Maruti Suzuki: The Rs 125 stock that hit Rs 10,000 in 14 years

The near 8,000% rally in this stock in the last 14 years is a classic example of consumption boom in India, analysts say.

If you were among the lucky few who got subscription to and have held on to this stock, you would now be sitting on a whooping near 8,000% return. Back in 2003, the government divested 25 per cent stake in Maruti Suzuki Limited (Maruti Udyog Limited as it was known then) at Rs 125 per share. The stock debuted on the exchanges on July 09, 2003 and ended the first trading at Rs 164 levels, nearly 32 per cent higher than the issue price.

From its issue price, Maruti (MSIL) has zoomed 7,900% to cross Rs 10,000 mark in intra-day deals today on the BSE. It is now the fifth most valued stock by market capitalisation (market-cap) at around Rs 3-lakh crore - only below Reliance Industries (RIL), TCS, HDFC Bank and ITC. A recent Motilal Oswal study puts Maruti among the top five wealth creators during 2012 - 17, pegging the wealth created at Rs 1.41-lakh crore in this period.

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And if analysts are to be believed, the stock still has miles to go.

Incorporated in 1981 under the Companies Act, 1956, the government shortlisted Suzuki Motor Corporation as the joint venture partner for MUL. It was in 1983 that the India's first affordable car, Maruti 800, a 796 cc hatch back was launched as the company went into production in a record time of 13 months.



 

With a market share of over 50 per cent in the domestic passenger vehicle market, Maruti now boasts of Alto 800, Alto K10, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, Eeco, Grand Vitara and Ertiga amongst its offerings.

"The rise in fortunes of Maruti is a classic example of the consumption boom in India over the years. The company has been able to corner a healthy market share over the years. There is not much competition in sight. Their product mix, plant capacity, sales and marketing network, on-ground presence is unparalleled. All this has augured well for the company over the years," says Gautam Duggad, head of research at Motilal Oswal Securities.

Earnings and profits, too, have kept pace. From Rs 11,104.7 crore in FY04, consolidated gross sales have surged 596 per cent in FY17 - a compounded annual growth rate (CAGR) of 16 per cent, as per ACE Equity data. Profit after tax (PAT) at Rs 560.9 crore has grown to Rs 7,338.2 crore - a CAGR of 22 per cent during this period, data show.

Analysts at Morgan Stanley expect the consolidated PAT to touch Rs 12,760 crore by 2020 on sales of Rs 1,18,223.5 crore. Volumes, according to the global research house, are likely to hit 22,24,666 from the estimated 15,67,703 in FY17.



 

"The industry has been through a long down cycle and is showing signs of a turn. In addition, competitive intensity is muted. MSIL should continue to gain share. The stock trades at one-year forward price-to-earnings (P/E) of 27.3x. While this is more than one standard deviation above the long-mean multiple of 16, we believe multiples can remain elevated for Maruti, given strong earnings growth," says a recent Morgan Stanley report.

In a bull case scenario, they expect the stock to hit Rs 14,400 going ahead if domestic volumes rebound quickly, new capacity (in Sanand, Gujarat) ramps up quicker-than-expected and all new models do well. Volume growth in FY18 is pegged at 15% and 18% in FY19. Their base case target price for the stock is Rs 10,563 and Rs 4,950 in case of a bear market.

"Given the improvement in market share, rising rural contribution, reduced Japanese yen exposure, improving share of premium products, healthy ROE/ROCE (26% in FY19/20E) and improving free cash flows, MSIL will continue to trade at a premium," writes Abhishek Jain, an analyst with HDFC Securities (Institutional Research) in a recent report.

Japanese parent Suzuki is also taking steps to capture the emerging opportunity in electric vehicles. Maruti should be a key beneficiary.