Maruti's value now 1.5 times that of Suzuki

Lead taken in market value by domestic carmaker over its parent is at highest-ever level

Barely a year after surpassing its Japanese parent in market value, Maruti Suzuki has sustainably widened the gap further. The market capitalisation of the country’s largest carmaker, Maruti, was 1.5 times that of parent Suzuki Motor Corp on Wednesday.

The latter’s market cap slipped $12 billion after its stock plunged 10 per cent after Japan’s third-biggest car company admitted using improper fuel economy testing methods. Meanwhile, Maruti shares, 56 per cent of which are owned by the Japanese parent, fell 0.9 per cent, valuing the car marker at $17.7 billion.

The lead taken in market value by the domestic carmaker over its parent is at the highest-ever level. Maruti Suzuki’s market cap had first surpassed Suzuki Motor’s in January 2015. Since then, shares of Maruti have gained 18 per cent, while that of Suzuki dropped 28 per cent. Over a longer term period, Suzuki’s market value (in local currency terms) has gone up 80 per cent in the past five years, while that of Maruti has tripled.

Suzuki relies heavily on Maruti, which has given it a strong foothold in the world's second-most populous nation and one of the most promising markets in terms of car sales growth. India accounts for nearly half of Suzuki’s global sales volume. The Indian subsidiary figures prominently in Suzuki's business plans, which is primarily focused on the small and affordable car segment.

For 2015-16, Suzuki had reported consolidated net profit of $973 million on revenues of $26.5 billion. In comparison, Maruti clocked $718 million in profits on revenues of $8.7 billion. Japanese analysts tracking the Suzuki stock are keeping a close watch on the performance of the domestically-listed Maruti. “(Suzuki’s) stock performance will continue to reflect a tug-of-war between strong Indian operations and murky earnings visibility of domestic mini-vehicles,” Daiwa Securities analyst Eiji Hakomori had said in a note dated March 23.

The recent appreciation in the yen has also weighed on the Japanese carmaker. In the past month, the yen has appreciated 10 per cent against the rupee. As Suzuki pays royalty to its parent in rupees, a stronger yen is negative for its performance. The valuation gap between Suzuki and Maruti could narrow if analysts’ forecasts are anything to go by. Suzuki’s share price is forecast to grow 30 per cent over the next one year.

Maruti could go up 11 per cent, according to consensus analysts’ estimates compiled by Bloomberg. Suzuki’s price targets haven’t factored in the latest fuel-economy testing controversy to have hit the company.