Maruti Suzuki's market cap is now more than twice that of its parent Suzuki Motor Corp

Maruti Suzuki, which was about half the size of its Japanese parent—Suzuki Motor Corp—about ten years ago, has not only overtaken its parent in market valuation but also has overgrown two-fold. As of Friday, Maruti Suzuki, the country’s largest automaker, commands a market capitalisation of $46.9 billion, against Suzuki’s market cap of $22.1 billion, Bloomberg data shows. Maruti overtook its parent’s market cap for the first time in January 2015.

Unsurprisingly, the rally in Maruti Suzuki stock has been on the back of solid fundamentals. While the net revenue of Maruti Suzuki has increased at a compounded rate of 7.6% over the last five years to ₹1.13 lakh crore, its parent clocked 4.3% growth in revenue during the same period.

Similarly, the net profit of Maruti Suzuki grew at a compounded rate of 1% between FY19 and FY23, whereas Suzuki Motor saw just a half percent growth in its bottom-line during the same period. Suzuki Motor held 58.2% of Maruti Suzuki as of December 2023.

Shares of Maruti Suzuki added another 4% on Friday to take the year-to-date return to 20%. In contrast, the stock of Suzuki Motor has gained 13% so far this year. The benchmark Nifty50 is up just 2% so far in 2024.

Multiple factors drove the latest rally in Maruti Suzuki. In a recent note, CLSA observed that the company is likely to benefit from the rise in CNG vehicles. According to the brokerage, the market share of CNG passenger vehicles will rise from 15% in FY24 to 22% in FY30. It further added that the company will benefit from the introduction of new models.

Moreover, with a view to encourage the adoption of hybrid and electric vehicles, Nitin Gadkari, the Minister of Road, Transport & Highways, proposed a tax reduction for hybrid vehicles to 12% from 28% for sub-4 metre and from 43% for above 4 metre hybrid vehicles, respectively.

“If GST on hybrids were to come down to 12%, it would mark a sizeable win for Maruti Suzuki, as many peers are not investing in the technology,” said Morgan Stanley. The reduction in tax would make the total cost of ownership of hybrid vehicles more attractive.