Among the best auto stocks in India, Maruti Suzuki India has been one of the key beneficiaries of a revival in demand in the four-wheeler segment over the last few months.
Investor sentiment in this four-wheeler player is also boosted by a gradual improvement in global supply of semiconductor chips, coupled with a hike in its car prices by 1.1% from mid-January 2023.
The company in its December 2022 quarterly results declared this week on Tuesday also pointed out to strong demand conditions continuing.
It has pending customer orders of about 363,000 vehicles at the end of the December 2022 quarter, out of which 119, 000 orders were for newly launched vehicles.
The company had launched models like the New Eco in late November 2022 along with new Alto K10 with S-CNG technology.
Maruti Suzuki had sold 465,911 vehicles in the December 2022 quarter, a growth of 8.2% year-on-year (YoY).
Important point to note is the easing of semiconductor shortage. The company highlighted that shortage of electronic components impacted production by about 46,000 units in the third quarter of FY23 vis-à-vis 90,000 units a year earlier.
In March 2022, the global chip shortage also resulted in the Maruti Suzuki share price hitting its 52-week low of Rs 6,540.
Meanwhile, strong sales growth in the third quarter of FY23 helped the company's total revenue from operations grow 25% YoY to Rs 290.4 billion (bn) while its operating profit grew 81.8% YoY to Rs 28.3 bn.
Improved sales of high-end vehicles like Brezza, Ertiga and S-Cross helped average realisations of the company in the December 2022 quarter to rise nearly 15.6% YoY to about Rs 6.2 lakh per vehicle.
It also helped the company offset rising input costs like steel etc.
Maruti Suzuki's net profit grew 132.5% YoY to Rs 23.5 billion in the third quarter of FY23.
After a smooth ride, what lies ahead for the carmaker, who is yet to dip its toes in the electric vehicle (EV) segment?
Growth strategy going forward
Maruti is the leader in the hatchback segment which accounts for around 45% of total car volumes. Thus the company's strategy in targeting CNG fuel and not electric vehicle for the moment, makes sense. Market leadership along with favourable cost dynamics works for Maruti.
Also, Maruti's plan of using hybrids as a bridge between combustion engines and electric vehicles could work as the ecosystem takes time to evolve.
But it remains to be seen whether Maruti is on the right track by taking the hybrid approach and going slow in EVs…
The growth momentum for the company is expected to continue from the recent global premier of sporty compact SUV Fronx and off-roader Jimny (5 doors), at the recently held Auto Expo 2023, in Greater Noida.
And while the company has not provided details of the pricing structure for the new vehicles, auto analysts highlighted that they should be priced at more than Rs 10 lakh per vehicle.
This in turn should help the company to further improve its average realisations per vehicle going forward, and also provide greater growth momentum to the company's sales and net profit.
Investors should meanwhile keep a close eye on the global supply of e-chips and its impact on four-wheeler players like Maruti Suzuki.
Also, the company's ability to manage raw material costs will remain important going forward.
How Maruti Suzuki share price has performed recently
In 2023 so far, Maruti has gained around 4%.
Maruti Suzuki share price has a 52-week high of Rs 9,768 on 31 October 2022.
It ended Friday's trade broadly flat at Rs 8,753. This at a time when markets crashed following the sharp selloff in Adani group stocks.
At Friday's closing price, the stock currently trades at about 33.7 times estimated FY23 earnings and 31 times estimated FY24 earnings.
Over the past five years, Maruti Suzuki has traded with a price to earnings (PE) multiple range of nearly 24 and 59 times.
At the current price, Maruti Suzuki is reasonably valued and investors with a long term investment horizon who are keen to benefit from a cyclical recovery in the auto sector should add this stock to their watchlist.
About Maruti Suzuki
Maruti Suzuki is a subsidiary of Japan's Suzuki Motor Corporation. It is India's largest passenger vehicle company.
It primarily manufactures passenger and commercial vehicles in India.
However, the company also offers spare parts and accessories, vehicle financing, and insurance through its subsidiaries.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com