Buy Maruti Suzuki; target of Rs 14800: Motilal Oswal

What happened

Motilal Oswal said Maruti Suzuki's second-quarter profit fell short of its estimate because of mark-to-market losses, which reduced other income. However, the profit per sale, measured by EBITDA margin, was 8.9%, above its 8.1% estimate, helped by better gross margin.

Confirmed

Global impact / market context

The broker cut its earnings estimate for the year by 7% but still expects 11% yearly earnings growth over two years. It repeated a buy rating with a target price of Rs 14,800, meaning it expects the stock to rise.

Analyst inference

Motilal Oswal expects Maruti Suzuki to keep gaining market share, helped by new models, recovering domestic demand, low dealer inventory and new factories. Rising raw material costs and a weaker export mix could limit near-term profit per sale.

Analyst inference

What to watch

1. Motilal Oswal cut its earnings estimate for the year by 7% because of expected pressure on near-term profit per sale from commodity inflation, a poor export mix and limited room for price increases. Confirmed
2. Watch whether raw material costs moderate and sales volumes rise, since the broker expects these to drive gradual improvement in profit per sale and 11% yearly earnings growth. Analyst inference
3. The stated buy rating with a target price of Rs 14,800 depends on the broker's view that market share gains will continue and support a higher valuation of the stock. Proposed

Evidence

• Original source link unavailable