CLSA retains ‘sell’ tag as Maruti’s momentum from new products slows down

Despite record highs and renewed momentum in the Maruti Suzuki stock, which has zoomed nearly 11 percent in the last month, brokerage firm CLSA remains unimpressed because of simmering competition and limited thrust from the recent launches by the country’s largest automobile player.

While analysts have maintained their ‘sell’ rating on the stock, CLSA has raised the target price to Rs 9,417, from Rs 8,796. Investors, however, seemed undeterred by the report and drove the stock to gain 0.2 percent to end at Rs 10,586 on the NSE last Friday.

What’s causing CLSA to be cautious about the stock?

Fiercely competitive SUV space

While the broking firm believes that FY24 will be a ‘fabulous’ year for the company, it doesn’t see Maruti carrying the same kind of steam heading into FY25. “Maruti’s SUV market share in the sports utility vehicle (SUV) segment will decline to low single digits in FY25 and FY26 versus 19 percent recorded in CY23,” CLSA said. The firm forecasts Maruti’s market share to reduce to 4-5 percent in CY24 and CY25.

Also read: Maruti Suzuki receives show cause notice from GST Authority

New products aging fast

During the course of the year, Maruti had just one SUV launch (electric vehicle), while rival Tata Motors had five launches in the CY24. Mahindra and Mahindra and Hyundai had four each. Analysts at the firm suggest that the only way Maruti will retain its market share in the coming quarters is by giving discounts in Brezza and Fronx, segments where competition is on the rise. This, they suggest, will come at the expense of a drop in margins.

Also read: Maruti Suzuki’s total sales up 3% to 181,343 units in September, hits 1 mn-mark in H1FY24

In its report, CLSA drew a comparison between Maruti’s Brezza and Tata Motors’ newly launched Tata Nexon. It suggests that even though the Brezza is cheaper, the Nexon offers many more features and more power. “Brezza is on the waiting period right now because MSIL is prioritising Fronx and Grand Vitara.

Also read: Strategic pricing, advanced features to help Tata Nexon rule SUV space: Nomura

Lastly, EBITDA margins are expected to come down in FY25 and FY26 and competition in the compact SUV segment will start hurting.

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