Maruti Suzuki witnesses ups and downs in its share price

Maruti Suzuki India Limited, the country’s largest car maker, has witnessed instability in the stock market in recent times, with sales figures playing a crucial role. Although the fear of raised tax slabs loom on diesel vehicles, the auto maker still plans to make new launches driven by a positive growth in its sales for June 2012.

The sales figures released by Maruti Suzuki in June 2012 fascinated analysts as the cumulative sales of the auto giant grew by 20.3 per cent when evaluated against the figures recorded in the same period last year. Considering the domestic sales of the car maker, the figures expanded by 19.3 per cent and were fairly high than anticipated. The labour strike at the company’s factories in June had a serious effect as production was forced to shut-down for a couple of days.

The segments in which the company’s Swift, DZire and Ertiga are floating, hold a dominant position and, thus, all the three segments witnessed a decent increase in sales. Analysts have noted that one fourth of Maruti’s cumulative sales comes from its diesel vehicles. This is a segment in which the car maker has offered competitive vehicles and this should have a healthy effect on its profits. Another positive point for the car maker is that the models like Ertiga have had large number of enquiries.

According to a recent Edelweiss Securities Limited report, “Average discount per car in Q1FY13 (quarter ended June 2012) so far at Rs. 13,000 is better than Rs. 13,300 in Q4FY12 due to higher contribution of diesel cars.”

There have been reports that the auto maker plans to introduce new models, which is another favourable factor for the company. Reportedly, Maruti was planning to introduce an 800 cc diesel engine. A parts vendor has claimed that this will take around two years for the car maker; however, a new 800 cc petrol car from Maruti’s stable will hit the Indian roads by Diwali, this year.

On the other hand, the volatility in Indian rupee will definitely affect the earnings of the car maker. Considering the adverse currency movements in the financial year 2013, Bank of America-Merrill Lynch has reduced its earnings per share forecast by 23 per cent. Margins too, are expected to be adversely affected, although the company’s merger with the diesel engine manufacturing unit, Suzuki Powertrain India Ltd might bring some relief for the auto maker.

Despite all the odds, the stocks of Maruti Suzuki continue to do well and is most preferred in the auto segment, in spite of the fact that it is trading at a premium price-earnings multiple among trading firms. This is shown in the recent upgrades by Jefferies India Private Limited and Spark Capital Advisors (India) Private Limited. However, the recent purchasing managers’ indices show an increased chance of inflation which definitely brings thought to mind if it was too early to be happy about the cyclical upswing.