We maintain outperform on Maruti Suzuki with a target price of Rs 1,960. Though the stock is at an all-time high, the strong product cycle means we see further upside.
While Maruti Suzuki has a strong India-centric portfolio, it is not present in up to ~20% of the market, which it hopes to correct in 2-3 years. CY14 will be a big year for Maruti Suzuki India with three new launches lined up. In fact, five new models are due in 2-3 years: Mini hatch to replace A-Star, Estilo; replacement for SX4; new SUV (X-Alpha); premium hatch; and compact UV (competing with the Ecosport). The two SUVs will plug the only gaps in its portfolio.
If there is a recovery, Maruti Suzuki should benefit immensely from these launches as it has a lot of spare capacity. Against annual volumes of ~1.2 million units, it has a capacity of ~1.8 million.
We feel Maruti Suzuki's own diesel engine will further strengthen its position. Until now, Maruti has been using the same 1.3-litre, 4-cylinder multi-jet diesel engine (licensed from Fiat) on all its vehicles. The new SUV (competing with Duster) should use the new 1.6-litre, multi-jet Fiat engine (new Fiat Linea would be the first car using the engine).
Suzuki is also now developing its own small, two-cylinder diesel engine. It is likely to be first used in LCVs (a new segment that Maruti plans to enter in 2015). The LCV segment has seen a strong ~25% CAGR in the past five years. As Suzuki is already present in this segment in Japan, product development shouldn't be an issue.