Maruti: Broken Promises

Maruti dropped a bombshell during its earnings announcement yesterday that sent investors fleeing. It was announced that the Japanese parent – Suzuki – will be directly setting up the plant in Gujarat and Maruti will “buy” cars from the new plant. This was completely unexpected and was 180-degrees from what investors wanted to hear.



Investors had ramped up the stock expecting that:

  1. Suzuki will announce that it will increase its stake in Maruti and launch an open-offer.
  2. Investors were expecting the open offer to be at a substantial premium to the market price, like what Unilever did with HUL.
  3. The fresh capital was supposed to help Maruti setup the manufacturing plant in Gujarat and become an export hub for Suzuki’s expansion across the region.

The announcement came as a shocker. The way it stands now:

  1. Suzuki will setup a separate wholly-owned subsidiary in India that will own and operate the manufacturing plant in Gujarat. Maruti will not put any capex in Gujarat plant.
  2. Maruti will lease the land needed for the plant to Suzuki unit.
  3. Pricing of cars by Suzuki to Maruti will be cost of manufacturing.
  4. Maruti will not benefit from Suzuki’s export into markets outside of India. (Or might get ‘marketing margins.’ There is not enough clarity on this point.)

Investors are understandably upset because now Maruti can only play in the domestic car market sandbox and whatever upside it may have had by pushing into export markets has been taken away by Suzuki.

The decision has been window-dressed as being beneficial for Maruti because of the low cost of capital for Suzuki (they do have negative interest rates in Japan.) But you know what they say about a sugarcoated turd: it may be sweet on the outside, but it is still poop at the core.



Sunder’s List

Roundup: S&P +0.59%, Dow +0.92%, Nasdaq +0.27%, Gold $1,411, London -1.98%, Germany -0.76%, France -0.71%. At pixel: Nikkei +1.00%, Hand Seng -0.28%

India’s factory output fell in May for the first time in more than four years amid sluggish domestic orders and stoppages caused by power cuts. (FT)

It must be the economy: Bajaj Auto a reported 5.32% decline in its motorcycle sales. Hero MotoCorp, the world’s largest manufacturer of two-wheelers, was flat for the month. Maruti total sales in May were down 14% compared to the same month last year. Toyota down 35.33%, Hyundai about flat, Honda +9.8%, GM +39.82%, Ford +33.69%Tata Motors down 45.69. (NDTV)

Moody’s hates Indian banks: it has placed debt ratings of 11 banks on review. Moody’s expects to conclude its review within the next three months. (ET)

India’s prospects in Africa look particularly good as a low-cost manufacturer and service provider. Indian industrial groups, including Godrej and Tata, are particularly enthusiastic about growing markets in Africa, where entrepreneurs of Indian origin have operated for many decades. Frontier markets FTW? (FT)

Good luck!



[stockquote]BAJAJ-AUTO[/stockquote] [stockquote]BANKBEES[/stockquote] [stockquote]HEROMOTOCO[/stockquote] [stockquote]HONDAPOWER[/stockquote] [stockquote]MARUTI[/stockquote] [stockquote]TATAMOTORS[/stockquote]

Analysis: MARUTI

Today’s pick is MARUTI [stockquote]MARUTI[/stockquote]. The stock began 2012 with an uptrend, which ended around mid-April after a series of resistance around Rs. 1,400 levels. This was then followed by a correction to Rs. 1,100 levels till August. The stock has since been on an up-trend and has undergone a flag formation around its 52-week high levels of Rs. 1,539 since the last 6 weeks. In the last three months, the stock has moved +10% vs. +5% of the Nifty’s.

MARUTI technical analysis chart

Oscillators RSI and CMO are in no-man’s land. Also, the short-term technical flashed a 4×18 Bullish cross-over for the scrip yesterday.

The MACD line and the signal line have been moving close to each other, accompanied with the stable histogram levels. Also, long-term GMMA lines are experiencing a contraction which does not suggest any direction to the stock in the near term.

MARUTI Correlation chart

MARUTI’s average correlation with the Nifty is 0.47 is positive. The scrip will be replicating the movement of Nifty. [stockquote]NIFTYBEES[/stockquote]

MARUTI volatility chart

MARUTI has a historical volatility in the range of 0.3 to 0.7. The scrip’s volatility currently is in the lowest part of the range.

To conclude, the stock is undergoing a consolidation phase, and given these technicals, a short-term HOLD is suggested. The long-term direction would be decided based on the bearish or bullish breakout of the current flag.

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Analysis: MARUTI

Today’s pick is [stockquote]MARUTI[/stockquote]. The stock has been on an uptrend since Jan this year. It underwent a correction period between may to August, and then continued with the up-ward movement. It is currently trading near the 52-weeks high. In the last three months, the stock moved 28% against 4% as that of Nifty’s.


Oscillators RSI and CMO are at currently at 66 and 17 are close to the over-bought territory. But, looking at the history of the stock, they still have some buffer to reach the over-bought side.  

MACD line and signal line are running very close to each other.

The long-term GMMA lines are fanning out giving out a bullish signal, with a synchronized behavior of the short-term lines. A continued trend like this is extremely bullish for the stock.

The stock just saw a 4X9 bullish cross-over.



MARUTI’s average correlation of 0.48 with the Nifty is positive. The stock will not be able to replicate the movements of Nifty. [stockquote]NIFTYBEES[/stockquote]


MARUTI has a historical volatility in the range of 0.3 to 0.7. The scrip’s volatility is currently in the lower end of the range and hence is not a concern.

Looking at these technicals a short-term buy is suggested. The GMMA lines are also suggesting a longer-term buy which could be confirmed after a decisive testing of the up-trend line in place.


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