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HDFC Securities
Maruti Suzuki (Buy)
Target: ₹6,980
CMP: ₹6,260.45
While Maruti reported a loss of ₹250 crore in Q1-FY21, impacted by Covid and constrained production, the outlook is encouraging as demand has returned to nearly 85 per cent of pre-Covid levels currently.
While the company has ramped up production to 4,000 units/day, the OEM remains constrained for supply due to the limited activity at the Gujarat plant. Maruti is benefiting from its entry-level portfolio as customers are turning towards the use of personal mobility in the current environment.
The share of first-time buyers has risen by about 5 per cent (from 45 per cent in Q4-FY20). Further, the OEM’s strategy of exiting the diesel segment is working as gasoline and diesel fuel prices have levelled off in Delhi/substantially narrowed in other regions.
Currently, the OEM manufactures 4000+ units/day across its Haryana and Gujarat (single-shift) plants. As the Gujarat plant starts with the second shift in mid-Aug20, Maruti will produce an incremental 900 units per day.
Reiterate Maruti as our top pick in the sector. Key risk: An increase in competitive intensity.
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