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Maruti Suzuki cuts gains post Q2: Should you buy into the counter?

The stock pared gains after rising 4 per cent in two days. However, top brokerage firms expect the stock to see an upside of up to 13 per cent in the short to medium-term. 

BT Online | October 28, 2015 | Updated 19:31 IST
Maruti Suzuki cuts gains post Q2: Should you buy into the counter?
The stock ended flat after hitting an intraday high of Rs 4558, up 1.41 per cent on the Bombay Stock Exchange (BSE). Photo: Reuters

Shares of Maruti Suzuki pared gains in trade on Wednesday after rising 4% in 2 sessions after the company posted its September quarter results.

The auto major reported a 42.1 per cent jump in net profit at Rs 1,225.56 crore for the September quarter, driven by strong sales growth, lower material cost and favourable foreign exchange.

The company had posted a net profit of Rs 862.54 crore during the same period last fiscal year.

The stock ended flat after hitting an intraday high of Rs 4558, up 1.41 per cent on the Bombay Stock Exchange (BSE). The scrip closed 2.55 per cent up at Rs 4494.60 on Tuesday.

Top brokerage firms expect the stock to see an upside of up to 13 per cent in the short to medium-term. 


Brokerage Prabhudas Liladhar said Maruti Suzuki's results were in line with their expectations both at the operating level and at the profit level.

"The stock is currently trading at 19x FY17e EPS; our revised target price is Rs 4,977 based upon 21xFY17e (previously Rs4,712). At our price target, MSIL would trade at a cash PE 15x FY17e (currently trades at 13.5x)," said brokerage.

Prabhudas Liladhar maintained 'BUY' rating on the stock.

Motilal Oswal Securities retained Maruti Suzuki as their top picks in auto stocks. The brokerage saw an upside risk to their margins estimates, as well as scope of further re-rating driven by a) improved competitive positioning as compared with the previous cycle, (b) lower capital intensity, (c) improvement in RoIC to ~57% by FY17E (v/s average of ~30% in last 10 years) and (d) increase in dividend payout.

"Revival in demand, lower oil prices, new model launches and ongoing festive season will drive volume growth," added brokerage.

"We believe margin trajectory can clock further uptick (FY17 estimate at 17.8%) given robust products and aggressive focus on rural markets, where MSIL enjoys virtual monopoly. The stock is trading at 17.4x on FY17E," said brokerage firm Edelweiss in a research note.

The brokerage maintained 'BUY/SO' rating on the stock with a target price of Rs 4,909 (19x FY17E EPS).

SBICap Securities kept their earnings estimates unchanged and assigned a 24x multiple to rolling forward earnings to arrive at the target price of Rs 5,250 (earlier Rs5,100) and recommended a BUY rating on the stock.

Angel Broking also maintained positive coverage on the stock saying that the September quarter results were in-line with their estimates.

Meanwhile, global brokerage firm Deutsche Bank cut Maruti Suzuki's rating to hold from buy. It also revised stock's target price to Rs 4,500 from Rs 4,650.

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