Why StanChart says Maruti is a good investment bet for FY13

After a traumatic 2011, some more relief for Maruti Suzuki, India's largest-car maker: sales rose by6.5 percent to 1,18,949 units in February. It was the second month of sales gains; until December, sales had declined for seven straight months.

The rise in monthly sales was mainly due to a sharp jump in its compact car sales segment comprising Swift, Ritz and Estilo. However, the star performer of the month was the Dzire, which reported a sharp 59 percent jump in sales to 15,068 units.

After a long bearish spell, some brokerages are turning positive on the company. Standard Chartered, for instance, has issued an upbeat report on the car maker, which has a stock price target of Rs 1,381. The stock is currently trading at Rs 1,315.

Standard Chartered believes Maruti will continue to remain the preferred car choice for Indian consumers because of its value-for- money vehicles, best-in-class efficiency, wide distribution reach and high resale value of its cars.

In the past, the company has received the highest customer satisfaction rankings from consumers, the report noted.

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Overall, Standard Chartered expects Maruti to regain its market share for the year ended March 2013 because of the low base of the previous year and a lack of launches from the competition in the compact car segment. In 2011, the company's market share dipped to a 10-year low of 40 percent. A decade ago, Maruti Suzuki accounted for 55 percent of passenger vehicle sales.

It offered the following reasons for that belief:

•The company has an order backlog of six months for its new Swift due to the employee strike that disrupted production in the second half of 2011;

•Swift Dzire is expected to give a big boost to sales, which is already evident with the 59 percent jump in sales in February year-on-year;

•Maruti Suzuki plans to launch a new model, Ertiga, in April 2012 and another vehicle in 2013;

•With the increase in diesel engine capacity to 4,00,000 units per annum from the earlier 2,50,000 units, the company could look forward to launching diesel variants of existing models like the Wagon R and Estilo.