Maruti Suzuki shares rose on Thursday despite persistent volatility on Dalal Street, after Jefferies raised its target price for the auto major's stock by 23 percent. The brokerage expects Maruti's earnings to more than triple between the year ended March 2022 to that ending March 2024, as it sees already strong demand for the auto major's passenger vehicles.
The Maruti Suzuki stock climbed up by as much as Rs 172.3 or 2.2 percent to Rs 8,025 apiece on BSE.
Jefferies sees easing input costs to help Maruti Suzuki improve its margin goin forward. Jefferies also said Maruti Suzuki's strategy on electric vehicles will be key to its longer-term franchise.
The brokerage maintained a 'buy' call on the Maruti Suzuki. Its target price for the stock suggests an upside of 30.5 percent from Wednesday's closing price.
The brokerage's view on Maruti Suzuki stock comes days after a monthly update from the company highlighted strong demand for its passenger cars though on a low base.
Maruti Suzuki said the May figures were not comparable with the corresponding period a year ago, which saw its operations get affected significantly due to COVID-related disruptions.
Falling metal prices should help the company improve its margin from a historical low, according to Jefferies, which said its earnings per share (EPS) projections for the company are 16-20 percent above Street estimates.
The replacement cycle with a preference for personal mobility should provide a boost for Maruti Suzuki, it said.
The spot metal cost basket for autos is below the levels seen in the October-December 2021 period, according to Jefferies. It expects Maruti Suzuki's margin to recover to 9.5 percent in the year ending March 2023 and 12.0 percent in the year ending March 2024.
Jefferies also said that a weak presence in SUVs has hurt Maruti Suzuki, but new products should be around the corner, and falling metal prices should help the company improve its margin.
The period between 2018-19 and 2021-22 was one of the toughest phases for the company given the combined impact of a demand slowdown, a chip shortage, a weak SUV presence and a metal price rally on its EPS.
"We see demand, product and margin cycles aligning favourably over the next two years, driving a 42 percent rise in volumes and trebling of EBITDA and EPS over FY22-24," Jefferies said.
Motilal Oswal has a 'buy' rating on the Maruti Suzuki stock with a target price of Rs 10,000, which implies a 27.3 percent upside.