Motilal Oswal
Maruti Suzuki (Buy)
Target: ₹8,150
CMP: ₹7,767.75
We met the management of Maruti Suzuki (MSIL) to get an update on the evolving demand scenario, supply-side issues, cost headwinds etc. The management is cautiously optimistic about demand.
However, cost headwinds are material and the company is looking to dilute it through lower discounts, operating leverage and price rises.
There is optimism at this point due to strong festive sales and good momentum post that.
Dealer inventory is low (from 130k units at the end of March20 v/s 80k units at the end of October 20 and estimated 58k units or less than two weeks at the end of November 20). There is a reasonable case for optimism, but is a little early to call out, so it is cautiously optimistic for the remainder of FY21.
Commodity price inflation is significant in core commodities and precious metals. While steel prices have seen a rise, MSIL expects a further increase in steel prices. Precious metals like rhodium and palladium are seeing a rise too.
Some of the costs saved in H1-FY21 would return due to: a) increase in production, and b) normalisation of marketing spends. On the positive side are a) discounts are low, b) a price increase is planned in January 21 and c) operating leverage would dilute the impact of the headwinds.