Date:13/02/2005 URL: http://www.thehindubusinessline.com/bline/iw/2005/02/13/stories/2005021300300800.htm

Back Maruti Udyog: Hold

S. Muralidhar

Mr Jagdish Khattar, MD, presenting the Suzuki Swift... The new car is expected to bring in more volumes in the premium small car segment.

SHAREHOLDERS can remain invested in the stock of Maruti Udyog (MUL) for potential gains in the medium term. At Rs 498, the stock trades at about 18 times its trailing annualised earnings per share of Rs 28.

Car market leader MUL is going through a significant change in market strategy and has taken on a more aggressive outlook after the change in management.

Instead of the relatively slow-to-react approach of the past, MUL now wants to take the challenge to the competitor's turf.

For instance, the aggressive launch of the Bharat Stage III emission norm compliant variants of its existing models; it wants to be the first to adopt new technology and emission standards. Or the decision to offer advanced features such as anti-lock braking and airbags in its small car, the Wagon-R.

Quite apart from these self-motivated moves, there could be a couple of other reasons for the stock to seek higher levels during the next six months to a year. One is the Budget, which could have an industry-wide impact, but benefit the market leader the most. The other is a MUL-specific development — the impending launch of one of the most awaited cars. The Budget, by all indications, promises to be auto industry-friendly.

The Finance Minister has hinted that he would be inclined to offering budgetary sops to boost the industry's growth as the sector's contribution to the economy has reached a critical level.

The expected cut in peak import duties in the Budget will affect the auto industry and so a commensurate cut in local taxes and levies may be on the cards to offer the sector a level-playing field.

As such, local manufacturing will continue to be the most competitive market strategy. This would be the case despite the free-trade agreements that India has with other countries, which also have their own highly competitive automotive industries.

If the Budget does come up with the expected sops for the auto industry, the biggest beneficiary will be MUL.

The second event that could drive up the MUL stock price in the coming months is the launch of the compact, premium B segment car, the Suzuki Swift.

This will be one of the more contemporary vehicles from the Suzuki assemble lines and the first time that the Japanese company will be bringing in a model within months of its international debut.

Priced and positioned right, the Swift could emerge a segment leader and even help MUL lead the diesel cars segment, when its plant goes on stream in 2006.