InvestorQ : How do you see the new launches by Maruti Suzuki? Also, do you see the microchip shortage easing out this year?
Lavanya Subramanian made post

How do you see the new launches by Maruti Suzuki? Also, do you see the microchip shortage easing out this year?

Anamika Sodhani answered.
4 months ago

You would recollect that on the last day of December, Maruti had announced auto numbers which had come in -12.6% lower for the passenger vehicles (PV) segment at 123,016 units. Let me talk about the input costs and microchip shortage first. Metal prices may be still high in absolute terms, but maximum strain appears to have topped out. Also, the microchip shortage is not as acute as it was just a few months ago.

The easing of the microchip shortage is evident from the fact that Maruti now has the confidence to raise its daily output of cars from the current 6,500 to around 8,000 by March 2022, bringing output closer to the pre-stress levels. So, clearly, there are positive indications for Maruti on the front of the microchip shortage and input prices, two of its biggest challenges over the last few quarters. Now let me turn to the new launches.

For FY22, Maruti is expected to report sales of 16.5 lakh units; growing 15% on yoy basis. However, the assumption is that Omicron does not assume larger proportions. One area that will be closely watched is the new launches because Maruti had put off fresh launches for some time. In fact, before Maruti launched New Celerio in Nov-21, there were no new product launches in the market for 30 months. That is slated to change.

Just to give an idea, Maruti will launch a total of 6 SUV (sports utility vehicles) in next 3 years with 2 launches slated for calendar 2022 itself. Out of these 2 launches slated in 2022, one of the SUVs will compete with the upper-mid range Hyundai Creta while the other Maruti model, Jimmy, will compete with the rugged Mahindra Thar. Maruti has seen its volume share drop to 44.7%, although this year, it is likely to share getting back to 50% levels.

However, things will not be all that hunky dory for Maruti. For instance, Maruti continues to remain wary about big EV investments Indian companies going aggressive on EVs and even valuation equations are favouring the EV makers. With all the advantages of easing input costs, easing microchip shortages and new launches, Maruti will still be up against stiff forward valuations in terms of P/E close to the median range of the last few years.