Maruti Suzuki India Ltd.'s unimpressive second-quarter results have analysts pointing to visible roadblocks ahead for India's largest carmaker.
The standalone net profit of the Swift maker fell 17.4% year-on-year to Rs 3,069 crore in the three months ending Sept. 30, on revenue that grew 0.4% to Rs 37,203 crore, as per results announced on Tuesday. While revenue met Bloomberg consensus estimates, profit had a big miss.
Ebitda margin came in at 11.9%, below Nomura and consensus estimates, impacted by higher sales promotion expenses and adverse commodity prices.
Nomura expressed concern about sustainability of margins in a tougher demand environment. "We believe festive growth has been supported by discounts and may not reflect underlying demand improving," the brokerage said in a note, after lowering the carmaker's domestic personal vehicle growth projection over three years.
The firm retained its 'neutral' rating on Maruti Suzuki India stock but reduced the target price from Rs 13,133 to Rs 12,455, implying a potential upside of 12.8% over the previous close. It also cut its Ebitda margin forecasts.
Market Share Concerns
Jefferies does not expect "any meaningful returns" on Maruti Suzuki India stock until PV demand or the company's market share outlook improves. It noted the fall in the company's market share to 12-year lows in the first half of the current year, due to sharp shift in demand to SUVs where it has weaker presence than other cars.
Domestic rivals Tata Motors Ltd. and Mahindra & Mahindra Ltd. have a larger product pool in this category and have been chipping away market share from the industry leader.
"Any meaningful tax cuts on hybrids could provide some upside as MSIL has an expanding hybrid portfolio," Jefferies said in a note.
The brokerage downgraded Maruti Suzuki India shares from 'buy' to 'hold' with a revised target of Rs 10,900, a potential downside of 1%.
Inventory Support
Citi, while flagging weaker quarterly results and margin pressure, maintained a 'buy' call on Maruti Suzuki India stock as its top pick in the sector.
The brokerage said the company's management expressed unexpectedly positive views on festive demand, reporting a 14% year-on-year growth in retail volumes. Discounts have reached their peak, and by the end of October, inventory is expected to be reduced to just one month’s supply. As a result, the October-December period may witness improved wholesale performance due to lower inventory levels, Citi said.
Shares of Maruti Suzuki India closed 4% lower at Rs 11,046 apiece on Tuesday, compared to 0.5% gain in the benchmark Nifty 50.
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