Brokerage firm Kotak Institutional Equities in a note on September 1 argued that the current valuations ascribed by investors to Maruti Suzuki India’s stock imply that everyone in the country will be driving a car manufactured by the company in the next 30 years.
“Our reverse valuation exercise for MSIL (Maruti Suzuki India) stock shows that its current market capitalization is implying about 10 percent CAGR in PV (passenger vehicle) volumes over FY2022-52,” said in a note authored by Sanjeev Prasad, Anindya Bhowmik and Sunita Baldawa of Kotak Equities.
As per Kotak Equities’ analysis, investors anticipate Maruti Suzuki’s passenger vehicle volumes to soar to 12 million per annum in 2042 and 31 million by 2052, which the brokerage house feels is “simply unachievable”. For the context, Maruti Suzuki sold 1.9 million units in 2018-19.
The brokerage firm said that it expects the total industry volumes for passenger vehicles to hit 13.9 million in 2042 and 25 million by 2052 based on China’s current size and per-capita GDP. China sold 25 million units of passenger vehicles in 2017 at a time when its GDP per capita was $8,800, whereas India’s per-capita GDP is only expected to reach $9,500 by 2052.
If the analysis holds true, then investors are expecting almost every car on the Indian roads to be manufactured by Maruti Suzuki India.
Kotak Equities is also of the view that the current stock price of India’s largest car maker is failing to discount challenges with respect to weak presence in the fast-growing sports utility vehicle (SUV) segment and changes in automobile technology.
“We are not sure if MSIL can make a significant turnaround in the fast-growing SUV segment where its performance has lagged peers. Investors have been hopeful of it,” the brokerage house said.
Shares of Maruti Suzuki India have rallied 23 percent so far in 2022 after a dreadful 2021 on the back of optimism that the company’s planned launches in the SUV segment will help the company recover the market share lost to the likes of Tata Motors in the past three years.
“We would note that the SUV space has several players now, and MSIL may face an uphill task in regaining market share and profitability both,” Kotak Equities said.
On the technology front, Maruti Suzuki is meaningfully lagging behind peers such as Tata Motors and Mahindra & Mahindra who have invested substantially in preparing themselves for the transition to electric vehicles from internal combustion engines.
At 11:35 am, shares of Maruti Suzuki were up 0.7 percent at Rs 9,144 on the National Stock Exchange.
