Maruti shares fall 3% post Q2; should you buy, hold, or sell this auto stock?

Shares of Maruti Suzuki India dropped nearly 3% in intraday trade on Monday as investors digested September quarter earnings report. The stocks of auto heavyweight declined even after Maruti clocked record growth in the second quarter of the current fiscal, owing to profit booking at higher levels. Maruti shares touched a 52-week high of ₹10,846.10 in intraday trade on Friday after the country’s biggest car manufacturer released its earnings figures, which topped analysts’ estimates.

Paring previous session gains, Maruti shares declined as much as 2.9% to hit an intraday low of ₹10,248.05 on the BSE. Early today, the auto stock opened 1.8% higher at ₹10,741.30 against the previous closing price of ₹10,552.90 on the BSE. The stock witnessed sharp volatility today, in sync with the broader market, falling 4.6% from the day’s high level.

At the time of reporting, shares of Maruti were down 0.98% at ₹10,450 mark, with a market capitalisation of ₹3.15 lakh crore. The stock touched a 52-week low of ₹8,076.65 on December 12, 2022. The share price of the auto major has risen 9% in 12 months; 23.6% in the calendar year 2023; over 18% in six months; and 0.5% in a month.

Automobile bellwether Maruti recorded its highest-ever quarterly sale volume, net sales and net profit in July-September quarter, aided by strong sales, ease in commodity prices, cost reduction efforts, and higher non-operating income.

In Q2 FY24, Maruti reported an 80.3% jump in its profit at ₹3,716.5 crore as compared to ₹2,061.5 crore in the corresponding quarter last year. The net sales surged 19.6% to ₹35,535 crore, against ₹28,543 in the second quarter of FY23, thanks to higher sales volume and product mix. The EBITDA stood at ₹4,784 crore, up 72.8% as compared to ₹2,768 crore, while the margin rose 360 bps to 12.9% as compared to 9.3% in the year-ago period. During the quarter under review, the company sold 5,52,055 vehicles, while sales in the domestic market were 482,731 units and 69,324 cars were exported. 

Should you buy, hold, or sell Maruti shares post Q2?

Post Q2 results, Prabhudas Lilladher has retained ‘Buy’ call on Maruti Suzuki with an upgraded price target of ₹12,485, from ₹11,500 estimated earlier. The agency believes that Maruti Suzuki India (MSIL) is well placed to benefit from market share gains and average selling price (ASP) increase from higher mix of the new utility vehicle (UV) portfolio, as well as improvement in margins on the back of lower input price, cost control, operating leverage and export volume.

“Management maintained that margins are sustainable in the current scenario and inventory movement is a normal phenomenon. Also small cars will continue to lag, while exports will improve over the medium term,” it adds.

Another domestic brokerage, JM Financial also maintained a ‘Buy’ rating on Maruti, with a 12-month price target of ₹11,750 from ₹11,500 projected earlier. “After two consecutive years of market share loss, we believe that MSIL is at the cusp of market…Revival in the entry-level segment remains a key monitorable,” it says in a report.

On demand environment, the agency says pending order book as at October 23 stands at 250k units (vs 355k units at the end of Q1), led by higher demand for recent launches and CNG models. “Improving component supplies (largely normalised now) helped the company to lower order backlog. Dealer inventory stands at a comfortable level of 1+ month,” it noted.

In terms of exports, MSIL is targeting to grow export volumes by 3x by FY31, on the back of gradually increasing presence across regions and expanding product offerings, it adds.

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