15 June, 2021

Bullock Goes Karting

The heady response to Maruti's high-octane BSE entry owes much to it being a one-of-its-kind fish in the stormy scrip sea.

Bullock Goes Karting
Last month, at a tea shop in Patna, one heard an animated discussion about the then-forthcoming IPO of Maruti Udyog. Sipping their tea, the customers debated whether a good investment opportunity was staring them in the face. The buzz reached its climax last Wednesday when the scrip zoomed 30 per cent on the first day it was quoted on the BSE. It seemed investors were vying to buy the shares as trading volumes crossed one million.

But, as the excitement grew, a few questions nagged investors. Was the high price justified? Is Maruti really a blue chip? Is the stock going up due to "speculative play" among the large buyers? And has the hype blinded the investors?

Take a look at some market-related figures to figure out why such doubts become important. At Rs 125 per share, which was the IPO price, Maruti's price-earning (PE) multiple comes to 23. At its current price, the multiple is over 30. Compare this with the multiple for Telco, which is 18. In addition, Maruti has reduced the prices of its high-end models, Baleno and Versa. Intense competition has forced it not to...

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