Wednesday, 19 November 2008

Remain invested in Maruti Suzuki: Tulsian

Investment Advisor SP Tulsian is of the view that one can remain invested in Maruti Suzuki.

Tulsian told CNBC-TV18, "The best part is that Maruti Suzuki is almost debt free the total debt on the balance sheet is not more than Rs 500 crore. If you take the present market capitalization of about Rs 15,000 crore if you see the dealer network of Maruti the same kind of network if you create can cost you about Rs 15,000 crore. Forget about the manufacturing capability and all that, they have the production capability of 6,000 units per year and they have been introducing various models from time to time. Their Q2 performance has been a bit disappointing with a Q1 EPS of 16 and Q2 EPS of about 10 that means that they have posted an EPS of about 26 in the first half but if you see the sharp fall in the commodity prices particularly metals, each car is requiring about 500-600kg of steel and the kind of fall we have seen alone in that will definitely get passed on to the users for allowing their company to maintain their market share. But I don’t think that if they can maintain their margins, there will be so much concern on their profitability."

He further added, "Even if I take a conservative EPS estimate of about of 50, the share is ruling at a PE multiple of close to about 11 on the historic earnings and all that which is very low for the leader and particularly at the time when you have the credit crunch. The company, which is totally debt free, you cannot really expect that kind of a thing, if you see the alternative as Tata Motors who has heavily loaded with debts into their books maybe with a debt equity ratio of more than 1.5 if I take the combined debt after acquiring JLR etc, so taking all into consideration Maruti is an ideal bet if you can keep a view of about 12 months on the stock."

"On the interim basis if it touches Rs 600 then as a trading call one can get out at those levels and which is possible maybe once you see the recovery in the market once in the next 15 days or so you could see the share bouncing back to about Rs 600 levels. So that could be an exit point but otherwise this makes an ideal buy and for those who are already holding the stock and remain invested."

Disclosure: Analyst holds DLF.

Source: Moneycontrol

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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.