Dussehra Special Top Picks

1. Maruti Suzuki Ltd

Industry	Automobiles – Passenger Cars
Breakout level on the monthly chart	Above 10,000
RSI (14) level on the lower panel	Above 65
CMP	10,716
Support range for downside protection	10,000 – 9,300
Potential upside targets	11,700 and 12,300
Upside Potential (%)	15%
Horizon	9-12 months

Fundamental Rationale

Maruti Suzuki India (MSIL) presents a compelling case supported by below mentioned key factors:

• Steady Growth in the Indian PV Industry: The company anticipates a consistent 6% Compound Annual Growth Rate (CAGR) for the domestic Passenger Vehicle (PV) industry until FY31, signalling long-term stability. In FY24, the company aims to outpace the market’s growth rate, further highlighting its competitive position.

• Export Expansion: The company expects to witness remarkable export growth, with projections of export volumes reaching 750k-800k units by FY31, reflecting a CAGR of 14-15%. This expansion underscores MSIL’s global appeal and potential for international market share gains.

• Capacity Expansion: The company is committed to increasing its production capacity, aiming to add 2 million units within nine years. This significant capacity expansion will accommodate the production of an extensive range of car models and facilitate sales growth.

• SUV Market Leadership: It has strategically targeted leadership in the Sports Utility Vehicle (SUV) segment by FY24. A robust product portfolio, including the successful launches of Brezza, Grand Vitara, Jimny, and Fronx supports this objective. Market leadership in the SUV category is pivotal to its overall growth strategy.

• Electric Vehicle (EV) Entry: The company is actively preparing to launch its first EV in FY25, with six EV models contributing 15-20% of total sales by FY31. MSIL’s foray into EVs positions it well in the evolving automotive landscape.

• Clean Fuels and Carbon Reduction: It is committed to reducing its carbon footprint by focusing on Compressed Natural Gas (CNG) and other clean fuels. The expansion of CNG offerings has already resulted in substantial growth, and the company is exploring various green technologies.

• Digital Transformation: MSIL enhances customer convenience through digitalization efforts, allowing customers to engage with the brand online, including financing and virtual showroom experiences. This customer-centric approach strengthens brand loyalty and market presence.

• Financial Strength: The company demonstrated robust financial performance, with significant growth in revenue, EBITDA, and adjusted profit after tax (adj. PAT) for FY23. This financial stability supports future growth and expansion plans.

• Infrastructure and Sustainability Initiatives: MSIL is investing in infrastructure projects, expanding its reach in non-urban markets, and implementing sustainability measures, such as railway siding projects, recycling, and energy-efficient transportation.

Given these promising developments, strategic initiatives, and a positive financial outlook, we adopt a bullish outlook on

Maruti Suzuki India’s stock. The company’s commitment to growth, technological innovation, and sustainability places it in a favourable position for continued success in the automotive industry.

Even the financial performance of Maruti Suzuki continues to demonstrate robust strength, further supporting our positive outlook for the company.

Aspect	Q1 2023 Figures	Growth/Change
Consolidated Net Profit	₹ 2,525.20 crore	Over 2-fold increase
Consolidated Total Income	₹ 33,316.90 crore	25.29% growth
Revenue from Operations	₹ 32,338.50 crore	21.98% increase
Other Income	₹ 978.40 crore	12-fold surge
Total Expenses	₹ 30,147.70 crore	19.27% increase
EBITDA (Operating Profit)	₹ 2,985.10 crore	55.89% increase
Total Vehicles Sold	4,98,030 vehicles	Strong performance
Standalone Net Profit	₹ 2,485.10 crore	Over 2-fold increase
Standalone Total Income	₹ 33,328.10 crore	25.35% growth

Source: Company Financials

Technical Rationale

• On the monthly chart, MARUTI exhibits a pattern of higher highs and higher lows, which has been in place since April 2020. During this period, the stock has delivered an impressive return of over 100%. Notably, there has been a recent breakout above the 10,000 level, marking a significant development in the stock’s performance and suggesting a strengthening trend.

• Examining the momentum oscillator RSI (14) on the lower panel, we observe it is firmly situated in a bullish range shift zone. Additionally, it has broken through a horizontal trend line above the 65 levels, signaling a potential bullish crossover. The moving averages play a crucial role by supporting the stock’s price movements.

• Overall, the indicators and oscillators point toward a “buy-on-dip” strategy, particularly in the weekly and monthly time frames. Looking at potential downside protection, there is a support range between 10,000 and 9,300, which coincides with retested levels of the bullish pattern. This support range acts as a safety net for bullish investors, underlining the continued strength in buying interest.

• Regarding future upside targets, the stock has the potential to reach previously uncharted territory at 11,700 and 12,300 levels. These targets are derived from the breakout and the sustained upward trend, offering an optimistic outlook for the stock’s performance.

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2. Balkrishna Industries Ltd

Industry	Tyres & Allied
Breakout Type	Triangle Pattern
Volume Surge During Breakout	Significant
Prices Above Upper Pattern Boundary	Yes
Correction Phase Type	Sideways Timewise
CMP	2531
Support	2300-2200
Potential upside targets	2750 & 2900
Upside Potential (%)	15%
Horizon	9-12 months

Fundamental Rationale

• Consistent Revenue Growth: The company has shown steady revenue growth over the years. Its diversified product mix and expanding market presence bolstered this revenue growth. This growth in earnings is expected to continue as market conditions stabilize.

• Improved Profit Margins: As indicated by its profit margins, the company’s profitability has seen improvement. Management’s focus on cost management and operational efficiency drives these positive changes.

• Healthy Liquidity Position: BIL maintains a healthy liquidity position, which is vital for funding future growth initiatives, including capacity expansion plans.

• Manageable Debt Levels: The company’s debt levels are within manageable limits, contributing to its financial stability.

• Strategic Capital Allocation for FY24: In FY24, the company plans to allocate an estimated capital expenditure (Capex) budget ranging between Rs. 550-600 crore. A substantial portion of this budget, approximately Rs. 250-300 crore will be directed towards routine maintenance Capex to ensure operational efficiency.
  
  The remaining capital, however, will be strategically invested in initiatives pivotal to the company’s growth trajectory. This includes the development of new product lines, such as rubber tracks and giant solid tires, designed to diversify the product portfolio and cater to a broader spectrum of end markets. Furthermore, a significant portion of Capex will be dedicated to intensifying brand-building endeavours and marketing initiatives, which are instrumental in achieving the ambitious objective of securing a 10% market share within the next 3-4 years.

• Navigating Challenges Amid Heat Waves and Export Concerns In the second quarter, a blend of challenges emerged due to scorching heat waves and concerns about economic downturns in export destinations. However, it is worth noting that global inventory challenges in the supply chain are gradually subsiding. On a brighter note, the momentum in domestic markets remains steadfast, showcasing resilience and a potential counterbalance to external headwinds.

A Promising Outlook for Balkrishna Industries:

The company is poised for favourable prospects in the foreseeable future. The remarkable recovery in Agri tire exports, surpassing the CY23 average by approximately 10% in July 2023, is set to bolster the company significantly. This development holds promise for BIL, given that Agri tires constitute roughly 65% of its product portfolio. Moreover, its limited exposure to the United States, representing less than 20% of its revenue composition, strategically positions the company amidst the backdrop of challenging export dynamics. This unique combination of factors adds an appealing dimension to BIL’s outlook.

Prominent Trends Enhancing Our Positive Outlook

• FII/FPI have increased holdings from 12.40% to 12.53% in Sep 2023 qtr.
• Mutual Funds have increased holdings from 12.39% to 12.66% in Sep 2023 qtr.
• Institutional Investors have increased holdings from 33.40% to 33.74% in Sep 2023 qtr.

Technical Rationale

• The stock recently exhibited a breakout on its monthly chart, accompanied by a substantial surge in trading volumes. A triangle pattern characterizes this breakout, and the stock’s prices have effectively maintained their position above the upper boundary of this pattern. This signals a probable extension of the preceding upward trend following a brief consolidation phase.

• After the breakout, the stock has entered a time-wise correction phase with a sideways movement. Remarkably, it has comfortably held its position above the pattern’s neckline. Examining the lower panel, the momentum oscillator RSI (14) has broken out of a descending wedge pattern and is presently hovering near the 60 level, indicating a bullish crossover.

• An array of indicators and oscillators pertaining to the stock is aligning to suggest an attractive “buy-on-dips” opportunity. These metrics consistently read above the polarity levels, reaffirming the prevailing bullish sentiment. On the downside, a supportive range is discerned between 2300 and 2200, corresponding to retested levels within the bullish pattern. This support range serves as a reassuring buffer for bullish investors and underscores the resilience of buying interest.

• Turning our attention to potential upside targets, the stock exhibits promising prospects for attaining higher price levels, conceivably falling within the range of 2750 to 2900. These targets are derived from the breakout and the anticipated continuation of the upward trajectory, painting a sanguine picture of the stock’s future performance.

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