Honda's Amaze to have minimal impact on Maruti's volumes - Business Standard

Falling growth in the passenger car segment and a muted outlook saw the Maruti Suzuki stock shed 20%  since February. While the stock has recovered part of the losses this month on the back of a weaker yen and market share gains, higher competition and the economic slowdown will put some pressure on company's volumes going ahead. However, while lowering their FY14 volume estimates for Maruti, analysts also expect relatively lesser impact on the company versus its other competitors due to Honda's recently launched diesel car. Since the launch of Honda's Amaze on April 11, Maruti's stock has remained flat at Rs 1,425 where it trades at 13.4 times its FY14 estimated earnings. While Amaze's launch would take away some share from the market leader (Maruti dominates with over 70%), the impact would be more on weaker brands than on D'zire given the company's servicing and after-sales cost advantage, feel some analysts. Given the headwinds from the poor economic environment and rising competitive pressure, brokerages have cut their price targets for Maruti's stock. For instance, JP Morgan has recently cut its price target for the next year to Rs 1,535 and P/E multiple to 14 times (which is at a 10% discount to its historical average) given rising competition and sedate industry growth. Citi Research too has a neutral rating on the stock due to a challenging macroeconomic situation and subdued industry outlook. Most analysts as per Bloomberg data, however, continue to be positive on the stock. As per price targets, there is still upside of over 8%. More competition, smaller brands to be hit      Last week, Honda launched its first diesel offering Amaze in the country which competes directly with Maruti's bestselling sedan Swift D'zire. Citi Research analysts led by Jamshed Dadabhoy say that the company's (Honda's) diesel variant's specs – stated fuel efficiency – 10 per cent more than the D'zire with 33 per cent more power, and price points in-line with the D'zire, should help it to rapidly capture share in this segment. Another sub-4 metre car that is also expected to hit the market in May is utility vehicle leader M&M's Verito Vibe. The hatchback is expected to compete the Maruti's other money spinner, the Swift.    Bank of America Merrill Lynch analyst S Arun says that the Amaze is likely to eat into the share of Dzire and to a lesser extent the Swift. However, he believes that other models such as GM's Spark and Tata Motors' Manza (both pricier and weaker franchises) in the category are likely to be more impacted than the market leader. Honda, moreover has capacity constraints (can manufacture about 4,500 units a month), which would minimise the impact with fresh capacities expected only after a year. Thus, while D'zire which had an average volume of 14,000 units a month (its clocked 20,000 units in March 2013) will be impacted, weaker brands like Indigo, Etios, Vento, Sunny, Verito, Sail, Manza and Classic could lose a larger chunk of market share than the segment leader. Volume impact minimal    What has helped Maruti avoid the blushes in FY13 is the strong volumes from diesel-powered vehicles in its portfolio, which account for over 30% of volumes. The company ended the previous fiscal with a three per cent year-on-year growth in volumes due to higher sales of diesel cars which helped offset the steep drop of its petrol car portfolio. Nomura analysts believe that the FY13 performance was led by strong order books for the Swift and D'zire models and higher exposure to rural markets where growth still remains strong, in our view. This also helped the company improve its market share by 300 basis points year-on-year to 45.7%. However, going ahead, given that even the diesel car sales have moderated, Gaurant Dadwal of Nirmal Bang has cut volume estimates for the company by 8% each in FY14 and FY15 to 1.241 million and 1.407 million, respectively. This reflects an increase of 6% year-on-year for FY14, which is in line with Maruti's own guidance of a 5-7%  growth. In order to sustain growth and counter competition, Maruti is also launching new products. For instance, Maruti has recently launched a limited edition of its D'zire model to counter Honda's Amaze. Additionally, it plans to launch a MPV (multi-purpose vehicle) and a SUV (sports utility vehicle) that will not only fill the gap in its portfolio but will also improve blended realisations. Given the capacity constraints in diesel segment, Maruti has been gradually enhancing its installed capacity. This has helped the company reduce the waiting period of its Swift and D'zire models from over 4-5 months to two months currently. More progress is expected on this front, which will help cater to the demand for its vehicles.  via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGf0R0fnVB-APrydwd46DZ4jXYKXQ&url=http://www.business-standard.com/article/companies/honda-s-amaze-to-have-minimal-impact-on-maruti-s-volumes-113041500464_1.html

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