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Home » Auto » Maruti Suzuki gains 3% post Q3 nos, cut in royalty; analysts see up to 22% return
Maruti Suzuki gains 3% post Q3 nos, cut in royalty; analysts see up to 22% return

Maruti Suzuki gains 3% post Q3 nos, cut in royalty; analysts see up to 22% return

Brokerages were very upbeat on the stock and hiked target price to as high as Rs 11,000-plus as well.

Shares of Maruti Suzuki gained over 3 percent intraday on Monday as investors cheered the December quarter results. They largely reacted to the development of lesser royalty payouts by the firm, which it announced during the results declaration.

The company reported a 3 percent growth year-on-year in profit at Rs 1,799 crore for December quarter and cut royalty payment. The board approved a revision in the method of calculating royalty which would result in lower royalty payments for new model agreements starting with Ignis. These changes would be implemented after approval by the board of parent company Suzuki Motor Corporation.

Profitability was hit by lower other income due to mark-to-market impact on the invested surplus and higher tax expenses. Profit for year-ago quarter stood at Rs 1,747.2 crore, the company said.

Revenue from operations for the quarter grew by 14.2 percent to Rs 19,283 crore compared to Rs 16,888 crore in year-ago, driven by double digit sales volumes.

The company sold a total of 4,31,112 vehicles during the quarter, a growth of 11.3 percent over the same period last year, with domestic sales growing 12.4 percent to 4,00,586 units.

The board approved a revision in the method of calculating royalty which would result in lower royalty payments for new model agreements starting with Ignis. These changes would be implemented after approval by the board of parent company Suzuki Motor Corporation.

Brokerages were very upbeat on the stock and hiked target price to as high as Rs 11,000-plus as well.

Brokerage: CLSA | Rating: Buy | Target: Rs 11,300 |

CLSA said that lowering of royalty rates should lift margin. It cut FY18 EPS estimates by 3% but raise FY19-20 EPS By 2-3%. Further, it is seeing strong demand trends and enquiries grew 20 percent year on year in Q3.

Brokerage: Axis Cap | Rating: Buy | Target: Raised to Rs 10,427

The brokerage house said that Q3 EBITDA was in line with estimates; margin strong at 15.8%. Further, it said that the order backlog of 24 months for new models lends visibility to strong volume growth. In fact, reduction in royalty payments was in line with the management commentary.

Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 10,500

Deutsche Bank said that the results were robust on the operating front, while announcement on royalty is a positive surprise. This means it can be margin accretive in the near term. It expects model cycle to continue to strengthen in the next 12-24 months. Going forward, it expects the launch of all-new Swift to be followed by new Ertiga & Vitara in FY19.

Brokerage: Goldman Sachs | Rating: Buy | Target: Rs 10,702

Goldman Sachs said that based on proposed revised royalty calculation, and it estimates a potential uptick to the company’s FY20 EBIT. Further, it sees the company as one of the best plays on the Indian consumption story.

Brokerage: IDFC Sec | Rating: Outperform | Target: Rs 10,500

The brokerage house said that the net profit was below estimates on lower other income amid strong operating performance. Further, improvement in gross margin on yoy basis is a key positive. It cut estimates for Fy18 by over 2 percent, but maintains FY19/20 earnings.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 9,800

Credit Suisse said that higher commodity cost & rising share of volume from Gujarat dragged gross margin. It is building in a reduction in royalty from current 5.3% to 4.5% by FY20. Most benefits should come in by next 2 years, leading to 3-5% increase in FY19, 20 estimates, it said in a report.

Brokerage: Edelweiss | Rating: Buy | Target: Rs 10,676

Edelweiss said that mark to market loss on treasury book has lead to 13 percent profit miss. While demand outlook is strong, it expects rural to continue to outpace urban demand. Sharp jump in commodity costs yet to reflect on P&L. While FY19 EBITDA remains largely intact, revise down EPS Over 7.5%.

Brokerage: HSBC | Rating: Buy | Target: Raised to Rs 10,400

HSBC is positive on Maruti’s market share & earnings growth potential. It sees strong quarterly performance & successful negotiation for lower royalty.

Brokerage: Jefferies | Rating: Buy | Target: Rs 10,720

Jefferies raises margin estimates to factor in higher revenue, better EBITDA margin. Further, it believes that the company remains the best way to play large long-term PV opportunity in India. Moreover, recent market share gains in new segments and long waiting periods will lead to an upcycle. Higher competitive intensity, miss in margins are key downside risks to the stock.

Brokerage: Kotak Sec | Rating: Add | Target: Raised to Rs 10,500

Kotak Securities said that the operating margin will improve due to scale benefits. It cut EPS estimates by 1-4% due to lower income assumptions.

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 10563

The brokerage said that upside risks to earnings remain; Swift launch will be next catalyst.

Brokerage: Nomura | Rating: Buy Target: Raised to 11,245

Nomura sees higher growth visibility; premiumisation, royalty to drive profitability. It said that the firm is its top pick in the coverage universe. It also expects the company to deliver 17% revenue & 19% EPS CAGR over FY18-20.

At 09:33 hours IST, the stock price was was quoting at Rs 9,577.25, up Rs 300.05, or 3.23 percent on the BSE.

Source: moneycontrol.com

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