Credit Suisse on Maruti Suzuki

Credit Suisse reiterates the `Outperform’ rating on Maruti, and raises the target price marginally to Rs 1,720. They believe that the Indian car industry is set to witness exponential growth over the next few years. India is set to cross $3,000 per capita (PPP), a point at which many markets have taken off. Demographics, income profile and car-buying culture should help accelerate car ownership. While there is an influx of competition, the uniqueness of Indian consumer taste (small cars), and tentativeness in new players’ plans, augur well for the incumbents. Credit Suisse marginally raises the earnings estimates and forecasts EPS growth of 36% per annum in FY09-12E. In a high-growth market, excessive focus on market share numbers could be misleading. Maruti benefits from India’s growth without being exposed to the typical cyclical problems of the auto industry. Over the past 24 months, Maruti has displayed strength in its balance sheet, cash flow as well as earnings, even during the crisis. The stock deserves to trade at a premium to the market. Credit Suisse values the stock at 18x FY11E core earnings.