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After posting a below-expected results for the fourth quarter of FY19, shares of Maruti Suzuki India tumbled over 2.2 per to a low of ₹6,749 on the BSE. The shares, however, recovered to close at ₹6,832.15 as the overall market sentiment turned positive towards the closing hours.
Despite recovery in the late hours, analysts are not convinced about the stock. According to them, automobile sector as a whole is facing some headwinds and the stocks will remain under pressure or underperform the market for the next two quarters. A clear, sustainable uptick in auto demand will be seen only from the festive season in the latter half of this year, they opined.
Elara Capital, which revised its stance on Maruti to ‘Accumulate’ from ‘Buy’, said, “While Q4 margin disappointed, we expect it to gradually improve from Q1 FY20 as some one-offs in Q4 may get reversed. We cut our EPS by 6-10 per cent over FY20-21 to factor in lower margin and volume growth.” Elara has a new target price of ₹7,439, down from ₹7,827.
According to CLSA, the demand situation remains very weak right now and “the company is hoping for an improvement only post elections”. Given the uncertainty, it has chosen to give a range guidance (4 per cent if there is no improvement and 8 per cent if the outlook improves in 2H). CLSA, though, maintained its neutral stance, revising the price target upwards to ₹6,300 from ₹6,100.
Uncertain demand scenario
Narnolia Financial Advisers, said: “Factoring in the uncertain demand scenario, higher fixed cost and depreciation on Gujarat plant, we tweak our FY20 EPS estimates by 5 per cent. We value Maruti at 24x FY20e EPS to arrive at a target price of ₹6,629 and maintain ‘Neutral’ rating.”
However, foreign investment advisor Morgan Stanley remains bullish on Maruti Suzuki. “Maruti’s Q4 EBIT margins are now lower than that of some global mass OEMs, and given the historical track record and strength of franchise, the company will see a sharp rebound in margins,” it said.
Morgan Stanley, which trimmed its EPS estimates for FY2019-20 largely due to lower margins, maintains its price target largely unchanged at ₹8,149 (earlier ₹8,188). Volume weakness in the first quarter of FY20 could give better entry points, the advisory firm said.
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