Maruti volumes to rise with new launches, earnings with FX movement: report

Armed with nearly half a dozen products to be launched over the next 18 months, India's largest car maker Maruti Suzuki is looking at a volumes growth of 16% and 18%, respectively, in the next two financial years, say analysts.

The Delhi-based automaker will launch five models, including four new cars, in the next 12-18 month period. New launches will include a crossover, a light commercial vehicle, a new premium hatchback and a compact sports utility vehicle.

"The initial response to the company’s recent launches Celerio and Ciaz has been positive and upcoming launches will open up new growth segments for the company. We forecast a 15 per cent CAGR in volumes during FY2015-17E but for existing portfolio we have assumed the volume growth of only 9 per cent CAGR,” Kotak Institutional Equities said in a report.

The company will launch the SX4 Crossover and a diesel-version of the Celerio during the period. Its compact SUV will compete against the like of Ford EcoSport, Renault Duster and Hyundai's upcoming SUV. Reports say that Maruti is looking to have a small diesel engine in the Wagon R, one of its top selling tall-boy design hatchbacks.

Unlikely its earlier launches, which cannibalised its own existing and established models, newer launches will not have much impact on Maruti Suzuki's current portfolio. The company is expected to improve its market share in passenger cars to 54% in the next two years from 50% reported during the last financial year.

"It is important to note that newer models are unlikely to cannibalise existing products of Maruti Suzuki, which will support volume growth,” the Kotak report said, adding that the company is also likely to expand the automated transmission technology to more models in its portfolio after Magnetti Marelli expands its capacity for automated manual transmission.

The positive fluctuations in currency movements against the Japanese Yen has also boosted Maruti Suzuki's earnings. Direct and indirect imports form 16% of the company's net sales while royalty forms 6% of net sales, which is denominated in yen. Costs in yen form 22% of net sales and 8% depreciation of Yen versus Rupee can lead to 176 bps improvement in EBITDA margin if all the benefits are retained by the company.

"We have increased our earnings estimates by 7-10 per cent for FY2016/17E primarily incorporating latest changes to JPY-INR currency assumptions by our economist. We believe Maruti Suzuki is well placed to improve its market share in the passenger vehicle segment driven by a strong product pipeline and weak competition over the next two years. We have raised our target price to Rs 4,000 (from Rs 3,700 earlier) based on 7-10 per cent increase in earnings estimates for FY2016/17E. We maintain our BUY rating on the stock", added the report.