Effect on Maruti Suzuki India stock related to Suzuki Motor’s Fuel Testing News

Suzuki Motor Logo

After Volkswagen and Mitsubishi, it is Suzuki Motor in the news, but for the wrong reason.  Suzuki Motors (Japanese listed big company , Parent holder of Maruti Suzuki India has recently admitted to having used the non compliant method of testing fuel efficiency in the vehicles. Japan is once again in the news for its repetitive scandal in auto industry. The country’s transport ministry had asked the automakers in Japan to come up with the reports on discrepancies. Osamu Suzuki, 86 year old Chairman, visited the transport ministry to present his report. Though Suzuki admitted to using improper methods of fuel efficiency testing since 2010 but denied every allegations of manipulating the data to make cars more efficient. The Suzuki controversy had shocked the countries globally as the shares dipped by 15%. The market saw a huge plunge in its share prices.

The company is into the production of automobile (both two-wheeler and four-wheeler) and marine and power products out of which it earns major portion of the revenue from the production of automobile (89.6% from four wheelers and 8.3% from motorcycles) followed by marine and power products (2.1%). The prominent countries generating revenues for Suzuki come from Asia followed by the country Japan itself, countries from Europe and North America. Looking at the financials of the company for FY2015, Company earned the 116.7 Bn Yen (+20.4% yoy) on the Net Sales of 3,180.7 Bn Yen (+5.5% yoy).  Maruti Motors had worldwide sales volume of 2,861 Thousand Units. Company saw decrease in sales in Japan,China and Indonesia. However it saw the highest sales in India with 1,305 Thousand Units (+11.5% yoy).

Effect of News on Maruti Suzuki India Stock Price

Maruti Suzuki 18 May Intraday Chart

The impact of the above stated revelations had the stock prices of Maruti Suzuki India dipping by 3.7%, biggest intraday drop in six weeks. For some time, the stock prices remained quite bearish, but then stock recovered and closed with just -1.1% change over yesterday’s close.

Maruti Suzuki commented that the news will not have implications in India as the Testing Regulations are different. In India, all the vehicles are tested for road load and emissions by government approved agencies like ARAI, VRDE and ICAT . This simply means Maruti Suzuki India should not have any major operational or business risk related to Suzuki Motor’s news.

Maruti Suzuki & NIFTY Auto

Maruti Suzuki is trading at a critical levels. We expect this stock to be providing great trading opportunity in next 1-2 days with holding period till F&O expiry of 26th May.

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