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Demonetisation impact on Maruti stock overdone

Pent-up demand is expected to keep volumes strong in 2017-18

Hamsini Karthik  |  Mumbai 

Image courtesy: Maruti Suzuki
Image courtesy: Maruti Suzuki

Domestic sales for India’s largest car manufacturer continued to be in an upward trajectory, growing by 14 per cent year on year (with sales of 126,226 units). Even a month-on-month comparison indicates that the volume off-take remained unaffected due to the note ban. Among the factors that helped was festive season demand which was robust in September and October and a significant spill over was seen in November as well. 

Also, analysts point out that there have been deliberate efforts to keep the inventory levels low at the dealers’ end and therefore did not impact Suzuki much. Another factor which provides comfort is that Suzuki caters to a large segment of first-time car buyers, who generously avail credit facilities to fund their purchases. 

Finally, as Arun Agarwal of Kotak Securities points out, “Products such as and have long waiting period and that gives us comfort that volumes won’t dry up as anticipated.” 

However he also elaborates that the concern for Suzuki in the next two-three months would be converting the to showrooms as firm customer orders. 
 
“The challenge for now is getting converted into orders and hence there could be some deferment in purchases for a few months. Though it would be temporary, the pent-up demand will return in FY18,” Agarwal cautions. As for investors, analysts feel the impact of was rather overplayed on Suzuki’s stock and the recent seven per cent correction should be viewed as a good entry point for the stock. 

“While weak discretionary spending could affect Maruti’s earnings in FY17, investors are more likely to value the stock based on its long-term sustainable earnings growth, implying limited impact on valuations,” says Pranoy Kurian of IDBI Capital. 

Analysts at also have a similar view and recently upgraded their recommendation on Suzuki from “neutral” to “buy”. “Sensitivity analysis suggests that the stock price builds in just a five per cent volume over FY16·18, which makes risk·reward highly favourable,” the analysts note in their report.

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Demonetisation impact on Maruti stock overdone

Pent-up demand is expected to keep volumes strong in 2017-18

Pent-up demand is expected to keep volumes strong in 2017-18
Domestic sales for India’s largest car manufacturer continued to be in an upward trajectory, growing by 14 per cent year on year (with sales of 126,226 units). Even a month-on-month comparison indicates that the volume off-take remained unaffected due to the note ban. Among the factors that helped was festive season demand which was robust in September and October and a significant spill over was seen in November as well. 

Also, analysts point out that there have been deliberate efforts to keep the inventory levels low at the dealers’ end and therefore did not impact Suzuki much. Another factor which provides comfort is that Suzuki caters to a large segment of first-time car buyers, who generously avail credit facilities to fund their purchases. 

Finally, as Arun Agarwal of Kotak Securities points out, “Products such as and have long waiting period and that gives us comfort that volumes won’t dry up as anticipated.” 

However he also elaborates that the concern for Suzuki in the next two-three months would be converting the to showrooms as firm customer orders. 
 
“The challenge for now is getting converted into orders and hence there could be some deferment in purchases for a few months. Though it would be temporary, the pent-up demand will return in FY18,” Agarwal cautions. As for investors, analysts feel the impact of was rather overplayed on Suzuki’s stock and the recent seven per cent correction should be viewed as a good entry point for the stock. 

“While weak discretionary spending could affect Maruti’s earnings in FY17, investors are more likely to value the stock based on its long-term sustainable earnings growth, implying limited impact on valuations,” says Pranoy Kurian of IDBI Capital. 

Analysts at also have a similar view and recently upgraded their recommendation on Suzuki from “neutral” to “buy”. “Sensitivity analysis suggests that the stock price builds in just a five per cent volume over FY16·18, which makes risk·reward highly favourable,” the analysts note in their report.
image
Business Standard
177 22

Demonetisation impact on Maruti stock overdone

Pent-up demand is expected to keep volumes strong in 2017-18

Domestic sales for India’s largest car manufacturer continued to be in an upward trajectory, growing by 14 per cent year on year (with sales of 126,226 units). Even a month-on-month comparison indicates that the volume off-take remained unaffected due to the note ban. Among the factors that helped was festive season demand which was robust in September and October and a significant spill over was seen in November as well. 

Also, analysts point out that there have been deliberate efforts to keep the inventory levels low at the dealers’ end and therefore did not impact Suzuki much. Another factor which provides comfort is that Suzuki caters to a large segment of first-time car buyers, who generously avail credit facilities to fund their purchases. 

Finally, as Arun Agarwal of Kotak Securities points out, “Products such as and have long waiting period and that gives us comfort that volumes won’t dry up as anticipated.” 

However he also elaborates that the concern for Suzuki in the next two-three months would be converting the to showrooms as firm customer orders. 
 
“The challenge for now is getting converted into orders and hence there could be some deferment in purchases for a few months. Though it would be temporary, the pent-up demand will return in FY18,” Agarwal cautions. As for investors, analysts feel the impact of was rather overplayed on Suzuki’s stock and the recent seven per cent correction should be viewed as a good entry point for the stock. 

“While weak discretionary spending could affect Maruti’s earnings in FY17, investors are more likely to value the stock based on its long-term sustainable earnings growth, implying limited impact on valuations,” says Pranoy Kurian of IDBI Capital. 

Analysts at also have a similar view and recently upgraded their recommendation on Suzuki from “neutral” to “buy”. “Sensitivity analysis suggests that the stock price builds in just a five per cent volume over FY16·18, which makes risk·reward highly favourable,” the analysts note in their report.

image
Business Standard
177 22

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