Can Maruti Suzuki stock hit Rs 10,000 levels?

STOCK MARKET - After a stellar 60% rally thus far in calendar year 2017 (CY17) and outperforming the S&P BSE Sensex and S&P BSE Auto indices that rose 26% and 25% during this period, can Maruti Suzuki hit the five-figure mark over the next one year? Analysts at Nomura believe that Maruti, which is already trading near its 52-week high level on the National Stock Exchange (NSE) can come close to hitting this figure.

In Nomura's latest report on the outlook for global auto companies for 2018, Maruti Suzuki with a price target of Rs 9,843 features among the top regional pick for 2018 along with China’s BYD and United States headquartered Tesla, with Toyota being their preferred global pick in the auto sector.

“Strong demand for new models, benefits from market trend towards premiumisation, and healthy cash flow generation, are key positives which make Maruti Suzuki our top pick in the Indian auto sector," writes Kapil Singh, an analyst at Nomura tracking the sector in a co-authored report.

India’s passenger vehicle (PV) market is in the midst of a structural growth cycle and is likely to see a 12-14% CAGR over the next 5 – 10 years, Nomura says, underpinned by 6-7% annual growth in gross domestic product (GDP). With a pick-up in growth (Nomura pegs GDP growth at 7.6% by 2019F), new vehicle sales could grow at a compounded annual growth rate (CAGR) of 12 – 14% over the next few years.

As regards the two-wheeler segment, Nomura expects growth to stay around a 10% CAGR over the next 5 – 10 years, given higher ownership levels. However, scooter growth could be much stronger at around 15-20% driven by rural preferences and a growing number of working women.  Medium and heavy commercial vehicle (MHCV) growth is likely to remain strong (15% y-o-y in FY19/3F) due to the enforcement of overloading restrictions and improving industrial activity, Nomura believes.