Is it time to hitch a ride on Maruti?

Is it time to hitch a ride on Maruti?

If you’ve watched Fast & Furious (the first, the original, the greatest, not one of the infinite sequels), you probably remember the scene towards the end where Vin Diesel is racing against Paul Walker. Well, Maruti Suzuki finds itself in a similar situation against the global semiconductor. And after playing catchup for a fair while, it finally seems set to take the lead. This is good news for all those waiting on a long list to bring a good ol’ Maruti car home, and also those interested in the carmaker’s shares.

Keep the wheels spinning

India's biggest carmaker reported net sales of Rs 19,297 crore for Q2 FY22, a 9% jump year-on-year. But despite the increase in sales, an exorbitant rise in the prices of raw materials meant that its profit fell 65% over the same period, from Rs 1,371 crore to Rs 475 crore. But despite rising costs, Maruti kept rolling out vehicles, managing global sales of over 379,000 vehicles for the quarter. That roughly translates to an average production of 126,000 vehicles per month despite automakers across the globe competing for limited resources. It lost out on producing an estimated 116,000 vehicles due to the shortages.

Maruti’s average pre-pandemic production was around 167,000 vehicles per month, and with every passing month it’s getting closer to returning to that figure. Its production for October was around 40% higher than in September, and is expected to rise a further 20% in November to hit 150,000 vehicles. This should help add a shine to Maruti’s festive sales figures, given the vehicles will be flying off the shelves with 200,000 orders already pending at the end of the September quarter.

Rolling it in

Maruti’s profit figures should improve too, given that it implemented its third price hike of the year in September. The impact of the hike will be reflected much better in the ongoing quarter. Going forward as well, once the all-time-high input costs cool off, the margins will further improve.

What’s more, given the high demand, Maruti is planning to set up a new production plant for the first time in 15 years. It has set aside Rs 2,200 cr for setting up a plant in Haryana in FY22 as part of its 10-year Rs 18,000 crore plan to expand capacity by 1 million units a year. More cars and higher margins certainly hints at a pleasant drive ahead.

There is a huge pent up demand for many consumer items, and automobiles are no different. The new vehicle scrappage policy will also spur a further demand for vehicles. If Maruti manages to build on its lead in the market, its stock will very likely be strapped into the passenger seat.