Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Maruti: Will good times continue to roll? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 24, 2004

    Maruti: Will good times continue to roll?

    Notwithstanding the profit booking in the last few days, Maruti, the country's largest automaker, has witnessed a significant appreciation in its stock price in the last one-year or so. And this appreciation is not without reason. FY04 has turned out to be a very good year for the auto industry.

    Higher GDP growth and availability of affordable financing schemes has helped the passenger car industry to register a robust growth rate of 24% during 9mFY04 on a YoY basis. The fact that the demand had slowed down considerably during the past three years also helped boost the growth further, as it led to a substantial pent up demand, which materialized in the current year. Maruti has kept pace with the rise in demand. Infact, the company's sales during the same period have registered a marginal increase over the industry growth rate, thus improving its market share to 55% during 9mFY04 (54%, a year ago).

    With segment 'A' and segment 'B' accounting for 84% of the industry volumes in FY03, the company's monopoly in the former and dominant market share in the latter has helped Maruti outperform the industry in 9mFY04. While the company's declining market share in the latter does raise some doubts, it has to be remembered that it is a competitive market and overall share will go down further. However, Maruti has a strong portfolio and the expertise of Suzuki in the small-car segment (it is a market leader in the small car segment in Japan), which is a positive.

    Besides, a strong sales and distribution network in the country (178 authorised dealers and 243 sales outlets covering nearly 161 cities) also provides an edge over competition. This is a good competitive advantage for and it will take some time before rivals like Tata Motors and Hyundai catch up with the company in this regard.

    On the growth in demand front, we expect the passenger car business to grow at a CAGR of 10% in the next three years on account of a host of favorable factors such as increasing affluence of the Indian middle class, ever improving road infrastructure and availability of affordable finance schemes. However, on account of intense competition, the realisations are likely to come under pressure. Though we expect the company to increase margins to around 8% levels, further rise is likely to be limited.

    The stock is currently trading at Rs 449 implying a P/E of 19.2x our FY05 earnings estimates. While the growth in the current year has been very good, we believe that such a growth is not sustainable going forward and is likely to stabilize at around the 10% mark from a three-year perspective. Besides, when we look at one of the more efficient car manufacturers in the world, Nissan, the stock trades at 12 times earnings with an operating margin of 12% and a RONW of 27%. Though we expect Maruti to improve margins and net profit margin, the valuations appear to be stretched.



    Equitymaster requests your view! Post a comment on "Maruti: Will good times continue to roll?". Click here!


    More Views on News

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Maruti Suzuki Ltd: Finishes Year on a Strong Note. What Next? (Quarterly Results Update - Detailed)

    Jun 13, 2017

    Maruti Suzuki Ltd ends FY17 on strong note. Management expects robust FY18.

    Are Firms like Maruti & ONGC Sitting Ducks Against Disruption? (The 5 Minute Wrapup)

    May 23, 2017

    Are blue chips like Maruti and ONGC safe from the forces of disruption?

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in MARUTI SUZUKI with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Quarterly Results With Charts