Honda Amaze likely to give Maruti a run for its money: IIFL - Moneycontrol.com

Prayesh Jain, AVP Research, IIFL feels auto-giant Maruti Suzuki India is likely to face stiff competition from Honda Amaze, which will be launched this month. Speaking to CNBC-TV18 he said though the company's volume trajectory may remain sedate in the first half of FY14, but from the second half onwards some recovery is likely. "People have started accepting the fact that they have to live with higher fuel prices. So, demand could start revising, and sentiments improve," he added. He sees more upside to Maruti Suzuki and has a target price of Rs 1,700 on the stock. Also read: Maruti Suzuki to benefit from falling yen, stock up over 7%   Here is the edited transcript of the interview with CNBC-TV18 Q: What have you calculated will be the advantages for Maruti Suzuki India with the yen at even 96? A: With every 10 yen movement against the dollar, the margins improve by around 200 basis points (bps) for Maruti Suzuki India, factoring in that the yen has moved from around 84-85 to around 96 right now. We even assume conservatively that it stays at this level for entire FY14. We can expect around 200-225 bps kind of margin expansion. But the main problem for FY14 is volume growth. Even if you assume zero volume growth, we still end up with an earnings per share (EPS) of somewhere around Rs 85. If we assume that 15 percent growth in volumes is there in FY15 and the yen stays at 96 for the fiscal, we might end up with the EPS somewhere in the region of Rs 115-120 for Maruti Suzuki India. So that leaves scope for appreciation in the stock from current levels. Q: Even in terms of sales numbers, Maruti Suzuki India was the only company which exceeded expectations. Combining these two factors, would you say that the kind of exuberance that we are seeing on the stock today is not unjustified and it could surprise on the way up. Of course until March, this was the best performing stock. It is only in the second half of March when we saw that big fall in Maruti Suzuki India's price. What would be your price targets for Maruti Suzuki India if this kind of trend continues? A: The volume trajectory is likely to remain steady at least in the first half of FY14. This is because first of all, Honda Amaze gets launched in the middle of April and that is a severe competition for Dzire which was one of the top selling models. In fact, that is the only car that showed very strong growth of 20 percent in March volumes. So, possibly Maruti Suzuki India is building up inventories with the dealers to face the competition from Amaze. The volumes could be steadied in the first half but from the second half, we might see some recovery with interest rates possibly being cut by around 100 bps by that time, and people would have started accepting the fact that they have to live with higher fuel prices. So, demand could start revising, and sentiments could improve. In that term, the second half would be much better than first half of FY14. FY15 could be even better. We factored in flat volumes for FY14 and around 15 percent in FY15 and margin expansion of around 200 bps in FY14, and another 10-15 bps in FY15. Factoring in all this, we think that the stock has more room for an upside and we would have a target price of around Rs 1,700 for the stock. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGs1s4RjG-E7y2twlsq0jc8UEpy8g&url=http://www.moneycontrol.com/news/stocks-views/honda-amaze-likely-to-give-marutirun-for-its-money-iifl_847670.html

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