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Maruti sets the pace with new models, premium play

One out of every five cars sold by the country's largest automaker in December was a Vitara Brezza, Baleno, Ciaz or an S-Cross -all new models in its product portfolio.

, ET Bureau|
Updated: Jan 18, 2017, 08.05 AM IST
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ET Intelligence Group: Amid a volatile demand scenario, nearly 24% of the passenger car volume over the past year has come from new models. With a slew of model launches, Maruti Suzuki India was one of the biggest beneficiaries of the trend.

One out of every five cars sold by the country's largest automaker in December was a Vitara Brezza, Baleno, Ciaz or an S-Cross -all new models in its product portfolio.

Against this backdrop, the launch of the Ignis, which was announced on January 13, is expected to keep the tempo high for Maruti. The hatchback is touted to be feature-rich to attract customers in the age group of 18-29, often referred to as millennials.



This age group now accounts for 27% of the total car purchase in India, compared with 22% six years ago. In the hatchback segment, nearly 55,000 units are sold every month. If Ignis' volumes are able to touch 10,000 units a month, similar to the Brezza and Baleno, it would lead to a 4-5% volume upgrade for the company.

Maruti has an internal target of producing 21,000 units of the Ignis in the current fiscal year through March. The company is set to launch fully refreshed versions of the Swift and Swift Dzire and the Baleno RS in 2017. Analysts expect Maruti's overall volume to grow 5% and 12% in fiscal years 2017 and 2018, respectively.

According to analysts, Ignis may make an operating profit of Rs 44,00069,000 per vehicle as compared to Rs 75,000 by Swift. The margin on Ignis will improve once its cumulative production crosses 2 lakh units.

Apart from new models, Maruti has also been successful in launching cars with price tags above Rs 4 lakh, through what is known as premiumisation.

The volume of such cars has touched 10,000 units per month. This should help in boosting average realisation and operating margins in the long term. Its average realisation grew 6% on an annualised basis in the fiscal year 2016.

Given the combined impact of volume visibility and premiumisation, Maruti is emerging as one of the best large-cap consumption stocks. It is available at 22 times the company's estimated fiscal 2018 earnings.

The valuation appears reasonable for a quality franchise with its potential of earnings upgrade if the impact of demonetisation on passenger vehicles is softer than feared.
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