Maruti clocks best one-day jump in 19 months; analysts see more upside

“Along with the Malaysian chip output increase in October, car production and cloud data center server shipments should both improve,” the brokerage said in a note on Monday. Malaysia, which is now easing the strict lockdown it had imposed in June, accounts for 13% of global chip assembly testing and packaging, and 7% of the world’s semiconductor trade passes through the country, according to Reuters.

Investors have turned cautious about Maruti’s prospects in recent months as the global chip shortage and rising input costs had led to the company missing its sales and profits.

With over 200,000 pending customer orders at the end of September 30, 2021, Maruti’s prospectus can turn around with a steady supply of chips, said analysts.

Goldman Sachs said most Indian auto companies acknowledged improving chip supplies during the recently concluded September earnings season, but indicated that full normalization of production could still be three to four quarters away.

“In this context, Maruti’s announced jump in monthly production from 60% of normalised levels in October 2021 to 85% of normalised levels in November 2021, we believe, has been taken positively by investors,” said Goldman in a client note on Tuesday. “Maruti is relatively better placed in the current situation, given their higher exposure to entry level vehicles, which depend less on semiconductors than premium models do.”

The company last month cautioned about the adverse impact of the global semi-conductor shortage on production at its two plants in Haryana and the parent Suzuki’s Gujarat plant.

Maruti shares have underperformed the market in the past three years. The stock gained 10% compared to 31% jump by the BSE Auto index and 70% surge by the Sensex. On Tuesday, around 27 lakh shares changed hands compared to an average of 10 lakh shares in the previous 10 sessions. The stock advance on Tuesday was highest in a day since April 8, 2020.

Maruti’s derivative contracts saw a build-up of bullish bets with the stock giving a technical breakout on a monthly basis. “Huge call unwinding was seen in in-the-money strikes, and highest call open interest was built at 8,500, which makes room for an upside move towards the 8,500 zone,” said Chandan Taparia, technical analyst, Motilal Oswal Financial Services. “It witnessed follow-up buying after a golden crossover on November 3.”