Why has CLSA downgraded Maruti Suzuki price target and what are the implications?

The pressure on auto stocks is not secret and we have seeing the impact of that on the profits as well as the price performance of the stocks like Maruti Suzuki. Out of the various news flows around Maruti in the last week, there was CLSA downgrading the stock of Maruti with a price target lower by almost 15% from the current levels. What is this downgrade and what could be the larger implications of this move.

Let us first understand why CLSA has downgraded Maruti Suzuki. In fact, CLSA has cited two key reasons for the downgrade. Firstly, according to CLSA, Maruti has been hit sharply by rising input costs of commodities. This had resulted in pressure on margins. The second aspect of Maruti losing market share is more serious as it hints at tough competition in the auto market place. Maruti remains a leader, but reasons for loss of market share are key.

Let us look at the market share loss in detail. Firstly, the competition has become quite intense with a slew of new launches in the market. Secondly, the acute shortage of micro-chips forced Maruti to shut down production at some its plants due to supply disruption. Maruti got hit more than other players. Lastly, Maruti has slow to shift to EVs. It is here that other players have taken a lead and could be a question mark on growth and valuations.