Maruti added Rs 19,000 crore to shareholders' wealth

Analysts say in spite of its recent recall of 100,000 Swift, Ertiga and Dzire cars, Maruti's outlook remains stable.

For the shareholders of Maruti Suzuki India, FY14 wasn't a smooth ride. 

Even as the car maker emerged as the number two wealth creator among the BSE Sensex companies by adding Rs 19,307 crore more to its market capitalisation, the company was panned for its plan to outsource car making capacity to parent Suzuki.

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The company would have been the top gainer in the market cap charts, ahead of Hindalco, had it not been for its outsourcing plan announced in February this year that could have reduced Maruti into a trading firm. 

On protest by investors, the car maker announced in March it would seek consent from minority shareholders. But the damage to company's corporate governance record was done. 

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Analysts say in spite of its recent recall of 100,000 Swift, Ertiga and Dzire cars, Maruti's outlook remains stable. But the worry is as sales of cars are sensitive to economic variables, any rise in interest rates, fuel price and inflation could hurt volume growth. 

"Though the demand outlook remains cautious in the next few months, given the pent-up demand, any positive trigger for consumer sentiment, like an interest rate cut, could drive strong growth for Maruti," says Jinesh Gandhi, automobile analyst at Motilal Oswal Securities. 

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Besides, higher competition in the Indian market could impact margins over the longer term and the appreciation of the yen could result in significant deterioration in margins for Maruti, he says.

The cut in excise duty during the interim Budget failed to boost sales of Indian automobiles, indicating that the economic slowdown and higher interest rates continue to weigh on demand. 

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In March, Maruti sold 5.5 per cent cars less than in the same month of 2013.

Yet, the company consolidated its position in the industry with a 42 per cent market share. 

Analyst expect the demand outlook to remain weak, particularly for cars and commercial vehicles, mainly because of the uncertain macroeconomic environment.

In the long run though, expected easing of interest rates as inflation tapers off should revive demand and could be the key driver for volume growth.

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"The outlook of Maruti remains robust led by new launches, sustained demand environment and improvement in Margins due to decline input costs. Increase in market cap of Maruti has been highest in percent terms in FY14 whereas in absolute terms Tata Motors remained the leader. The increase in Maruti shares were primarily driven as most of the issues related to labour with the company were resolved and operations were resumed. Valuations remained attractive and also got a leg up on sharp decline in yen vs dollar, though it was marginally changed vs rupee. Also, hopes of the parent company raising stake in Maruti were also rife which led to buying in the company in the last fiscal," says Ajay Jaiswal of Microsec Research.

Against this backdrop, Maurti has planned an aggressive pipeline with 14 new launches in the next five years.

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It recently launched the Celerio AMT, which has received over 32,000 bookings since Feburuary. 

The company is also planning to launch a compact sports utility vehicle, challenging the duopoly of M&M and Ford in the utility vehicle segment.

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The company is planning a new mid-end sedan Ciaz and a new SX4 to take on Honda and Hyundai. 

"The company is well prepared for an eventual demand pick-up, with adequate capacity, strong marketing network and an exciting new product pipeline," says Gandhi.