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Motilal Oswal
Maruti Suzuki (Buy)
CMP: ₹6,558
Target: ₹8,131
Maruti Suzuki shared further details on the evolving alliance between Suzuki and Toyota Japan. Additional points covered (relevant from MSIL perspective) in this update are:
a) Widely spread hybrid electric vehicle (HEV) technologies in India through local procurement of HEV systems, engines and batteries.
b) Suzuki to supply two compact vehicles built on the Suzuki platform (Ciaz and Ertiga) to Toyota in India.
c) OEM supply of Suzuki’s India-produced vehicles (Baleno, Vitara Brezza, Ciaz, Ertiga) to Toyota, targeting the African market.
d) Drawing upon Suzuki’s expertise in developing vehicles in India, joint development of a Toyota C-segment MPV and OEM supply to Suzuki.
This update has incremental negative impact from MSIL’s perspective, as it shares two additional models with Toyota in India. While we believe this alliance addresses the long-term sustainability issues of MSIL by getting access to EV & hybrid technologies of Toyota, cross-badging of best-selling models of MSIL creates uncertainty due to possibility of cannibalisation.
From the business perspective, we believe that volumes will remain muted till 1QFY20 and then recover from 2QFY20. While large part of the above headwinds is in the price, any further weakness in the stock would offer a very attractive entry price for a strong franchisee with a secular growth opportunity.
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