Maruti Suzuki – Speeding Production and Profits

India is witnessing robust demand trends in the car segment. Demand continues to be strong against a backdrop of economic recovery. Bank financing continues to improve; Maruti’s cars sold on credit reached 71% now from 60% last year.

The Manesar plant (where Swift and Dzire are produced) is operating at peak capacity, while the Gurgaon plant offers scope for expansion. Maruti expects make an official decision about potential capacity expansion at the Manesar plant, which could add 100-300k units (9-27%) to capacity, which should meet demand for the next three years.

HSBC is Overweight with a rating and target price of INR1880 as they believe that the company should be a key beneficiary of urban demand recovery. Target Price implies a target PE of 19x FY11e EPS of INR101. FY10 EPS is likely to be Rs 86.

UBS Expects of Rs 82 and 103 for fy10 and fy11 respectively.
HOLD or ADD on Decline.