Despite posting a weak set of numbers for the fourth quarter of FY21, most analysts still betting on Maruti Suzuki India Ltd (MSIL), as they feel the company would be the first to bounce back post Covid-19.

Maruti Suzuki India on Wednesday reported a standalone net profit of ₹1,292 crore for the fourth quarter ended March 31, down 28 per cent from ₹1,795 crore in the corresponding period last year. Total revenue from operations also declined 15 per cent to ₹18,199 crore( 21,459 crore).

With an uncertain outlook, MSIL would be the fastest to recover on account of its strong brand equity and strength in entry- and mid-segment PVs, said Motilal Oswal Securities. According to Motilal Oswal, for MSIL, salaried customers account for 45–46 per cent of sales (equally split between private and government). Also, first-time buyers have remained stable at 45–47 per cent of sales for several years. It retains its ‘buy’ rating on Maruti with a target price of ₹5,850.

HDFC Securities has upgraded Maruti Suzuki to a ‘buy’ as it believes that the OEM (original equipment manufacturer) is expected to gain market share in the current downturn, given its dominant position in the entry level/compact car segment, where the company has a market share of 65 per cent (vs 51 per cent overall).

Maruti will benefit from its gasoline-driven portfolio as the break-even for diesel vehicles has further increased after the introduction of BSVI variants. “As the company has a robust balance sheet, with cash reserves of nearly ₹40,000 crore (about 25 per cent of market cap), we expect the industry leader to withstand the downturn due to its scale and robust balance sheet,” HDFC Securities, which expects a target price of ₹5,810, said .

Emkay retains volume forecast

Emkay Global said: “Due to the impact of the lockdown and expectation of a gradual pick-up in demand, we reduce our FY21 volume estimate by 15 per cent to 1.3 million units, but broadly retain FY22 volume forecast at 1.8 million units.” The brokerage has retained its ‘buy’ rating on the stock with a reduced target price of ₹6,173 (earlier ₹6,230).

LKP Securities said, on margins front, higher local content, control on discounts in mid-term, lower RM costs and operating leverage once all the three plants function simultaneously, will provide a positive impact. “In line with subdued Q4 numbers and expectations of a lacklustre FY21, we have reduced our volume and margin estimates. Forced shift towards personal mobility and small cars in view of Covid will spur growth next fiscal,” it added.

The challenges for the industry and MSIL are likely to get aggravated as consumer spending will be severely impacted by the outbreak resulting in lower spending power both in urban and rural market, said IDBI Capital, which reduced the target price to ₹5,570 (₹6,120) but retained the ‘buy’ rating.

‘Sell’ call from I-Sec

However, ICICI Securities downgraded the stock to ‘sell’ from ‘reduce’ with a price target of ₹5,035. “We believe weak product mix (diesel/petrol mix 7 per cent/93 per cent) coupled with higher small car share was the main reason,” it said.

 

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