Research firm Jefferies has upgraded its rating on Maruti Suzuki to buy from hold as it expects industry demand to recover and the company to regain a large part of its market share it lost in 2011-12.
It has set a target price of Rs 1,446 per share vis its current price of Rs 1,156 per share.
Here are some reasons why it is bullish on the company:
•Demand bound to recover: While passenger vehicle demand has decelerated sharply in the last one year, it says that India is one of the few sizable markets in the world with extremely low penetration levels. It expects the industry to recover sometime in the next one year and make up for the slower growth over the next 2-3 years.
Maruti's shift towards diesel cars is expected to augur well for the company as these variants are seen accounting for over 50 percent of total vehicles revenues for the year ended March 2013
Last year, Maruti reported a sharp 6.5 percent fall in its market share due to a prolonged strike. However, this is expected to reverse as the research firm expects the company to recover some of its lost productions. Apart from that one could also see meaningful contribution from its new model Ertiga.
•Benign competition: While the car industry saw a slew of launches in Maruti’s core segments (small car and entry level segment), the impact on the company has been muted so far. Also, as there are no significant new launches expected in the next 2-3 years, Jefferies foresees a benign competitive environment for Maruti in the near future.
•Shift towards diesel cars – Maruti’s shift towards diesel cars is expected to augur well for the company as these variants are seen accounting for over 50 percent of total vehicles revenues for the year ended March 2013.
Maruti Suzuki is the market leader in the Indian passenger vehicle industry with a 45 percent share. The company also exports 15 percent of its volumes to 120 countries. It is a subsidiary of Suzuki Motor Corp of Japan. In the last one year the stock has risen by just 0.5 percent compared with the Sensex which has fallen by 8 percent.
