Maruti eyeing double-digit growth this financial year

If good showing in May gathers pace and new product launches click, it could reverse the sluggish sales cycle

With early signs of consumer sentiments picking up, a strong show in May and product launches up ahead, Maruti Suzuki is the key beneficiary in the automobile space if the recovery gathers pace. The company posted a 16.2 per cent year-on-year growth in car sales in May, helping the sector’s passenger vehicle volumes improve by 4.7 per cent, the sharpest year-on-year growth in the past year and a half. The improvement comes after a falling sales graph over the past three financial years.

Passenger vehicle volumes in FY14 were down five per cent year-on-year. Analysts at Motilal Oswal Securities say its leadership position, coupled with the strongest pipeline ever, makes Maruti the best play on consumer sentiment recovery.

For Maruti, retail sales in May at 95,000 units were higher than wholesale numbers at 90,434 being an indicator that first-time buyers are returning after several months, say analysts. Three of its biggest brands by volume — Alto, Dzire and Swift, saw a 5-25 per cent year-on-year growth for May.

While the improvement in sentiment and customer demand remains the most important trigger, key launches which fill the product portfolio gap could add to Maruti’s volumes. In addition to the launch of Celerio earlier this year, the company has lined up Ciaz, a mid-sized sedan, a compact sports utility vehicle and a light commercial vehicle which are to be launched this financial year.

For FY15, the Maruti management has indicated the company is expected to grow at 10 per cent, double that of the passenger vehicle segment growth estimated for the financial year. The company believes the double-digit growth is likely to come on the back of new launches, entry level car growth and rural push. The company, which has gained about 150 basis points market share in May, could increase its share from about 42 per cent now by another 200-300 basis points this financial year.

The Street has given a thumbs-up to the stock, which has gained 29 per cent since the start of May and nearly 70 per cent over the past year. While most analysts continue to be bullish about the prospect’s stock, the sharp price surge means there is little upside from these levels. The stock at 22.5 times one-year forward earnings, is trading at a premium to its long-term averages. Investors with a long-term view can consider it on correction.

On the issue of Gujarat plant, most analysts believe the recent clarifications on the project and the arrangement between the parent and Maruti Suzuki, as well as the approval to be taken from minority shareholders have alleviated concerns raised earlier.