Maruti shares may double in 3 years

Mumbai: Will the wheels of fortune finally turn at Maruti? An effortless cruiser until 2018, Maruti seems to have taken a prolonged breather since. But a raft of brand new models could end the pause — and vault the stock back into the country’s top-ten leader-board of most valued companies. Analysts expect Maruti to double in the next three years, with personal mobility getting a move on in the aftermath of the pandemic.Maruti shares rallied nearly five times between 2013 and 2018, compared with the Nifty’s 83% returns. But since the beginning of 2019, the stock has yielded -1%, compared with 44% gains in the Nifty. But the risk-reward matrix is finally turning attractive for the stock that trades at an attractive perch when compared with its valuation history.“Its likely product offensive over the next three years, especially SUVs, may coincide with replacement demand-led potential upturn in passenger vehicles. That should drive strong volume and EPS CAGR over FY21-24,” said Chirag Jain, analyst, DAM Capital. “Valuations at 23.7 times FY23 estimated earnings are reasonable, supported by strong earnings CAGR, strengthening franchise and steady high return ratios.”Foreign portfolio investors have consistently increased their stake in the last four quarters — from 21.63% in March 2020 to 23.11% in March 2021. The Maruti Suzuki stock currently trades at 25 times FY22 estimated earnings — the most expensive auto stock globally after Tesla, BYD and Ferrari.Analysts believe that valuations will expand further to 30 times in three years as the Street gains confidence in its earnings rebound, with improving visibility on the new launch cycle.Maruti makes a full model change every 6-7 years, with minor changes or refreshes every 3-4 years. The previous product cycle for Maruti began in FY13 with the launch of Ertiga and the company launched multiple new products later – Baleno, Vitara Brezza and Ciaz – to wrest back market share at 51%. Over the next two years, Baleno, Vitara, Brezza, Celerio, and Ciaz are due for a full model change, along with the introduction of the much-awaited Jimny and Dzire in the CNG option.It is also likely to introduce multiple SUVs over the next four years.“We believe that MSIL is at the start of a new product cycle which is likely to resume the market share journey,” said Vivek Kumar, analyst, JM Financial.“After a two-year gap in FY20/21 marred by regulatory changes and Covid disruptions, we expect the new product cycle to drive outperformance with respect to industry growth and aid margin expansion similar to the previous product cycle.”Weak industry demand and unfavorable product cycle have dented revenues and profits of the company severely in the last three years.While its net sales declined 18% to ₹70,373 crore in FY21 compared to FY19, net profit plunged 43% to ₹4,389 crore during this period. Earnings per share too declined from ₹253 in FY19 to ₹145 in FY21.

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