Maruti in sweet spot in new launches and easing cost pressures

Maruti in sweet spot in new launches and easing cost pressures

by 5paisa Research Team Last Updated: Aug 08, 2022 - 06:58 pm 41k Views

For the December 2021 quarter, wholesale dispatches of Maruti in the passenger vehicles (PV) segment fell by -12.6% to 123,016 units. However, the hope is that two of its biggest challenges may be gradually easing.

Firstly, the high prices of metals that had become a bane for Maruti, have shown signs of topping. While metal prices are still high in absolute terms, the maximum strain appears to be over. Secondly, microchip shortage is easing.

With the microchip situation easing, Maruti plans to enhance its daily output of cars from 6,500 in December 2021 to around 8,000 in March 2022. This should bring Maruti output closer to the pre-stress levels and give a boost to the top line numbers.

For the full fiscal year 2021-22, Maruti is expected to close with 16.5 lakh units, which would be a growth of 15% over the previous fiscal year 2020-21. However, this is assuming that the microchip supply gets back to normal and Omicron does not pose any headwinds.

One impact of the pandemic and the microchip shortage was that Maruti had put off any fresh launches. For example, before Maruti launched the New Celerio in Nov-21, it had not launched any new product in the market for 30 months. That had impacted market share.

Now, Maruti is planning a slew of 6 SUV launches in the next 3 years with 2 launches slated for the calendar year 2022. Out of these 2 launches, one is expected to compete with the Hyundai Creta while the other will compete with the rugged Mahindra Thar.

While the volume share of Maruti dropped by 430 basis points to 44.7% in the current year, Maruti still is having 50% of the incremental PV orders. That gives hope to the company that it would gradually regain its 50% plus market share in passenger cars.

But things will not be all that easy for Maruti

However, despite the size and reach of Maruti, it is up against some serious challenges this time around.

•    Maruti has continued to remain sceptical about big EV investments at a time when most Indian companies are gravitating towards EVs. Even valuation metrics are now favouring EVs than traditional automobiles. Just look at Tesla for affirmation.

•    Valuations are a concern for Maruti. It is currently trading at nearly 28 times forward P/E, which his closer to the upper end of the range of P/Es that the stock has traded in the last 5 years. It would be hard to sustain such P/Es without a solid EV plan.

In a way, Maruti is in a sweet spot with respect to costs and demand. However, it may have to take the EV challenge a little more seriously.

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