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Money Jul 30, 2012

Manesar strike won't impact Maruti's long-term potential

By Firstbiz Staff

Maruti Suzuki may not be an attractive bet in the near term, but analysts are unanimous in saying that the long-term prospects for the stock is intact.

Maruti's April-June net profit fell 23 percent on year mainly due to the rupee's declineagainst the dollar and yen, thereby making imports costlier. Other income also showed a sharp decline.

In the past one year, it has experienced sluggish growth due to high petrol prices and high cost of loans.The worker violence and subsequent lockout at the Manesar plant, which manufactures diesel vehicles, are only adding to the woes of the market leader for passenger cars.

The current stock price of Maruti Suzuki is Rs 1108.8. In the past one year the share price has fallen by 7.98 percent as against the benchmark Sensex'sdecline of 8.6 percent.

Despite the poor performance of the company, brokers are bullish on Maruti's long-term potential.

"We remain positive on the long-term prospects of the Indian car industry and believe thatMaruti will remain the key beneficiary of this market growth. Additionally, in the long term,we expect realization to improve led by both improved product mix and better pricing power," HSBC said in a research note.

The report said Maruti's market share year to date has improved4 percent (from 43.9 percent in Dec 2011 to 47.6 percent in June 2012) in the car segment. After the Ertiga launch, it has also managed toimprove its market share in utility vehicle segment to 15 percent from 1 percent during the period.

"We believe Maruti will loose market share in the short term. But if they decide to restart the (Manesar) plant within the next 10-15 days, it is unlikely to loose customers to competitors," brokerage Brics said. Ithas a buy call on Maruti with a target price of Rs 1,456.

According to it, apart from the forex volatility, higher power and fuel costs also hit the company's profitability.

Reuters. The second quarter of 2013 is expected to be the worst quarter.

Nirmal Bang said the second quarter of 2013 is expected to be the worst quarter due to the adverse currency movement. However, vehicle demand is expected to recover towards the second half of 2013.

Maruti has strong pricing power in the diesel carssegment as its position has only strengthened in the last few quarters, Jefferies said.

The strike is likely to have a short term impact and will not effect production in the long run thereby having no major impact on the competitiveness of the company, various brokerages said.

by Firstbiz Staff

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