Maruti slips 40% from De­cem­ber high of ₹ 3 tril­lion mar­ket cap

At $28 bil­lion, a three-year low, Maruti Suzuki’s val­u­a­tion is now close to that of its Ja­panese par­ent, Suzuki Mo­tor MARUTI vs SUZUKI


For In­dia’s largest car­maker that hit a record val­u­a­tion of ₹ 3 tril­lion in De­cem­ber, all it took to sur­ren­der 40% of that value was a mere 10 months.

At $28 bil­lion, a three-year-low, Maruti’s val­u­a­tion is close to that of its Ja­panese par­ent, Suzuki Mo­tor Corp. Against its peak share price of ₹ 10,000 on 20 De­cem­ber 2017 and a mar­ket cap of $46 bil­lion, Maruti shares closed at ₹ 7,011.15 on Wed­nes­day, 10 Oc­to­ber. In­vestors, who have been ex­it­ing Maruti shares dur­ing this pe­riod, con­tin­ued to sell af­ter the com­pany re­ported sub­dued sales in the quar­ter ended 30 Septem­ber. Maruti has cited the fall­ing ru­pee and a sharp rise in oil prices as rea­sons for the toll on its stock price.

To be sure, Maruti con­tin­ues to be In­dia’s undis­puted car mar­ket leader, with a share of nearly 51%.

Do­mes­tic pas­sen­ger ve­hi­cle (PV) sales of Maruti grew 13.19% in the July-septem­ber quar­ter. Be­tween 2011-12 and 2017-18, its do­mes­tic PV sales grew from 1.01 mil­lion to 1.65 mil­lion, while over­all PV sales in In­dia grew from 2.02 mil­lion to 3.29 mil­lion.

“Maruti was ear­lier given pre­mium val­u­a­tions due to its near mo­nop­o­lis­tic po­si­tion in PV and its cost ef­fi­cien­cies. This is get­ting back to nor­malcy, fear­ing a bump in its growth tra­jec­tory,” said Deepak Jasani, head of re­tail re­search at HDFC Se­cu­ri­ties Ltd. “The pay com­mis­sion, es­pe­cially of states, was a big stim­u­lus for auto sales over the past two years. Now, this tail­wind is get­ting ex­hausted. Sen­ti­men­tally, auto stocks are in a mild down­trend and may not re­vive in a hurry.”

Ajay Seth, chief fi­nan­cial of­fi­cer at Maruti Suzuki, said the com­pany was con­cerned about the weak­ness in the ru­pee, which closed at 74.07 against the dol­lar on Mon­day.

“Dol­lar-yen is pretty sta­ble... dol­lar ru­pee is a con­cern... it is a steep de­pre­ci­a­tion. It re­flects in the stock price but there, oil price is also a fac­tor,” Seth said, high­light­ing a sharp

In­vestors, who have been ex­it­ing Maruti shares since 20 Dec 2017, have con­tin­ued to sell af­ter the firm re­ported sub­dued sales in Sep quar­ter

Maruti’s val­u­a­tion, which is cur­rently at a three-year low of $28 bn, is now close to that of Ja­panese par­ent Suzuki in­crease in the prices of petrol and diesel in the last six months.

Any in­crease in fuel price prompts price­sen­si­tive In­dia buy­ers to de­fer their pur­chase de­ci­sions. On Mon­day, Brent crude was trad­ing at $82.97 a bar­rel.

The ru­pee has fallen nearly 13.77% against the dol­lar in the year so far, while it weak­ened about 13.27% against the yen, Bloomberg data showed.

In the mean­time, car loans have turned costlier too, with in­ter­est rates at In­dia’s largest len­der, State Bank of In­dia, ris­ing from 9.4% per an­num in Jan­uary to 9.7% in Septem­ber.

Prices of petrol and diesel in the last six months have risen 5.4% and 10.3%, re­spec­tively.

Maruti’s for­eign cur­rency ex­po­sure is about 5% of net sales, Seth said in an an­a­lyst call on 26 July. He said the largest forex ex­po­sure was on the yen due to roy­alty pay­ments to par­ent Suzuki, in ad­di­tion to im­ports from Ja­pan, fol­lowed by the dol­lar at 18-20% of im­ports and a “small balance” com­pris­ing the euro.

A 1% gain in the yen ver­sus the ru­pee leads to a 0.7% drop in Maruti’s earn­ings per share, Deutsche Bank said in an early Septem­ber note, as it cut profit fore­casts for FY19-21 by as much as 5%.

A weaker ru­pee hurts both au­to­mo­bile and com­po­nent mak­ers in In­dia as they are im­porters of pri­mary raw ma­te­ri­als such as steel, alu­minium and crude oil, which have dol­lar-de­nom­i­nated prices.

Due to all these fac­tors—and the floods in Ker­ala—con­sumer sentiment has been weaker than ex­pected in the last two months.

In the same pe­riod that Maruti lost nearly 40% of mar­ket value, Tata Mo­tors Ltd lost 50.66%, while Mahin­dra and Mahin­dra Ltd gained 3.12%.

“These chal­lenges cou­pled with high base of fes­tive sales dur­ing the same pe­riod last year lim­ited whole­sale growth across OEMS (orig­i­nal equip­ment man­u­fac­tur­ers). How­ever, with the on­set of fes­tive pe­riod from Oct, OEMS are hope­ful of a re­cov­ery in con­sumer sentiment,” JM Fi­nan­cial said in a re­port on 1 Oc­to­ber.

Maruti chair­man R.C. Bhar­gava said stock move­ment does not de­fine his com­pany’s strate­gies. “I can’t see what we can do dif­fer­ent from what we are do­ing. I don’t un­der­stand the share mar­ket. I don’t know why they went up to ₹ 10,000 and why it came down,” he said. “We are still do­ing what we have been do­ing. We have slightly in­creased mar­ket share, profit lev­els are quite rea­son­able. Fi­nan­cial po­si­tion is as sound as ever. My busi­ness is to run the com­pany as ef­fi­ciently as pos­si­ble and I can’t have an eye on the stock mar­ket.”

“We keep an eye on the stock mar­kets, but that does not af­fect our de­ci­sion mak­ing,” he added.


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