Citigroup cut its rating on Maruti Suzuki India Ltd. Know why

Citigroup has cut its rating on Maruti Suzuki India Ltd., the nation's largest car maker, to `Neutral' from `Buy', citing heady valuations, moderating demand and dissipating foreign exchange tailwinds.

Citi also cut its price target for Maruti to 4,465 rupees per share from 4,832 rupees earlier. The report says that Maruti's margins may have peaked at 16.3 percent from 11.7 percent 5 quarters ago. Hence, operational upticks in the coming quarters seemed muted.

As a consequence, Maruti fell 18 rupees, or 0.4 percent, to 4,189 rupees on the National Stock Exchange, where 1 lakh shares were traded compared with a 5-day average of 60.9 lakh shares.

Maruti has seen its market capitalisation surge 52 percent to 1.27 lakh crore rupees in the past one year as first time buyers preferred its fuel-efficient and inexpensive cars over smaller rivals' products. Maruti's nationwide reach is also touted as a strong entry barrier for other companies.

Maruti trades at 5.1 times its book value of 824 rupees a share. The company's sales have risen 11.4 percent compounded over the past 5 years and profit expanded 8.3 percent compounded over the same period.

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