After the superb performance in Q1, our optimistic view on Maruti Suzuki has further strengthened as the y-o-y growth in volumes in the domestic markets is robust at ~14% YTD.
The company has also maintained its promise of launching at least one model every year. After the Celerio launch last year, it launched Ciaz and now the SUV S-Cross, which is getting a good response. Going forward, the company is coming with an LCV and a hatchback in the ensuing quarters/year.
We expect a strong festive season on the back of improving demand for cars and the low base in line with the spreading out of festive season this year. With improving macros such as reducing fuel costs, expectations of a rate cut in the upcoming RBI policy meet, wide product portfolio, attractive pricing, a made for India psyche associated with the company and a deeply entrenched distribution network, we believe that MSIL is better placed than its peers although they come out with new launches.
On the margin front, lower RM costs, lower discounting, better product mix and currency benefits will continue to assist margin improvement. After the current fall in the stock, we believe MSIL looks attractively poised as far as valuations are concerned (18.6x FY17E earnings). We maintain ‘buy’ with a target price of Rs 4,891.
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