Goldman downgrades Maruti Suzuki to ‘neutral’ on slowing demand for small cars

Global research and broking firm Goldman Sachs has downgraded auto major Maruti Suzuki India to ‘neutral’ from its earlier ‘buy’ rating. It has also slashed the price target for the stock by 20 percent to Rs 8,800.

The firm cited persistent weakness in demand for small cars as the primary reason behind the downgrade. Goldman Sachs is of the view that persistent slowdown in the small car segment could offset market share gains for the country’s largest carmaker in FY24.

The stock also reacted negatively to the news and at 10.28 am, shares of Maruti Suzuki India were down 1.01 percent at Rs 8,431 on the National Stock Exchange.

The downgrade comes at a time when the carmaker is gearing up to more than double its SUV (Special Utility Vehicle) sales and grab the top spot in the segment in 2023.

The company’s sales volume in the mini and compact vehicles segment declined to 83,414 units in March, down from 97,805 units a year ago. Total passenger vehicle sales fell 16 percent on-year to 83,714 units.

Also Read: Maruti eyes doubling SUV sales this fiscal & take leadership position with 25 percent market share

A similar trend was seen in total domestic sales, which came down to 139,952 units from 143,899 units in the same month a year ago. However, exports surged 13.67 percent year-on-year in March to 30,119 units.

On top of that, the broking firm also believes that a stronger Japanese Yen in FY24 could represent some currency headwinds on the margin front for Maruti Suzuki. On that account, Goldman Sachs has also cut its FY24-FY25 EPS (earnings per stock) estimates for Maruti Suzuki by 15-18 percent.

The company pays royalty fees to its Japan-based promoter, Suzuki Motor Corporation. Hence, a stronger Yen will increase the company’s royalty bill and squeeze its margin.