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Buy Maruti Suzuki; target of Rs 3800: IIFL

IIFL is bullish on Maruti Suzuki India and has recommended buy rating on the stock with a target of Rs 3800 in its August 27, 2014 research report.

September 05, 2014 / 01:48 PM IST
 
 
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IIFL`s research report on Maruti Suzuki India

“Passenger car demand in India has been weak during FY12‐14 due to high cost of ownership owing to rising fuel prices, firm interest rates and increase in vehicle prices. In the meanwhile wage increases were stunted leading to poor consumer sentiment. We believe there is a lot of latent demand in the system and with economic growth on the mend increase in wage rates would exceed rise in cost of ownership. Car penetration in India is still lower than other emerging markets and the developed world. For FY15, SIAM expects the passenger car demand to rise by 5‐8%, which we believe is a conservative estimate. We expect 8‐10% growth in FY15 and strengthening further to 15% CAGR during FY16‐17. A point worth noting here is that during previous strong economic growth phase passenger car demand grew by 20‐25%.” “In FY14, MSIL’s market share in the domestic passenger car market increased to 49.8% from 46% in FY13 while its share in the total passenger vehicle market increased from 39.4% to 42.1%. YTD FY15, MSIL’s market in share in passenger car and passenger vehicle markets have increased by 351bps and 394bps respectively. In FY14, gains were across all segments most noteworthy being xxbps gain in the super compact car segment in spite of the launch of Amaze. It also strengthened its position in the compact car segment through a successful launch of Celerio. The gains have been on the back of a stronger growth in rural areas which account for ~40% of MSIL’s volumes.” “MSIL is one of the best proxy‐play on the expected economic recovery in the country. Macro headwinds in the past couple of years had weakened demand for passenger cars. However, during this phase MSIL has emerged stronger with 1) market share gains, 2) line up of new launches, 3) increased localization and 4) deeper presence in domestic markets. While economic recovery and existing latent demand will result in robust volume growth for MSIL, its profitability will improve further with 1) increase in localization, 2) reduction in discounts and 3) weakening of Yen. We expect MSIL to see revenue and PAT CAGR of 17% and 27% respectively during FY14‐17E. At P/E of 14.5x on FY17E EPS of Rs191.5 we find the valuations attractive.. Buy Maruti Suzuki with a target of Rs 3800,” says IIFL research report. 

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first published: Sep 5, 2014 01:48 pm

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