Citi raises Maruti Suzuki to 'buy' on strong Q4 results

Moneycontrol Bureau

Citigroup Global Markets upgraded Maruti Suzuki to "buy" from "neutral" on Monday driven by significantly better-than-expected growth in fourth quarter earnings, and said after two years of stagnant growth, the passenger car industry was showing signs of bottoming out and  as a market leader, the company was positioned to gain from the industry growth.

"Maruti has been gaining share in the domestic car market up 300 bps year-on-year to 46 percent in FY13. We expect a further gain in share, once 1.5 lakh diesel engine capacity is commercialized in second half of FY14," said Citi analysts Jamshed Dadabhoy and Arvind Sharma.

Competition in the Indian market is increasing with Honda's recently launched Amaze taking Maruti's DZire compact sedan head on and Nissan is also set to launch its Datsun brand in the country in July. But the analysts expect Maruti to manage these challenges, given strong brand value and widest sales and service network.

The Citi analysts have raised their target price on Maruti to Rs 1,966 from Rs 1,677 and also upgraded their earnings per share target for FY14 by 21 percent and 17 percent for FY15.

Higher EPS reflects margin expansion of around 150 bps in both years, 125 bps from  Yen appreciation and 25 bps from localisation initiatives, Dadabhoy and Sharma said.

Maruti Suzuki shares hit a new 52-week high of Rs 1,704.35 on Monday morning. At 10:45 hrs, the stock was up 1 percent at Rs 1,689.90 on NSE.