This Large Cap Auto Stock Gets Buy Call For 27% Potential Gains, Targets 2m Volumes In FY23

Maruti Suzuki India Limited (MSIL) get a buy call in Motilal Oswal's recently published report on the company. The brokerage suggests buy for a target price of Rs 11,300 apiece. The brokerage claims gain up to 27% considering the target price and the current market price of the stocks.

Stock Outlook

The stocks of Maruti Suzuki today opened at Rs 8,925 apiece, trading at Rs 8,912.50, 0.36% below the previous close. The 52 week low of the stock is Rs 6,536.55 apiece and the 52-week high is Rs 9,196.85 apiece, respectively. The current market price of the stock is near the 52-week high, which the stock touched in August 2022.

Returns on Investments

The stocks of the company over a week moved up nearly by 1.15%, whereas, in the past 1 month around 2.41%. In the last 1-year, the stocks gained 30.33%. In the past 3 and 5 years, the stocks gained 49.2% and 17.32%, respectively.

Targets 2m volumes in FY23 and regaining 50% market share

According to the brokerage, the management is targeting volumes of 2m units in FY23 and is confident of regaining its 50% market share in the near future. Here are the five things that the brokerage found interesting in Maruti Suzuki India Limited's FY22 Annual Report.

1. Focusses on the SUV segment by launching new-age products to fill product gaps

While the SUV segment continued to grow faster in FY22, MSIL faced some product gaps in this segment, resulting in a loss in market share. It is strengthening its presence in the SUV segment, with the recent launch of the Brezza and Grand Vitara. It plans to further solidly its presence with additional launches. Beyond SUV, it has been working on products in other segments and new-age features like heads-up display (HUD), 360 view camera, SmartPlay Pro+ infotainment system with a HD display, inbuilt next-gen Suzuki connect, electronic stability program (ESP), ventilated seats, etc.

2. Targets 2m units in FY23 and regaining 50% market share in the near future

In FY23, vehicle production will increase as the availability of semiconductors has improved. MSIL has also made further improvisations to enhance production. This, coupled with recently launched Brezza and Grand Vitara, will help it reach 2m units in FY23. With an expansion and refreshment of its product portfolio, and offerings of new age features and fuel-efficient technologies, it is looking to regain its market share of 50% in the near future.

3. Kicks off the electrification drive with a strong Hybrid

With the introduction of a strong hybrid technology in Grand Vitara, MSIL has taken the first step towards electrification. This technology delivers a fuel efficiency of 27.97km/liter in official tests, which is almost 10 km/ liter higher than its competitors. CO2 emissions are lower by 26.4% and energy efficiency is higher by 35.9% as compared to its ICE variant. It plans to launch its first BEV in CY25. The parent plants to invest ~INR104b in the manufacture of EVs and batteries in SMG. It has localized the manufacture of its battery pack through Toshiba-Denso-Suzuki joint venture (TDSG) and will be supplying batteries for the strong Hybrid. TDSG is India's first lithium-ion battery manufacturing plant with cell level localization.

4. Multiple means to meet the end objective of CO2 reduction

In the run-up to full electrification, the management plans to reduce CO2 emissions via the use of CNG, ethanol, biogas, and strong Hybrids. CNG has seen strong traction in FY22, up 48% YoY, led by a 43% increase in CNG outlets to 4,433. CNG vehicles constituted 17% of MSIL's domestic volumes (v/s 12% in FY21). With the government's focus on CNG and its aim of expanding its reach to 17k outlets, the demand for CNG vehicles is expected to remain high. MSIL's petrol models are already compatible with 10% ethanol blended petrol (EBP). It is getting ready for 20% EBP (applicable from Apr'23). Its CNG vehicles can run on compressed biogas without any modification.

5. Exports - FY22 was a year of inflection

Exports grew 148% in FY22 as the semiconductor shortages did not majorly affect its export models. Exports to Africa, particularly South Africa, grew 200% and accounted for ~50% of the total export volume in FY22, led by a better demand environment and its efforts in developing these markets over the past few years. Besides expanding its product portfolio and its reach, its best practices are being implemented to further enhance customer satisfaction. Supplies to Toyota, via SMC in the African market, also boosted exports. It also saw a strong growth in exports to Latin America and Middle East, which are among its other important export destinations.

Buy for a target price of Rs 11,300

Strong demand and favorable product lifecycle for MSIL augurs well for market share and margin. "We expect a recovery in both market share and margin in 2HFY23, led by an improvement in supplies and mix, a favorable product lifecycle, RM and forex benefits, and operating leverage. The stock trades at 39x/23.5x FY23E/FY24E consolidated EPS. We maintain our Buy rating with a Target Price of Rs 11,300 (27x Sep'24E consolidated EPS)," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.