Maruti Suzuki's Q3 nos fail to cheer D-St analysts; here's why

NEW DELHI: Maruti Suzuki’s December quarter numbers failed to enthuse analysts as they felt higher-than-expected discounts in the third quarter confirmed the challenging demand environment and left limited demand visibility.A strong rabi sowing data hints towards an impending rural recovery, they said, but an absence of diesel portfolio in the near-term remains a key monitorable for the stock, they added while slashing EPS estimates for the auto maker by 5-8 per cent for FY21-22 to factor in weak demand.Credit Suisse has maintained neutral on Maruti Suzuki with a target of Rs 6,400. It has cut its FY21-22 EPS estimates by nearly 8 per cent to rationalise weak volumes. Goldman Sachs also felt that discounts dragged the Q3 numbers, but this brokerage expects some recovery and believes Maruti is best-positioned for the BS-VI transition. Other brokerages beg to differ. “Q3FY20 numbers reaffirm our thesis of a weak demand environment. We continue to believe MSIL’s market share and/or profitability remain at risk due to a muted new product cycle. In the near term, customer acceptance of the petrol Brezza replacement for the BS IV diesel variant post BS VI transition remains a key determinant of earnings,” said Edelweiss Securities. Edelweiss has revised down its FY21 EPS estimate for the auto maker by 5 per cent to factor in weak demand and adverse commodity outlook; and has revised target for the stock to Rs 5,852 from Rs 6,009 earlier.Nirmal Bang Institutional Equities remained negative on the stock, as demand scenario remains uncertain and consumer preference shifts towards utility vehicles (UVs).Since Maruti is dominant in the cars segment, which is declining faster than UVs, it has been losing market share in the UV segment, the brokerage noted.Data showed that 10 out of 13 new launches in the PV segment of late were utility vehicles. As a result, UV share in PVs increased from 27.9 per cent in FY19 to 34.2 per cent in first nine months of FY20.“We expect Maruti to continue losing market share as more models will be launched in the UV segment and industry experts anticipate UVs to outperform cars in FY21 as well. Besides, although declining, but 20 per cent of Maruti’s volume in 3QFY20 was diesel and the company will not be converting its diesel offerings to BS-VI for now. We see this as another reason why Maruti will lose share in the medium term as competition,” the brokerage said.

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