Suzuki (7629), boasting overwhelming strength in India. Is the stock price decline a buying signal?
The automotive industry is at a crossroads right nowdue to the development of electric vehicles and autonomous driving, with entries from non-traditional players such as Google and Apple coming in one after another.
The auto industry is sure to face intensified competition
Meanwhile, the Chinese market, which had led world sales, turned to shrink for the first time in 28 yearsturned to shrink for the first time in 28 yearsas the market power does not expand. If new entrants are to be faced, competition will be inevitable.
Because the outlook is uncertain, the stock prices of major automakers have stagnated.Each company's PER is in a miserable state.
Toyota Motor (7203) 10.45x
Nissan Motor (7201) 8.87x
Honda (7267) 7.86x
※ as of April 12, 2019
Automobile companies are highly affected by the business cycle, so there is also a considerable portion reflected in the uncertainty of future economic prospects.
Strength in India is enviable
Among such circumstances, one stock I am focusing on now isSuzuki (7629).
In Japan, the company is strongly associated with kei cars, but in fact 70% of its sales come from overseas.In particular, it boasts a 50% share in India, accounting for nearly 40% of its sales.
When you think of India, it is a country with a population of 1 billion after China. However, its economic development is still considerably behind. Conversely, this meansif the economy develops, a huge market comparable to China will emerge.
It is still the world's fourth-largest market today, so if it becomes as large as China,there is room to expand to about seven times in the future. If Suzuki’s India sales simply grew sevenfold while others stayed the same, sales would grow about threefold.
Of course, it is not that simple. Religious, cultural, and political complexities mean the business environment is not good. Many more difficulties will await us.
However, conversely, even in such a difficult situation,Suzuki’s management capability that has secured a 50% share is something to be impressed by.
Toyota partnered with Suzuki, but that only reinforces the fact thatSuzuki’s strength in India is enviable even from other companies' perspectives.
【Reference】 Suzuki stock plunge — can investors target Mitsubishi Motors’ “second luck”?
Stock prices on a downward trend. Is PER 10x a buy?
When I wrote the above article (May 2016), it would have been nice to buy, but it rose almost threefold in no time.
However,it has started to fall again now.
The decline can be attributed to concerns about the global economy’s outlook. Indeed, the mid-term outlook is not favorable.If a recession occurs, a temporary deterioration in performance is unavoidable.
However, in the long run,the India market’s growth is expected to boost performance. If stock prices fall due to temporary economic trends, that could be a buying opportunity.
Current PER is 10x. In the long term, if profits eventually surpass current levels and peak, the probability of a positive outcome is high.
Of course, until then, the stock price may fall, butenduring and looking ahead is what true long-term investors do.
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