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Maruti at record high, Deutsche Bank says top pick in auto

Gasoline prices in India have declined 4 percent since the beginning of FY15 after rising by 11 percent per annum during FY11-14. Deutsche believes this is a positive development for entry-level car (Alto/WagonR) demand.

August 19, 2014 / 03:19 PM IST
 
 
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Moneycontrol Bureau

Shares of Maruti Suzuki hit a record high of Rs 2,750 on Tuesday, up as much as 1.6 percent after Deutsche Bank believes the fall in gasoline prices will be beneficial for the company.

The brokerage house maintains Maruti as its top pick in the Indian auto sector with a target price of Rs 3000 a share.

Gasoline prices in India have declined 4 percent since the beginning of FY15 after rising by 11 percent per annum during FY11-14. Deutsche believes this is a positive development for entry-level car (Alto/WagonR) demand as the buyers in this segment have been most impacted by high gasoline prices and elevated levels of inflation and interest rates over the past three years.

According to the brokerage, Maruti will be the key beneficiary of a recovery in entry level cars as it has a 74 percent share in this segment compared to its overall market share of 42.1 percent.

Maruti’s market share increased 290 basis points to 42.1 percent in FY14. Deutsche forecasts a further increase to 44.7 percent by FY17E.

It says outlook for gasoline prices remains soft. "The International Energy Agency (IEA) has recently cut its global oil consumption growth forecast for 2014 to 1 million barrels per day (versus 1.2 million earlier). At same time, oil supplies have been rising as higher production in Saudi Arabia and a tentative recovery in Libyan output is more than offsetting losses in Iraq, Iran and Nigeria. Brent crude price has recently fallen to USD 102/barrel (versus USD 108/barrel in FY14) which implies potential downside to gasoline prices in India," it explained. At 14:54 hours IST, the stock was quoting at Rs 2,736, up Rs 28.70, or 1.06 percent amid large volumes on the BSE.

Posted by Sunil Shankar Matkar

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