Maruti Suzuki India Ltd (MSIL) could emerge as the biggest beneficiary of demand recovery in the post-Covid period, considering its stronghold in the entry-level segment and a favourable product lifecycle, as per domestic brokerage and research Axis Securities.
Sharing as its top stock pick of the week, the brokerage has a Buy rating on Maruti Suzuki shares with a target price of ₹8,500. The auto stock has risen about 5% in 2022 (YTD) so far.
“New launches, are being rightly targeted at filling the gaps in its portfolio, and would likely improve the overall product mix moving forward. Moreover, the company would gain further market share, driven by an expected shift towards petrol and CNG vehicles,” the note.
The brokerage house expects the auto company’s volumes to witness a strong growth compound annual growth rate (CAGR) of 16% over FY22-24E and also expects margins to be supported by strong demand, softening commodity inflation, and improving chip shortages.
“We expect a recovery of both market share and margin in FY23 and FY24, led by a favourable product lifecycle, operating leverage, and product mix as well as price action/cost-cutting,” Axis Securities added.
Though Q1FY23 margins will be lower quarter-on-quarter (QoQ) due to the rise in steel, aluminium and copper prices, the brokerage expects the same to normalize from H2FY23E onwards and resume its uptrend.
“MSIL’s export volumes remain robust and the growth has been driven by the usage of Toyota’s international network, the introduction of more products, expanding reach, and the implementation of innovative selling practices. The opportunity in the export market continues to be lucrative and the company’s renewed efforts are working out very well,” said Axis Securities.
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