Maruti Suzuki rated ‘Buy’ by Kotak; says Ignis could be another winner

Maruti Suzuki launched its new compact SUV Ignis which we believe is likely to be another winner due to its superior features, performance and higher fuel efficiency than its competition. Our analysis suggest that at the introductory launch price for Ignis, profitability of the car will be significantly lower than for Maruti Swift and we expect the company to raise prices after assessing the order book. Maintain Buy with an unchanged target price of R6,300.

Ignis pricing is aggressive—profitability likely to be lower than for Swift: Our analysis suggests that Maruti Suzuki’s introductory pricing of Ignis is very aggressive given the features the company has offered in the car. Ignis has significantly superior features over Swift and Hyundai Grand I10. The company has spent R9.5 billion (along with vendors) for the development of the car which will need to be compensated to the vendors till Ignis hits cumulative volumes of 200,000.

Maruti has priced the petrol variant of Ignis very aggressively while diesel variant will likely be significantly more profitable. We estimate the company will make a blended Ebit of ~R44,000-69,000/vehicle on Ignis Delta/Zeta variants versus ~R75,000 for Swift once Ignis achieves cumulative 200,000 volumes.

It is difficult to estimate profitability of models but we have made calculated estimates on profitability of Ignis versus Swift after assessing the features and pricing of both cars. Maruti Suzuki will likely raise prices of the Ignis (especially the petrol variant) once it assesses the order book of the car. According to our channel checks, the company had achieved an order book of 8-12 weeks even before announcing the pricing of the car. We estimate the company will likely sell 90,000 units of Ignis in FY2018 (60,000 of petrol and 30,000 of diesel variants). We do believe Ignis will eat into Swift numbers and it could take additional volumes from Hyundai as well.

Ignis scores over Hyundai Grand i10 and Swift: Maruti Ignis will compete with Hyundai Grand i10 and is priced competitively but has superior features, better power and fuel efficiency than the Hyundai fare. We believe the car is likely to appeal to the younger generation as they prefer compact SUVs and feature packed cars with bolder styling over hatchbacks.

The company has also provided ABS + EBD and dual air bags as standard from the base variant itself in Ignis which will significantly improve the safety of the car which is not a standard fitment in Swift or Grand i10. We believe on paper, Ignis seems to score over Maruti Swift and Hyundai Grand i10, but compact SUVs appeal more to the younger generation than middle/older generation. Also the stability of compact SUVs has not been tested as yet as it is a relatively new development in India given the small wheelbase as compared to larger SUVs.