The shares of Maruti Suzuki rose over half a percent in the morning session after Goldman Sachs retained a ‘buy’ rating on the stock despite the company cutting the production limit for August.
GS has a target price of Rs 9,036 per share, over 30 percent higher than its current market price of Rs 6,890. The brokerage firm said in its morning note that chip shortage could cause a sharper near-term production impact on the company.
Maruti Suzuki had said on Tuesday the semiconductor chip shortage could force it to cut vehicle production in August by 30-40 percent. This could make nearly three-fourths of the five percent annual production cut it forecasted earlier. The company is expected to produce 110,000-120,000 units this month, sources told ET Auto.
The brokerage said the setback in August production numbers could raise some concerns around the pre-festive stocking.
Automakers around the world have been hit hard as the shortage of microchips have disrupted supply chains. Microchips are silicon chips that power vehicles and other electrical and digital appliances. As many as 3,000 microchips are required to make modern vehicles work. Everything from engine control units, to a backup camera, and steering wheels need a microchip.
However, if its performance in the last few trading sessions is anything to go by, Maruti Suzuki seems to have lost momentum. Elevated raw material costs, supply distribution, and the electric vehicle threat are major issues the company is going through.
Goldman Sachs believes sharp appreciation in the Chinese currency yen and higher than expected sourcing costs are key concerns. The safe-haven yen has been gaining due to some disappointing economic data from China, the political tension in Afghanistan, and the spreading Delta variant of the coronavirus, Reuters reported.
China’s July retail sales and industrial production were all weaker than expected. US Federal Reserve will release minutes of the FOMC meeting this week, which will be a key to the short-term outlook for the yen.
While competitors in the EV space are closing in on the traditional vehicle companies, it forms another threat for Maruti Suzuki, GS said. “Failure of new launches, input supply volatility, a rapid shift towards EVs are concerns too,” it said.
This comes days after Ola launched two models of electric scooters, S1 and S1 Pro, with both models giving tough competition to traditional vehicles on paper.
The shift from internal combustion engine-powered vehicles in the two-wheeler segment to electric vehicles will adversely impact the traditional companies by impacting their valuations, several analysts said.
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