Maruti Suzuki fails to sell cars as customers sat home; is it time to sell the auto giant’s stock?

Total operating income of Maruti Suzuki dived 79% from the previous year to just Rs 4,106 crore.

Automobile giant Maruti Suzuki’s share price surged 3% on Thursday morning despite reporting a net loss of Rs 249 crore in the April-June quarter, marred by the lockdown. Sales tanked 81% on-year basis in the wake of the nation-wide lockdown which forced Maruti Suzuki to shut its stores for the entire month of April. Unable to sell cars, the estimates for this fiscal and the next have taken a hit. Analysts believe that Maruti Suzuki will battle it to protect its market share as customer preferences change in the automobile industry. Maruti Suzuki shares were trading at Rs 6,360 per share on Thursday morning.

Total operating income of Maruti Suzuki dived 79% from the previous year to just Rs 4,106 crore. Although total expenses were also lower at Rs 4,969 crore it still pushed EBITDA into the negative territory. “We believe Maruti Suzuki faces headwinds in maintaining its market share as customer preference continues to rotate towards UVs amidst rising competition,” said analysts at ICICI Securities. The stock has a sell rating with a target price of Rs 3,756 per share. Core valuations of Maruti Suzuki that are at 49x FY22E core EPS, is a worry for ICICI Securities under the current atmosphere. However, earnings estimates have been revised upwards. 

Although at the start of the pandemic some had expected the demand for personal vehicles to go up, with the onset of the economic downturn that outlook has been revered. “After 16% on-year volume decline in financial year 2020, we expect Maruti Suzuki’s volumes to further decline by 17% from the previous year this fiscal due to weak demand amid the pandemic,” said Kotak Institutional Equities in a note. However, the less hit rural area is where Maruti has higher presence and a speedy recovery in rural areas could help the company. Kotak Institutional Equities has a SELL rating on the stock with a fair value of Rs 4,500. 

Maruti Suzuki has started focusing on countries where lockdown restrictions are being eased. The company may tie up with other automobile makers for deeper access in other countries. Management has pointed out that things are increasingly looking to go back to pre coronavirus levels with enquiries at 85% of the pre-virus levels. Maruti Suzuki is also aiming to ramp up production. 

Brokerage and research firm Prabhudas Lilladher, however, is still hooked on the belief that Maruti Suzuki will benefit from the shift towards personal mobility. “We believe MSIL is not only beneficiary of a likely trend of shift towards personal mobility and down trading but also seeing a structural shift towards petrol cars especially in lower CC segments,” it said in a report. The brokerage firm has increased the target price to Rs 6,858 per share.