 "Maruti: Festive cheer fading away")
Maruti Suzuki clocked sales of 120,824 units in November, a 10 per cent growth year-on-year. Maruti was among the biggest beneficiaries of the brisk festive seasons. Analysts had expected sales of 122,000 units. The stock traded flat, closing at Rs 4,552.8.
Helped by launches Baleno and S-Cross, compact cars and utility vehicles posted buoyant sales growth (20 and 58 per cent, respectively, year-on-year) in November. Sustained demand from commercial operators kept the demand for Dzire Tour up by 69 per cent y-o-y. But, growth in the relatively high-margin mid-size passenger car segment appeared to have moderated to five per cent (5,509 units) in November. Sales of vans, which account for 10 per cent of the total sales volumes, increased two per cent, maintaining market share at 93 per cent in the segment. Overall, the company maintained its market share at 47 per cent.
The biggest let-down was mini-hatchbacks; sales declined five per cent y-o-y, indicating competition from launches such as Renault Kwid. Sales could continue to be depressed, given rival launches in 2016. Tata Motors is expected to add Zica early next year. The contribution of Alto and Wagon R to overall sales volumes has declined significantly (now at 40 per cent). But, this does not worry the analysts. Because Maruti Suzuki is increasing its focus on relatively premium hatchbacks Swift, Celerio, Dzire, Ritz, and Baleno. Contribution from these to its domestic sales has increased from 45 per cent in November 2014 to 50 per cent this year — a key reason for 340-basis-point y-o-y expansion in operating margins (17.7 per cent) in the September quarter. Discounts have been steadily increasing, from Rs 16,000 in the first quarter of 2015-16 to Rs 19,500 in the festive period. Analysts believe a marginal decline in November sales growth (against October) may not be as much a concern as the discounts. Any further rise in discounts is likely to hurt margins. Advertising spend, historically higher in the December quarter, may hit margins. Analysts continue to remain bullish on the stock. 7th Pay Commission report augurs well. Forty five of 56 analysts polled on Bloomberg recommend buy with target price of Rs 4,949. The stock is trading at an estimated 26.4 times its FY 17 earnings.
