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Maruti Suzuki Hits 3-Month High on Better Margin Hopes; Should you Buy, Sell or Hold?

Shares of Maruti Suzuki India (MSIL), India’s largest passenger vehicle maker, rallied Rs 8,319.80 in intraday trade before closing 6.33 per cent higher at Rs 8,274.6 on the BSE in the previous session. This is the highest level seen since February 28 this year. The stock has surged 25 per cent from its 52-week low of Rs 6,540 touched in March this year.

Auto shares surged on Thursday as the recent decline in global commodities, including metals, prompted investors to lap up some of the battered names. The BSE Auto index jumped 4.4 per cent emerging as the top sector gainer on Thursday.

MSIL’s profitability has been adversely impacted in the last three years by weak product lifecycle, unprecedented commodity cost inflation in base commodities and precious metals, and multiple headwinds to volumes, resulting in an operating deleverage.

This has resulted in a sharp erosion in its gross margin (~610bp) and Ebit margin (~570bp) over FY19–FY22. However, stable commodity cost during Q4FY22 and benefit of pricing action were reflected in gross margin and Ebit improvement of 180bp and 270bp QoQ in Q4FY22, respectively, Motilal Oswal Financial Services said in a stock update.

Motilal Oswal Financial Services, in a report last week, said that Maruti Suzuki’s product pipeline has just kick-started with upgrades of key models and it is on the cusp of launching new models. It added that while the return of product life cycle will drive market share recovery, strong demand, improving supplies and stable commodity prices will propel EBIT margin improvement. The research and brokerage firm has given a ‘buy’ rating to the stock, with a price target of Rs 10,000, which implies 22 per cent upside potential from current levels. It added that Strong demand, improving chip supplies, moderating commodity inflation and favorable Fx would support margin recovery.

Meanwhile, MSIL said the contribution of sales from non-urban markets in overall sales increased to 43.6 per cent in FY21-22. In the month of March MISL parent company Suzuki Motor Corporation through its subsidiary Suzuki Motor Gujarat signed a memorandum of understanding with the Government of Gujarat to invest Rs 10,400 crore in battery electric vehicle (BEV) batteries and BEV manufacturing capacity. This investment will greatly support in localizing the EV manufacturing and help the Company to accelerate and expand its BEV product portfolio in India. The Company is planning to introduce its first BEV by 2025, the company said.

According to Analysts at Emkay Global Financial Services, upcoming products within the next 18 months, including >4m compact SUV, Off-roader (Jimny), mid-size SUV and <4m crossover, should fill major whitespaces in the company’s product portfolio. In addition, the launch of feature-rich new generation models of Baleno, Celerio, Brezza, Ertiga, XL6 and S-Cross should support volumes. MSIL’s market share should increase from 45 per cent in FY22 to 46 per cent in FY24E, the brokerage firm said.

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Source: News18