Maruti Suzuki’s shares surged more than 4 percent on Monday, the street giving a big thumbs up to its monthly sales announcement.
The India’s largest passenger car maker reported a huge 61 percent year-on-year jump in sales in August at 87,323 units. This included 52 percent jump in domestic sales at 76,018 units, while exports nearly trebled to 11,305 units.
One must remember, though, that Maruti Suzuki’s Manesar plant had been shut in August 2012 due to a workers’ unrest, in which a HR manager was killed. This is a key reason that the company’s sales figures zoomed last month.
So was the market cheer premature? Not quite. If we consider month-on-month growth, Maruti’s sales have increased 5 percent, with both domestic sales and exports showing an uptick.
This on top of July sales, which had increased a little over 1 percent, with domestic sales rising 6 percent.
“Our channel interaction indicates pick-up in festive demand particularly in Southern and Western region. Over the next couple of months, Maruti Suzuki is expected to build up channel inventory from current 40 days to 50 days to benefit from festive demand pick-up. Discounts (avg/unit) have remained largely stable since June,” according to a local brokerage.
The company has a strong product line up in Swift hatchback, DZire compact sedan and Ertiga MUV, apart from its small car range, which includes Alto800, WagonR, A-Star and Ritz. To add to that the company launched the Stingray (which is essentially based on WagonR) last month, which should further give the car maker’s sales a boost in the festive season.
Deutsche Bank in its report last week, maintained a “buy” rating on Maruti Suzuki shares, citing low valuations.
“The normalisation of the gasoline-diesel vehicle mix and a demand recovery in entry level cars (24 percent of volumes) is aiding Maruti’s competitive position,” Deutsche Bank said.
However, it added that its channel checks indicated continued weakness in consumer sentiment and discounts continued on most models across the sector, except new launches like Honda’s Amaze and Ford’s Ecosport.
Deutsche Bank has also cut Maruti Suzuki’s EPS (earnings per share) forecast for FY14 by 14 percent on the back of the recent sharp Rupee depreciation.
HDFC Securities, which rates Maruti Suzuki “neutral” says the company’s presence in the rural market (30 percent of Q1 sales), provides near-term hope given good monsoons and the upcoming festive season.
We are heading into a busy festive season. Lets see if that coupled with a good rural demand can help the turnaround and lift the gloom over the auto industry in India.