Interest rates at a decade low, improving used car prices, rising need for a reliable personal vehicle and improvement in urban income outlook will act as key triggers for PV players such as Maruti Suzuki, said global brokerage firm Jefferies.
Noting this, the brokerage firm has raised the target price on Maruti Suzuki to Rs 8,500 from Rs 7,150 earlier while retaining a 'Buy' call.
The passenger vehicle (PV) demand has recovered in recent months with registrations rising 12 percent YoY in September and more than 8 percent YoY in the first phase of the festive season.
The brokerage believes that the PV industry is ripe for a replacement especially at a time when the emphasis on the reliability of personal vehicles would be the highest in a while. The replacement has historically contributed around 25 percent of Maruti Suzuki’s volumes and should provide a further boost to demand.
“MSIL has commendably defended its market share in FY21 despite the exit from diesel, and should have some product triggers in 2HFY21,” Jefferies said.
Jefferies also noted that about 80-90 percent of new cars are sold on finance and interest rates have dropped to a decade low in 2020. Also, many companies have started reversing salary cuts, in some cases with retrospective effect. Most IT companies intend to step up hiring, give pay hikes and bonuses in H2FY21.
“Income uncertainty would have been a key headwind for replacement demand over the last six months, and the reversal in urban income outlook is likely to act as a trigger now,” the brokerage said.
It has upgraded FY21-23 EPS by 7-17 percent mainly factoring higher volumes, post recent demand uptick, and slightly higher margins. Its 29x FY22E PE is not cheap but should sustain given the strong franchise, especially if demand continues to improve, Jefferies said.
At 11:50 am, the share price of Maruti Suzuki traded 0.36 percent higher at Rs 7,079.55 on the BSE as compared to 0.45 percent gains in the benchmark Sensex. The Link LonkOctober 27, 2020 at 02:11PM
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Jefferies raises target price for Maruti Suzuki; shares gain - CNBCTV18
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