Maruti Suzuki top pick in the auto sector, raises target price to Rs 3750: BofA-ML

NEW DELHI: Maruti Suzuki India Ltd (MSIL) is the top pick in the India Auto sector and following sharp depreciation in Yen will lead to around 2 per cent rise in FY16E EPS, says BofA-ML.

The global investment bank who has a 'buy' rating on the counter raised its target price to Rs 3750, which translates into an upside of over 11 per cent from Tuesday's closing price of Rs 3,356.85.

At 11:39 am, the stock was at Rs 3,388.00; up 0.81 per cent, on the BSE.

For the year the stock has already rallied a little over 90 per cent.

BofA-ML raised their MSIL profit forecasts by 5 per cent each over FY16-17E, solely driven by revised EBITDA margin assumptions, even as their volume forecasts remain unaltered.

Following sharp depreciation in Yen, they have raised their EBITDA margin assumptions by 60bps/year to 13.6%-13.8%. They expect the company to partially pass on this benefit to customers in the form of higher incentives/ discounts.

Despite a muted recovery this fiscal year, MSIL has registered 13 per cent YTD growth thanks to strong petrol car demand and recent product successes, i.e. Celerio hatchback, Ciaz sedan.

BofA-ML expects gains to sustain and thereby retain their volume growth forecasts of 19 per cent in FY16E and 15 per cent in FY17E, driven by (1) better economic conditions and a favourable interest regime.