- Maruti Suzuki shares fell after HSBC cut its target price citing margin pressure
- HSBC noted commodity costs rose 20% since December, impacting margins by 200 bps
- If prices don't rise, Maruti Suzuki may face margin squeeze and need to hike prices
Maruti Suzuki shares are in focus on Friday's trading session after HSBC cut the target price on the counter, citing margin headwinds in the form of rising commodity costs.
In its latest note, HSBC has highlighted that the commodity cost index has risen nearly 20% compared to the December quarter levels, which could translate into significant margin headwind for the company.
The brokerage firm estimates that a 20% increase in the commodity cost index results in a 200 basis point margin impact for the Indian automaker.
Things could take a turn for the worse if there is no price reversal in the near future, as it will lead to a scenario where Maruti Suzuki can no longer absorb the margin pressure and may have to resort to price hikes, which in turn could impact demand.
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However, the brokerage firm notes that Maruti Suzuki has been able to retain its market share in the Indian auto space despite capacity constraints, whereas demand itself has sustained as well.
But at a time of global hardware shortages and raw materials volatility due to geopolitical uncertainty and supply chain constraints, Maruti Suzuki could face some pressure in the March quarter and perhaps beyond.
Keeping all these factors in mind, HSBC has retained its 'buy' call on Maruti Suzuki but has sharply cut the target price from Rs 17,400 to Rs 18,000. This implies an upside of 20% from the previous closing price of Rs 14,471.
Out of 51 analysts tracking the company, 37 maintain a 'buy' rating, 12 recommend a 'hold,' and two suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 5.4%.
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