Have Maruti Suzuki stock? Here is why investors should worry but take this action

Maruti Suzuki is having a tough time and on Monday, investors continued to beat company’s stock on Dalal Street, even one week after the it had posted weak Q3FY19 results. At around 1145 hours, Maruti was trading at Rs 6,469 per piece down by Rs 47.35 or 0.75% on BSE. However, the stock price has touched an intraday low of Rs 6,324.35 per piece, which results in a loss of Rs 192 so far today, compared to previous trading price on the index. Investors are worried over auto companies’ sales ahead especially of Maruti. 

During Q3FY19, Maruti registered a net profit of Rs 1,489.3 crore in Q3FY19, which was down by a huge 17.21% from Rs 1,799 crore in the corresponding period of previous year. On the other hand, Q3FY19 PAT saw an even bigger drop of 33.52% as against Rs 2,240.4 crore in preceding quarter. 

Maruti Suzuki revenue from operations was at Rs 19,668.3 crore in Q3FY19, witnessing a sequential rise of 1.99% from Rs 19.283.2 crore in Q3FY18 but was down by 12.33% compared to Rs 22,433.2 crore in Q2FY19. Total sales stood at 189,264 vehicles which was also weak in Q3FY19, as it plummeted  by 12.18% from 215,519 unit sold in Q2FY19. On yearly basis, the Q3FY19 sales were muted, as Maruti posted a sales record of 189,400 unit in Q3FY18.

Maruti explained that, the quarter  was also marked by a combination of several adverse factors coming together which impacted profitability:

• Adverse Commodity prices
• Adverse Foreign Exchange rates
• Higher Marketing & Sales expenditure
• Higher costs in resources and capacities which were earlier planned to enable a higher estimated growth

So, what should be the road ahead? Is the stock worth investing?

Jay Kale and Vijay Gyanchandani, analysts at Elara Capital said, “Management lowered industry growth guidance to ~4.5% in FY19 and expects Maruti to grow higher than the industry. Exports are likely to remain flat YoY next fiscal. The company took a price increase of ~0.7% in Q4FY19. It has received ~55k bookings for new Ertiga, which has a ~28-week waiting period and ~14k bookings for new Wagon-R.”

“Royalty stood at 5.5% in Q3; it expects all the models to move into a new royalty formula by 2022 i.e. payment in INR. Urban markets were flat YoY while rural grew ~13% YoY in 9MFY19. Retail was higher than wholesale by ~90k in Q3," the duo added.

They said that while Q3 margin disappointed, it is expected to improve in Q4, owing to higher volume. "We assume ~13% QoQ growth, lower seasonal discounts and favorable commodities. We are impressed by Maruti’s sustained market share gains despite increased competition (YTD FY19 share up 140bp in PV). We cut our EPS by 7-11% over FY19-21E to factor in lower margin," the analysts added.

Thereby, Elara reiterate Buy with a new TP of INR 7,827 from INR 9,128 based on 23x ([from 25x] and at a 12% discount to the past three-year average as growth slows) weighted average FY20-21E P/E as we roll forward.
If we take into consideration Maruti’s intraday low and Elara’s target price ahead, then to your surprise this auto giant will make you rich heavily. It is seen to grow by over Rs 1500, which means, when the stock is falling one should take it as an opportunity to make investment if they plan to reap benefits of glorious days ahead.