Examining Maruti Share Price , Stock Performance, Demand Challenges, and Broker Opinions
Maruti Suzuki’s share price experienced a notable 2% increase on October 29, 2024, reaching Rs 11,394 despite ongoing concerns around demand for entry-level cars. This unexpected boost comes even after the company reported lower-than-expected quarterly profits, prompting mixed reactions from brokerages. Investors now face the question: Is Maruti Suzuki stock worth holding onto, or is it time to reconsider?
Maruti Suzuki Share Price Quarterly Performance: Revenue Growth but Declining Profit
In its latest quarterly earnings report, Maruti Suzuki posted a 17% year-on-year drop in net profit to Rs 3,103 crore. This dip surprised analysts, as the company fell short of their projections for the second quarter of FY24. The revenue from operations did show marginal growth, reaching Rs 37,449 crore, but this was overshadowed by a deferred tax liability of Rs 1,018 crore. This liability, impacted by recent regulatory changes affecting indexation benefits and capital gains tax rates on debt mutual funds, heavily influenced the quarterly net profit.
Despite these setbacks, Maruti Suzuki’s stock has managed to gain momentum, buoyed by investor optimism around the upcoming festive season. Company management expects a 14% year-on-year increase in festive sales, which could ease inventory pressures and reduce discount requirements.
Brokerages Offer Mixed Reactions on Maruti’s Stock
The brokerage community holds diverse views on Maruti Suzuki’s future, with some expressing caution over demand issues for entry-level cars and others optimistic about long-term growth potential. Here’s a look at what major players like Nomura, HSBC, Investec, and UBS have to say:
Nomura: A Neutral Stance with Caution on Margins
Nomura maintains a cautious stance on Maruti Suzuki, rating the stock as “neutral” with a target price of Rs 12,455. Nomura’s outlook reflects concerns around softening demand and margin pressures in Q2. With demand for entry-level vehicles waning, Maruti may need to continue offering discounts, which could strain short-term profitability. However, improvements in CNG vehicle sales and rising average selling prices (ASPs) provide some silver lining, according to Nomura.
HSBC: ‘Hold’ with Hope for FY26 Recovery
HSBC has also taken a cautious stance, reiterating a “hold” rating with a slightly higher target price of Rs 14,000. HSBC’s analysis attributes Maruti’s margin weakness to ongoing challenges in the demand environment, particularly for entry-level cars, and high discounting. While they anticipate Q3 to be challenging, HSBC remains optimistic that by FY26, Maruti will see a recovery through demand stabilization and new product launches. HSBC further noted that a tax cut for hybrid vehicles could present an upside risk for Maruti’s valuation.
Investec: Lowered Target Price Due to Demand and EV Concerns
Investec, while retaining a “hold” rating, has reduced its target price from Rs 14,030 to Rs 12,385. The brokerage cited operational challenges impacting Maruti’s margins as a primary concern, with demand weakness in the entry-level segment continuing to weigh heavily. This trend, according to Investec, is partly due to a consumer shift toward premium vehicles. Additionally, Investec raised concerns around Maruti’s reliance on Toyota for electric vehicle (EV) technology, which may impact Maruti’s future in the rapidly growing EV segment.
UBS: Positive Long-Term Value Amid Festive Demand
On the more optimistic side, UBS has maintained a “buy” recommendation, although it slightly lowered its target price from Rs 15,200 to Rs 14,800. UBS acknowledges the Q2 profit miss due to gross margin contractions but sees potential in Maruti’s controlled inventories and solid festive demand, indicating a healthier outlook than initially expected. UBS believes that while short-term volatility may persist, Maruti’s demand fundamentals remain strong, supported by steady festive sales and manageable discounting strategies.
Future Prospects: Electric Vehicles and New Product Launches
Amid varying brokerage opinions, Maruti Suzuki has exciting developments on the horizon. The company recently announced the upcoming launch of its first all-electric vehicle, set to debut in January 2025. Unlike other EVs built as retrofits on traditional internal combustion engine (ICE) models, this new vehicle will feature a high-spec platform exclusively designed for electric use. This move could help Maruti tap into the fast-growing EV market, enhancing its value proposition and potentially offsetting current challenges in the entry-level car segment.
The Demand Dilemma: Shift to Premium Vehicles
One of the major concerns raised by brokerages is the shifting demand from entry-level to premium vehicles. The mid-single-digit growth anticipated for FY25 is weighed down by weak demand for entry-level models, driven by evolving consumer preferences. As incomes rise and buyers seek more technologically advanced vehicles, Maruti Suzuki may need to adjust its portfolio mix to focus on mid-range and premium models, while ensuring that entry-level offerings remain competitive.
Should You Buy, Hold, or Sell Maruti Suzuki Shares?
With mixed reactions from brokerages, the decision to invest in Maruti Suzuki largely depends on individual investment horizons and risk tolerance. For those with a short-term outlook, concerns around demand, margins, and regulatory challenges may make Maruti a less attractive option. However, for long-term investors, the upcoming EV launch, potential recovery in margins, and Maruti’s ability to adapt its product portfolio could position the company for growth in the coming years.
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FAQs
1. Why has Maruti Suzuki’s stock price fluctuated recently?
Maruti Suzuki’s stock price has fluctuated due to a combination of lower-than-expected Q2 profits, weaker demand for entry-level cars, and margin pressures. Despite these challenges, the stock recently gained 2% due to optimism around festive demand and upcoming new product launches, including an all-electric vehicle set for January 2025.
2. Is Maruti Suzuki a good buy for long-term investors?
Long-term investors may find value in Maruti Suzuki, particularly with the company’s upcoming EV launch and potential recovery in demand by FY26. While short-term pressures from lower demand in entry-level cars and regulatory challenges may impact performance, Maruti’s strong brand presence, new product offerings, and strategic shift toward EVs could provide growth opportunities in the long run.
