"The global tie-up between Suzuki and Nissan, wherein Suzuki will supply more than 50,000 small cars produced by Maruti Udyog (MUL) to Nissan globally, as well as Suzuki’s plans to export another 100,000 vehicles under its own brand from Maruti, provides a big boost to Maruti’s exports. These developments are significant since the company’s exports had been lackluster recently following the phase out of the Alto from Europe. The initial exports are expected to kick off from FY09E onwards and Maruti is likely to ramp up the capacity of its new Manesar plant to cater to the export requirement. We expect exports to be 12% of total volumes in FY09 and increase further going forward."
"We believe Maruti will lose market share, though gradually, in the domestic market, given the expected introduction of several new models in the compact car segment by competitors, namely, Spark and Aveo UVA by GM, new Indica and the INR 100,000 car by Tata Motors, Getz diesel by Hyundai, and yet unnamed models by Honda and Toyota. Further, given the lack of a new product range in the sedan segment, Maruti’s performance in that segment will continue to be constrained in the medium term as buyers upgrade to bigger vehicles. We expect Maruti’s domestic volume growth to be at a CAGR of 13.6% over the next three years, as compared with the expected industry growth of 15-16% p.a."
"Given its scale of operations, Maruti has been in a position to extract significant cost efficiencies from all aspects of its operation—employee productivity, material procurement, vendor prices, and other factory costs. However, going forward, we believe improving margins will become increasingly challenging, due to 1) the introduction of new models, 2) commissioning of the new assembly plant, 3) pricing pressure resulting from increased competition, and 4) rising share of exports in the sales mix."
"At INR 911, Maruti is quoting at a fairly rich valuation of 17.7x FY07E and 15.8x FY08E our revised EPS estimates. Our earnings revision has been triggered by stronger than expected domestic volumes, better export visibility, and higher than estimated margins. As a result, we are also upgrading our recommendation to 'Accumulate’ from previous ‘Reduce’. However, in view of its volume growth lagging the industry, and sustained pressure on its margins, as well as the huge capex being undertaken, we do not recommend a ‘Buy’."
"We believe Maruti will lose market share, though gradually, in the domestic market, given the expected introduction of several new models in the compact car segment by competitors, namely, Spark and Aveo UVA by GM, new Indica and the INR 100,000 car by Tata Motors, Getz diesel by Hyundai, and yet unnamed models by Honda and Toyota. Further, given the lack of a new product range in the sedan segment, Maruti’s performance in that segment will continue to be constrained in the medium term as buyers upgrade to bigger vehicles. We expect Maruti’s domestic volume growth to be at a CAGR of 13.6% over the next three years, as compared with the expected industry growth of 15-16% p.a."
"Given its scale of operations, Maruti has been in a position to extract significant cost efficiencies from all aspects of its operation—employee productivity, material procurement, vendor prices, and other factory costs. However, going forward, we believe improving margins will become increasingly challenging, due to 1) the introduction of new models, 2) commissioning of the new assembly plant, 3) pricing pressure resulting from increased competition, and 4) rising share of exports in the sales mix."
"At INR 911, Maruti is quoting at a fairly rich valuation of 17.7x FY07E and 15.8x FY08E our revised EPS estimates. Our earnings revision has been triggered by stronger than expected domestic volumes, better export visibility, and higher than estimated margins. As a result, we are also upgrading our recommendation to 'Accumulate’ from previous ‘Reduce’. However, in view of its volume growth lagging the industry, and sustained pressure on its margins, as well as the huge capex being undertaken, we do not recommend a ‘Buy’."
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