Maruti Suzuki India reported a quarterly loss for the first time in Q1 since its listing in 2003, as the coronavirus lockdown and supply chain disruptions sapped demand for the country’s biggest automaker.
The carmaker posted a net loss of Rs 249.4 crore for the quarter ended June 2020. Profit in the June quarter 2019 stood at Rs 1,435.5 crore and was Rs 1,291.7 crore in the March quarter 2020. Revenue from operations declined sharply by 79.2 percent to Rs 4,106.5 crore compared to the year-ago period.
However, despite the loss, the stock rose over 3 percent in intra-day deals as brokerage retained a positive view on the stock. The stock has fallen over 13 percent so far this year but has added 9 percent in July.
So why are the brokerages bullish despite the loss?
Though there is still some uncertainty with regards to COVID-19, experts feel like the worst is over. Demand moving back to pre-COVID levels and the massive market share of the automaker keeps the experts bullish on the stock.
Prabhudas Lilladher, in its report, noted that demand trends have bounced back around 85-90 percent of pre-COVID level, encouraging across rural and metros. Demand trends moving closer to pre-COVID levels and low dealer inventory would be positive for wholesale in the upcoming months, it added.
It also informed that the share of first-time buyers for Maruti has gone up by 5.5 percent which will benefit the company.
The brokerage believes that Maruti is not only the beneficiary of likely trend of the shift towards personal mobility but also seeing a structural shift towards petrol cars, especially in lower segments.
Meanwhile, Phillip Capital also continues to remain optimistic on stock owing to the following factors:
1) Maruti is most likely to benefit from trend reversal away from shared mobility and shift towards entry-level hatchbacks.
2) Robust rural demand on the relatively lower impact of COVID and better farm incomes with high rabi yield, higher MSPs and above-average rainfall.
3) Concerns around diesel addressed through product interventions including mild-hybrid and CNG.
4) Healthy dealer finances, to aid retails as demand picks up.
Finally, Elara Securities said that given FY21 is likely to be another year of double-digit decline, it could hamper competition’s profitability and, thus, Maruti with its strong balance sheet can emerge stronger. Maruti's volume market share is 51 percent and EBIT market share is as high as 85 percent as on FY19, which could increase further, it added. It expects the firm's market share gains over FY20-22 despite competition.
So now, should investors buy at current levels?
Phillip Capital expects high single-digit volume growth for the rest of FY21. COVID-19 disruption is expected to be a temporary blip in otherwise robust structural theme, it said. Given Maruti’s position as the industry leader and potentially high growth beyond FY21, it maintains a 'buy' call on the stock with a target at Rs 7,000.
Elara, on the other hand, has an 'accumulate' rating on the stock with target raised to Rs 6,650 from Rs 5,500 earlier.
Prabhudas Lilladher also has a 'buy' call on the stock with target raised to Rs 6,858 from Rs 6,442 earlier.