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MUMBAI: Maruti Suzuki has achieved a feat no other Indian company with a foreign parent has ever done. The nation's No. 1 automaker has outgrown Suzuki Motor in market value. Maruti's stock surged 65% in the past year, swelling its market capitalisation to $19.73 billion (Rs 1.26 lakh crore) based on Tuesday's closing stock price of Rs 4,158.80 on the Bombay Stock Exchange. Japanese parent Suzuki is valued at $19 billion. Maruti has recently also ousted Tata Motors as India's most valuable automotive company.
Its stellar operational and financial performance and rosy outlook in a sluggish automobile market have driven Maruti's stock rally. On the other hand, Suzuki had a bumpy ride in recent years with sales weakening in all major markets except Asia. For the Japanese company, the brightest spot is the Indian unit, which has turned into its biggest money-spinner, accounting for a quarter of revenue and a chunk of profit.
Barring Maruti, no other constituent of the CNX MNC - an index that captures the stock performance of top MNC subsidiaries - has a market cap close to that of the parent. The market value of Hindustan Unilever, for instance, is 22% of its Anglo Dutch parent Unilever, while that of Castrol India is just 3% of BP. For Maruti, too, the parent held an upper hand historically. Data compiled by ETIG show on average, Suzuki's market cap had been $5.6 billion more than Maruti's since the listing of the Indian unit in 2003. But the lead that Maruti has now taken over the parent could widen, as analysts and investors remain bullish on the Indian company but not so much on the parent. Analysts have been consistently upgrading their earnings estimate on Maruti on multiple triggers, such as falling discounts that add to margins, higher efficiency as more vehicles roll out of its factories, and volume growth driven by new launches and an improving economy.
Maruti's earnings per share is expected to more than double to Rs 278 in fiscal 2018 from Rs 126 in fiscal 2015, according to estimates compiled by Bloomberg.
Suzuki's earnings performance, meanwhile, has been weighed by its weak performance in Japan and markets outside Asia. It reported a 4% decline in operating profit for the fourth quarter of fiscal 2015 and its outlook for a 6% increase in the operating profit estimate for fiscal 2016 was below consensus estimate. Analysts don't expect any major improvement in its stock price in the near future. "Our historic valuation analysis suggests that all the good news is already in Suzuki's share price, and, relative to peers, the stock looks quite expensive," CLSA analyst Christopher Richter wrote in a May 12 note, while advising clients to sell the stock.
FUND MANAGERS BET
The widening divergence between the performance at Suzuki and Maruti is leading global fund managers to pick the Indian company as a preferred play to participate in the Asian passenger car market rather than the parent.
Suzuki holds a 56% stake in Maruti. On a consolidated basis, as disclosed in Suzuki's fiscal 2014 annual report, 40% of its sales volume comes from India. In a vision 2020 document, the Japanese company said it expected the proportion of cars sold in India to reach 60% in 2020 from 40% now. This implies that the Indian unit will play an important role in achieving the target. Suzuki is gradually realising also that investment through the Indian subsidiary will yield better returns, not only for the Indian market but also for newer geographies such as Africa and Latin America.
India's passenger car market is expected to be among the top three in the next 10-15 years, said VG Ramakrishnan, managing director of consulting firm Frost & Sullivan. Being the market leader in such a big market would provide Suzuki a platform to leapfrog to the top fifth or sixth position in the passenger car market from ninth currently, he added. Suzuki has taken several strategic steps which indicate the growing prominence of the Indian subsidiary. Its chairman, Osamu Suzuki, visits India every quarter these days compared with the earlier practice of attending only Maruti's annual general meeting.
Maruti has been given a free hand to develop business in Africa and Latin America by using the existing dealer network of Suzuki. Maruti is now making inroads into those markets, not only by selling small cars but also the bigger ones: it started selling the Ciaz sedan in South Africa. Suzuki invested in developing a diesel engine to cater to the demand Maruti was facing in India. More importantly, Suzuki's design team has started developing products targeted mainly at the Indian buyer, a major shift from its policy of collaborative development. Utility vehicle Ertiga was the first product designed primarily for the Indian market.
Maruti overtakes Japanese parent Suzuki in market value - The Economic Times
Its stellar operational and financial performance and rosy outlook in a sluggish automobile market have driven Maruti's stock rally. On the other hand, Suzuki had a bumpy ride in recent years with sales weakening in all major markets except Asia. For the Japanese company, the brightest spot is the Indian unit, which has turned into its biggest money-spinner, accounting for a quarter of revenue and a chunk of profit.
Barring Maruti, no other constituent of the CNX MNC - an index that captures the stock performance of top MNC subsidiaries - has a market cap close to that of the parent. The market value of Hindustan Unilever, for instance, is 22% of its Anglo Dutch parent Unilever, while that of Castrol India is just 3% of BP. For Maruti, too, the parent held an upper hand historically. Data compiled by ETIG show on average, Suzuki's market cap had been $5.6 billion more than Maruti's since the listing of the Indian unit in 2003. But the lead that Maruti has now taken over the parent could widen, as analysts and investors remain bullish on the Indian company but not so much on the parent. Analysts have been consistently upgrading their earnings estimate on Maruti on multiple triggers, such as falling discounts that add to margins, higher efficiency as more vehicles roll out of its factories, and volume growth driven by new launches and an improving economy.
Maruti's earnings per share is expected to more than double to Rs 278 in fiscal 2018 from Rs 126 in fiscal 2015, according to estimates compiled by Bloomberg.
Suzuki's earnings performance, meanwhile, has been weighed by its weak performance in Japan and markets outside Asia. It reported a 4% decline in operating profit for the fourth quarter of fiscal 2015 and its outlook for a 6% increase in the operating profit estimate for fiscal 2016 was below consensus estimate. Analysts don't expect any major improvement in its stock price in the near future. "Our historic valuation analysis suggests that all the good news is already in Suzuki's share price, and, relative to peers, the stock looks quite expensive," CLSA analyst Christopher Richter wrote in a May 12 note, while advising clients to sell the stock.
FUND MANAGERS BET
The widening divergence between the performance at Suzuki and Maruti is leading global fund managers to pick the Indian company as a preferred play to participate in the Asian passenger car market rather than the parent.
Suzuki holds a 56% stake in Maruti. On a consolidated basis, as disclosed in Suzuki's fiscal 2014 annual report, 40% of its sales volume comes from India. In a vision 2020 document, the Japanese company said it expected the proportion of cars sold in India to reach 60% in 2020 from 40% now. This implies that the Indian unit will play an important role in achieving the target. Suzuki is gradually realising also that investment through the Indian subsidiary will yield better returns, not only for the Indian market but also for newer geographies such as Africa and Latin America.
India's passenger car market is expected to be among the top three in the next 10-15 years, said VG Ramakrishnan, managing director of consulting firm Frost & Sullivan. Being the market leader in such a big market would provide Suzuki a platform to leapfrog to the top fifth or sixth position in the passenger car market from ninth currently, he added. Suzuki has taken several strategic steps which indicate the growing prominence of the Indian subsidiary. Its chairman, Osamu Suzuki, visits India every quarter these days compared with the earlier practice of attending only Maruti's annual general meeting.
Maruti has been given a free hand to develop business in Africa and Latin America by using the existing dealer network of Suzuki. Maruti is now making inroads into those markets, not only by selling small cars but also the bigger ones: it started selling the Ciaz sedan in South Africa. Suzuki invested in developing a diesel engine to cater to the demand Maruti was facing in India. More importantly, Suzuki's design team has started developing products targeted mainly at the Indian buyer, a major shift from its policy of collaborative development. Utility vehicle Ertiga was the first product designed primarily for the Indian market.
Maruti overtakes Japanese parent Suzuki in market value - The Economic Times
