurant and have a good time. If he buys a car, then he probably can’t do these things. So, he postpones his car-buying by four or five years or whatever time it takes him to reach a stage where he is comfortable owning a car.
  • Today, a youngster can still get his mobility through a car from Ola and Uber which is much more economical. So, what the finance minister said is 100% correct. That is what the millennial generation is thinking.
  • Regarding Gujarat plant, Company needed the capacity and earlier, they were short of capacity and there were cars on the waiting list all the time. The problem starts with people not buying and doesn’t start with production.
  • Each company has its own strategy. At the moment, Maruti hasn’t invested in any of the sharing platforms. They sell a lot of cars to Uber and Ola. They have no stake in them but they do buy their cars.

Consensus Estimate (Source: market screener website)

  • The closing price of MSIL Ltd was ₹ 5,988/- as of 19-September-19. It traded at 27x / 22x / 19x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 223 / 273 / 314 respectively.
  • Consensus target price of ₹ 6,095/- implies a PE multiple of 19x on FY22E EPS of ₹ 314/-

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.”

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