What Could Drive 30% Upside For Indian Auto Leader Maruti?

by Trefis Team
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Maruti Suzuki India Ltd. (Maruti) is the largest automobile manufacturer in India, with an almost 50% share in the developing nation’s steadily growing passenger vehicle market. The company’s share price peaked at INR 10,000 recently, and currently trades at ~INR 9,100. We estimate that the fair value for Maruti’s stock is currently around INR 9,350. However, our upside scenario for the company estimates a price north of INR 12,000 – representing potential gains in excess of 30%.

We arrived at our price estimate for Maruti’s stock using just 5 core metrics for the company:

  • Number of Passenger Vehicles that will be sold in India in 2018, which represents the total market size
  • Maruti’s share of India’s passenger vehicle market

  • Ratio of export car sales to domestic car sales for the company this year, which allows us to estimate the number of export car sales for the company

  • Profits per car, which represents the net profit generated by the company per car sold

  • Profit-to-value multiple, which we estimate to be 32.5

Our upside scenario uses more optimistic estimates for these five inputs, as detailed below:

  • Total market size increases to 3.4 million (instead of 3.15 million under the base case). The upside scenario represents an annual growth rate of just above 10%, which is comparable to the 9% growth rate in 2017 compared to 2016.
  • Maruti’s market share increases to 51% (instead of 49% under the base case). Such a scenario is possible as Maruti has seen success across segments with its recently launched cars
  • Export to domestic ratio remains largely level at 8.5% (instead of decreasing to 8% under the base case)
  • Profits per car increases to $850 (from $800 under the base case). This can be achieved if sales growth in SUVs and Crossovers (which have a higher profit margin) is faster than that for small- and mid-sized offerings
  • Profit-to-value multiple is 35 (instead of 32.5 in the base case). The higher multiple figure can still be justified given Maruti’s extremely strong presence in small cities and towns across India, which gives it a distinct advantage over competitors.

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