Maruti Suzuki India Limited (MSIL) (CURRENT MARKET PRICE: Rs 4,600; Mcap: Rs 1,50,000 crore), is a market leader in the domestic passenger vehicle (PV) category, at present be going through worst times just like the rest of Indian Automobile Sector. A difficult working condition and the total Indian lockdown because of the ongoing COVID-19 Pandemic has driven the stock price to come down by more than 50 percent from its all-time high in July 2017. The current bloodbath in the stock market has made the valuation exceptionally alluring and offers us the chance to be a piece of a solid establishment.
The Real Problem
There are two or three factors that are harming the organization’s financial performance. One, a difficult financial crisis and ongoing slowdown across India has prompted Tepid demand and weaker sales in the last 3-4 quarters. An expansion in the absolute expense of vehicle ownership because of the execution of long-term insurance and safety guidelines and non-accessibility of retail financing has likewise the worst times for Indian Auto Industry. Further, the execution of BSVI outflow standards from April 2020 is required to hurt interest as BSVI agreeable vehicles are relied upon to be 10-15 percent more expensive.
COVID-19 has recently developed which made the scenario more scary and horrible. An across the nation lockdown has prompted the shutdown of various vendors and huge production shutdown at factories, which is additionally expected to hurt the organization’s financials and future estimated targets.
Bright Future Opportunities in the midst of Key Risks and Threats
While we anticipate that the market unpredictability should proceed, Maruti Suzuki has developed a strong foothold in India in a general sense solid business with huge potential to develop in India. They still enjoy the market leadership from years, with in excess of 50 percent market share of the overall industry, works in support of its. It has remained the pioneer through product development, nature of products, great substitution value and a solid Distribution, logistics and Service network. Truth be told, MSIL’s circulation organize is a canal for the organization and gives it an upper hand in any case profoundly cutting edge industry.
Further, MSIL is totally targeted on the Indian Car Market, which reaps more profit, sales, and revenues in excess of 92 percent of its complete volumes. Subsequently, it is probably not going to be unfavorably influenced by worldwide stoppage due to COVID-19.
When the monetary effect of the pandemic winds down, we could consider a to be increment sought after as the administration centers around resuscitating financial action. There are indications of acceptable Rabi planting and on the off chance that climate keeps on being ideal, at that point we can observer great collect season in April – 2020 which would foreshadow well for the organization. Besides, the request is relied upon to originate from urban territories also on the rear of the low entrance and rising extra cash.
Also, MSIL keeps on concentrating on enlarging its item portfolio to help develop. It has arranged various new dispatches throughout the following numerous years. The organization keeps on having a noteworthy product pipeline. The administration has likewise featured that it recently propelled S-PRESSO has been receiving very good response from the market.
In conclusion, MSIL is currently trading around 19 times FY22 forecasted profit, which we accept is sensible. There is a hazard that a drawn-out shortcoming sought after due to COVID-19 may cause another round of profit minimizations and pressure in exchanging products. In any case, it is profoundly impossible for financial specialists to get the base. Subsequently, we encourage speculators to purchase this top-notch business in smaller parts.
An unusual Indian Lockdown and the ongoing slowdown in the economy due to macros is going to hurt the Indian automobile industry will obviously hurt the organization’s future growth and targets. So will rising crude material costs and a drawn-out shutdown due to COVID-19.
CLSA expressed that different circumstances joined with Free Cash Flow (FCF) generation legitimize Maruti ordering a higher valuation numerous than the stock’s authentic normal. It expressed that the operational viewpoint is solid given improving Passenger Vehicle industry development and decreasing operating margins concerns.
Maruti’s accomplishment of Baleno, Ciaz and Vitara Brezza has taken it to administration position in all sections aside from country SUVs and altogether improved Maruti’s long term growth outlook of the overall industry standpoint.
CLSA said it is intrigued that Maruti’s yen exposure is down to 14 percent from around 23 percent of deals. It said that the lower yen fluctuations decrease the danger of income instability due to Forex developments.
The achievement of new models, for example, Baleno, Ciaz and Vitara Brezza has helped Maruti gain a dominant position in five out of six-passenger vehicle categories, which improves long term future growth outlook of the overall industry standpoint for the organization when Indian traveler vehicle showcase is probably going to move to more expensive portions
CLSA has recently upgraded Maruti Suzuki India and raised the target price to Rs 7000 from the current share price is trading at Rs 4,500. As we just windup the conclusion I will advise that one buy this wealth creator stock on some more correction till 3800-4000 and can wait for the targets of 7000 in Long Term.