Maruti hits record high; Credit Suisse optimistic about co's launches, mkt share

Maruti Suzuki India today gain 1.1 percent after brokerage Credit Suisse raised its target price to Rs 3,500 from Rs 3,020, citing optimism about the car maker’s product launches and margin expansion potential.

Credit Suisse called Maruti the “top pick” in Indian autos, while retaining its “outperform” rating.

“We raise FY16 earnings per share estimate by around 3 percent and introduce FY17 estimates, which are 15 percent higher than the street’s,” it added.

Credit Suisse expects the industry to witness a 12 percent compounded annual growth rate (CAGR) and Maruti to grow faster on a 5 percent market share gain in the next three years.

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The domestic market share of the company has risen to 44 percent in June quarter compared to 40.4 percent in the year-ago period with the sales in urban markets increasing by 12.4 percent and rural market sales rising by 26 percent in Q1FY15.

Car ownership costs have remained flat for two years on account of stable gasoline prices and flat EMIs (high discounts and duty cuts) should help a volume recovery, sayid Credit Suisse.

The brokerage divided the increase in Maruti’s discounts in the past four years into two buckets; one is from competitive intensity (Swift, Dzire, Ertiga) and second is pertaining to a weak macro economy (Alto, WagonR). It assumes only the economy-linked discounts would reverse over the next two years, leading to a 150 basis points margin expansion for Maruti.

“While the focus on new launches has largely been on sedans and SUVs, the launch of the small diesel engine is equally, if not more, important. The 800cc engine to be used on the new LCV and existing compact hatches could add ~100,000 units in FY17,” said Credit Suisse.

With inputs from Reuters and moneycontrol.com