InvestorQ : Since Maruti has cut the production by 40%only due to shortage of electronic chip. There is no fundamental issue with the company performance. Need an advice if this can be purchased and hold for a year or so for decent returns. Current price is 8k.
VINOD MEHRA made post

Since Maruti has cut the production by 40%only due to shortage of electronic chip. There is no fundamental issue with the company performance. Need an advice if this can be purchased and hold for a year or so for decent returns. Current price is 8k.

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ishika Banerjee answered.
2 years ago
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You may have to be a tad cautious about jumping into the stock. Firstly, the shortage of microchips is here to stay for some time and is not going away in a hurry. That is going to impact production, which is already being cut. Hence low fixed cost absorption will hit profits in the coming quarters. The other problem pertains to input costs that have gone up sharply and Maruti may be limited by its ability to raise car prices indefinitely.

Thirdly, there is a problem in that Maruti is totally scrapping diesel cars and shifting to all petrol cars and that is going to dent profits in the short run. While the decision is good overall, it will impact profits in the short run. Also Maruti is not too aggressive on electrical vehicles, which is normally giving most of the valuation edge to auto companies, not only in India but across the world. Maruti may not be a great value bet at this point.

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