Maruti slips 1% after Goldman Sachs downgrades stock, target price cut to Rs 8,800

Shares of Maruti Suzuki India on April 10 (Monday) slipped over a per cent on the BSE in the early morning trade after foreign brokerage Goldman Sachs downgraded the stock. 

At 09:57 am, the stock was trading 1 per cent or Rs 85.40 lower at Rs 8,428.95. 

The foreign brokerage has downgraded the Maruti stock to Rs 8,800 from Rs 11,000 earlier, owing to continued weakness in small car demand. It has also cut the FY24-FY25 EPS estimates by 15 per cent to 18 per cent, as per reports. 

EPS stands for earnings per share. 

Another factor, as per the brokerage, behind the stock downgrade, is the stronger Japanese yen. It said a stronger JPY in FY24 could also represent some currency headwind on the company's margins. 

During March 2023, Maruti Suzuki India said its total sales declined marginally to 1,70,071 as compared to 1,70,395 units in the year-ago period. That apart, total dispatches to dealers in the domestic market declined 3 per cent to 1,39,952 units as compared with 1,43,899 units in March 2022.

However, for the last financial year, the company reported its highest-ever wholesales to date at 19,66,164 units, up 19 per cent from 16,52,653 units in 2021-22.

Its exports during the previous month also increased 14 per cent to 30,119 units from 26,496 units in the year-ago period.

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As per LKP Securities, "Although March was modest, the fiscal ending March 31, 2023, was a solid one for all the segments. Two-wheelers were the weakest with higher single-digit growth, mainly due to higher cost of acquisition and rural growth not moving up as per expectations. This was followed by tractors which performed exceedingly well and surpassed street expectations. Passenger cars grew at a solid rate in domestic markets as the chip shortage issue seems to be resolved to a great extent. CV sales have been excellent throughout the year and the best performer within the auto pack as all of its underlying parameters seem to be in place."

Analysts at Nirmal Bang Securities expect Maruti’s earnings to grow by 20.4 per cent QoQ during the March quarter on account of 10.5 per cent QoQ volume growth.

"On a YoY basis, volume grew by 5.3 per cent. ASP (average selling price) is expected to improve by 17.4 per cent/3 per cent YoY/QoQ. We expect a 100bps margin expansion on a QoQ basis, led by better operating performance."

The brokerage expects a gross margin expansion of 30 bps on a QoQ basis, driven by healthy volume growth and price hikes.