Motilal Oswal recommends 'buy' on Maruti, target Rs 2,136

Easing of macro headwinds coupled with likely reduction in interest rates and moderation in petrol prices would drive recovery in demand for passenger vehicles (PV) from 2HFY14. We expect strong 15% growth in FY15 for the passenger vehicles industry, after three years of low single-digit growth over FY12-14, Motilal Oswal said in a research report.

Maruti Suzuki has been gaining market share in a challenging environment, reflecting the inherent strength of its brand, network and product portfolio. We estimate MSIL's volume growth at 7.1%/14% for FY14/15, driven by industry-wide demand recovery from 2HFY14, stable market share and benefit of utility vehicle launch in FY15, the report said.

The Japanese Yen has depreciated 21% from the recent peak/13% since 2Q. Given its 27-28% import exposure (20-22% JPYbased, including royalty), MSIL's operating performance has improved considerably. Benefits from favorable forex movement can more than offset the impact of sustained demand weakness.

The brokerage expects strong 34% EPS growth over FY13-15, driven by volume CAGR of 10.5% and margin recovery (+290bp to 12.2% including SPIL). Return ratios are likely to improve significantly. RoCE/RoE would improve from 11.4%/13.8% to 15.6%/19.4% over FY13-15.

Volume revival, discount reduction and further diesel engine availability would be the catalysts for operating/stock performance, apart from favorable JPY/INR, the report added.

The brokerage has maintained Buy on the stock with a price target of Rs 2,136 (~10x FY15E CEPS / 16x FY15E EPS)