The Indian automobile industry has seen many new companies enter the market over the last 2-3 decades, but no one has been able to dethrone Maruti Suzuki as the country's top car maker. On Thursday, the stock hit the Rs 10,000 mark for the first time and the market capitalisation touched Rs 3 lakh crore, only the sixth company to do so, as analysts expect the company to continue to race ahead of rivals over the next few years at least.
“Maruti Suzuki is likely to enjoy a golden run over the next three to five years with limited competition, stable industry growth and as it benefits from the change in emission norms to BS-VI from BS-IV. We expect the company's EBITDA (earnings before interest, taxes, depreciation and amortization) margin to surpass historical peaks due to limited capacity and limited competition,” Hitesh Goel and Nishit Jalan, analysts at Kotak Institutional Equities said in a report on Wednesday, December 20.
The analysts cite several triggers that will boost the company's margins – the company is further expected to localise the components of its best selling products like Dzire, Vitara Brezza and Baleno, while its dominant share in the petrol market (market share of 55 per cent in petrol vehicles versus 36.5 per cent in diesel vehicles) will be a huge benefit as increase in prices upon implementation of BS-VI emission norms in the country will be much lower for petrol vehicles (Rs 10,000), versus diesel vehicles (Rs 100,000).
Goel and Jalan see Maruti Suzuki's EBITDA margins rising 200 basis points (two per cent) over fiscal years 2018-2020.
The company reported a net profit of Rs 2,484 crore in the quarter ended September 30, up 3.4 per cent year-on-year, while net sales were up 7 per cent to Rs 21,438 crore.
Over April-November, the company sold 11,01,900 passenger vehicles in the domestic market, accelerating 15.4 per cent from a year ago, while the passenger vehicle industry saw sales grow 8.5 per cent. Seven of the top ten cars sold in India last month were from the Maruti Suzuki stable.
Some analysts like HDFC Securities' Abhishek Jain say the company's current valuations do seem expensive, but given its improvement in market share, rising rural contribution, reduced Japanese yen exposure, improving share of premium products, healthy return on equity to return on capital employed and improving free cash flows, the auto maker will continue to trade at a premium.
“We remain positive on Maruti Suzuki's growth story on the back of consistent volume uptick of Ciaz, Brezza, Dzire and Baleno; increasing ASP (average selling price), led by an increasing portfolio in the premium segment; incremental volumes from the Gujarat facility; a ramp up in rural demand and macro tailwinds like low interest rates, urbanisation and a burgeoning middle class,” said Jain.
Maruti Suzuki shares hit a life high of Rs 10,000 on Thursday, before retreating a bit to close at 9,737.65, down 0.7 per cent from previous close. Its closing market cap stood at Rs 2.94 lakh crore.
The stock has surged 83 per cent so far in 2017, compared with the BSE Sensex, which is up 27 per cent.
It became the sixth company in India to cross a market cap of Rs 3 lakh crore. Other companies who have earlier achieved this feat include Reliance Industries, Tata Consultancy Services, ITC, Oil and Natural Gas Corp (ONGC) and HDFC Bank.