Maruti Suzuki, a market leader that has outperformed the industry in the past enjoys a 52% market share as of December 2018.
The stock has been declining since the beginning of 2018 mainly due to factors that impacted the industry as a whole such as –Higher fuel prices, higher interest rates and Increase in Insurance cost which impacted the demand for private vehicles, adverse foreign exchange rates and inflation in commodity prices.
Lack of new product launches in CY18 also impacted the company. However, the management highlighted that the new model of Ertiga and Wagon R were well received and the order book stands at 55k units & 15k units respectively. The company has a number of new models scheduled this year especially in the second half of CY19.
Going forward, the company is likely to benefit from the correction of commodity prices and the moderation of fuel prices. To protect itself from currency fluctuation of JPY/INR, the company has already started its transition to a INR based royalty model. With several regulatory actions coming into play by April 2019, the company is better positioned than its peers.
Despite the major headwinds, the market giant maintains a cash rich balance sheet by remaining debt free with a negative working capital cycle and asset turnover of ~3x.
Maruti has had a secular rise from the 3200 levels all the way to 10,000 zones. A big bull candle right on the highs is the first indication of a change in trend. The same has been circled on the charts. The stock then made the same highs and the RSI here kissed the converging moving averages. Hence a negative crossover of the averages and the RSI kissing the converging zone is highly negative. The stock then broke the trend line from where a big bear candle appeared. The fall has halted at the Fibonacci confluence of 6500-6615. At the important support RSI is turning from the 43 levels. The RSI is oscillating between 80 and 40 and that’s an indication that the bull trend in the stock is intact. Since the support has come on the monthly charts the stock will easily move up all the way to 7980 levels which is 11 percent from the current levels of 7157.