Hold Maruti Suzuki for price target of Rs 1639 says ShareKhan
February 25, 2010 by admin
Filed under Brokerage Recommendations
STOCK UPDATE
Maruti Suzuki
Cluster: Apple Green
Recommendation: Hold
Price target: Rs1,639
Current market price: Rs1,369
Recalls A-Star
•Maruti Suzuki has recalled one lakh units of its flagship model A-Star on account of a faulty fuel pump gasket and O-ring in the fuel tank of the car. The company has recalled all the units of A-Star produced in the lots from November 2008 (the period when it was launched) to August 22, 2009. The units produced in that time frame will be recalled from the domestic markets as well as the exports markets. The company has till date exported more than 1.2 lakh units of A-Star, wherein approximately 65,000 units are affected by the problem. In the domestic market, the company has recalled about 35,000 units to fix the problem in the fuel tank.
•Maruti Suzuki will face challenges going forward in the form of the strong competition coming up in its bread?and-butter segment (the A2 segment). Apart from this, the company in order to protect its margins in the competitive scenario will also have to take price hikes on account of a significant increase in its raw material cost and the roll-back of the excise duty cut (if any), which may come up in the forthcoming budget. Moreover, the likelihood of the hardening of interest rates on account of inflationary pressure (70% of the company?s cars are being financed currently) coupled with the high base of the current financial year and the capacity constraints faced by the company currently (incremental capacity to come up only by April 2012) will also affect the volume growth of the company in FY2011.
•Thus, we believe that though the stock has corrected sharply since our last update, we maintain our Hold recommendation on the stock in the wake of the above challenges. At the current market price, the stock is trading at 14.5x its FY2011E earnings and 12.4x its FY2012E earnings of Rs94.3 and Rs110.5. We maintain our Hold recommendation on the stock with a price target of Rs1,639.
Source: ShareKhan Research Report
