Shares of Maruti Suzuki India (MSIL), India’s largest passenger car manufacturer, rose Rs 8,319.80 in intraday trading before closing 6.33 percent higher at Rs 8,274.6 on the BSE in the previous session. This is the highest level since February 28 of this year. The stock is up 25 percent from its 52-week low of Rs 6,540 reached in March this year.
Auto stocks rose Thursday as the recent decline in global commodities, including metals, prompted investors to clean up some of the battered names. The BSE Auto Index jumped 4.4 percent and emerged as the top sector winner on Thursday.
MSIL’s profitability has been negatively impacted over the past three years by a weak product life cycle, unprecedented commodity cost inflation in base commodities and precious metals, and multiple volume headwinds, resulting in operational deleverage.
This has led to a sharp erosion of gross margin (~610 bps) and EBIT margin (~570 bps) over FY19-FY22. However, stable commodity costs during Q4FY22 and the advantage of price action were reflected in an improvement in Gross Margin and Ebit of 180bp and 270bp QoQ respectively in Q4FY22, Motilal Oswal Financial Services said in an inventory update.
Motilal Oswal Financial Services said in a report last week that Maruti Suzuki’s product pipeline has just begun to upgrade key models and is about to launch new ones. It added that while the return of the product life cycle will drive market share recovery, strong demand, improving supply and stable raw material prices will drive EBIT margin improvement. The research and brokerage firm has given the stock a ‘buy’ advice, with a price target of Rs 10,000, which represents an upside potential of 22 percent from its current level. It added that strong demand, improving chip supply, moderating commodity inflation and favorable exchange rates would support margin recovery.
Meanwhile, MSIL said the contribution of sales from non-urban markets to total sales rose to 43.6% in FY21-22. In the month of March, MISL parent company Suzuki Motor Corporation through its subsidiary Suzuki Motor Gujarat signed a Memorandum of Understanding with the Government of Gujarat to invest Rs 10,400 crore in Electric Vehicle Batteries (BEV) and BEV production capacity. This investment will greatly assist in localizing EV production and help the company accelerate and expand its BEV product portfolio in India. The company plans to introduce its first BEV by 2025, the company said.
According to analysts at Emkay Global Financial Services, future products within the next 18 months, including >4m compact SUV, off-roader (Jimny), midsize SUV and <4m crossover, should fill key blanks in the company's product portfolio. In addition, the launch of new generation models with many features from Baleno, Celerio, Brezza, Ertiga, XL6 and S-Cross should support volumes. MSIL's market share should increase from 45 percent in FY22 to 46 percent in FY24E, the brokerage firm said.
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