Maruti Suzuki Unlikely To Meet Its 'Aggressive' 10% Growth Target, Says HSBC
HSBC expects Maruti Suzuki to grow around 6-7% CAGR over the next seven years.
Maruti Suzuki India Ltd. may not be able to meet its "aggressive" 10% annualised growth target for the next seven years, according to HSBC.
“We expect the company to grow around 6-7% CAGR in the long term, and that would mean capex spend may be pushed out to 10 to 12 years, versus the seven years currently guided by the company," the brokerage said in a Sept. 25 note.
However, the recent hike in the reinvestment rate by Maruti Suzuki is not necessarily negative for the shareholders, HSBC said, retaining a ‘buy’ rating on the stock with a revised price target of Rs 12,000 apiece, implying an upside of about 14%.
It would be tough for the company to realise its market share ambitions, HSBC said. The gains are contingent upon achieving 30–35% utility vehicle market share and maintaining 65% in cars. “Although Maruti has gained some ground recently, post the recent launch of Fronx and Jimny, further expansion would be an uphill task as fewer white gaps remain in Maruti’s product portfolio."
Market share has peaked in the short term, and the hybridisation of more models could push it further in the medium term, the note said. “The company could stand to gain from the phase-out of diesel options and the increasing share of hybrids, where Maruti and Toyota have an edge over their peers.”
A slowdown in demand or failure to launch EVs successfully in the coming quarters are downside risks, HSBC said.
HSBC On Maruti Suzuki India
Retain 'Buy' rating with a revised price target of Rs 12,000 (earlier Rs 11,000).
The recent hike in the reinvestment rate is not necessarily negative for shareholders, the brokerage said.
Market share has peaked in the short term, hybridisation of more models could push it further in the medium-term.
The company's valuation premium to Nifty has shrunk to 33% versus 50% historical average.
Expects capex-to-operating cash flow ratio to come down from an estimated 70% in FY24 to about 40% in seven years.
Shares of Maruti Suzuki declined 0.32% before paring losses to trade 0.17% lower as of 9:45 a.m. compared to a 0.04% advance in the NSE Nifty 50.
The stock has risen 25.9% year-to-date. The relative strength index was at 67.4.
Of the 49 analysts tracking the company, 38 maintain a 'buy', six recommend a 'hold,' and five suggest a 'sell', according to Bloomberg data. The average of 12-month price targets implies an upside of 3%.
