Maruti Suzuki beats Tata Motors in market capitalisation

On the expectations that the implementation of the 7th pay commission would give a boost to sale of passenger cars, shares of Maruti Suzuki rose to a record high of Rs 4,191 on Thursday, after foreign brokerage Credit Suisse, on Wenesday, increased the target price by 17% to Rs 5,100. Shares of Maruti Suzuki, on Friday opened lower at Rs 4,174.

The rise in the share price of Maruti Suzuki took its market capitalisation to a level higher than that of competitor Tata Motors.

As of today, the market capitalisation of Maruti Suzuki exceeded that of Tata Motors by 13,000 crores, with Maruti Suzuki having a market cap of 1.261 lakh crore as against 1.130 lakh crore for Tata Mators.

Credit Suisse had argued that the upcoming 7th Pay Commission, to be submitted in October 2015, should be a big trigger for four-wheeler demand in FY17. The brokerage said that a similar pay increase post 6th Pay Commission implemented in August 2008, led to a ten- fold increase in Maruti’s sales to government employees from FY08 to FY12. The share of sales to government employees rose in this period from 2% to ~15%.

“We are assuming that the 7th PC recommendations will be implemented from July 2016 and are now building it in our numbers. We increase our domestic volume growth estimate for FY17 from 17% to 23%, resulting in a ~9% increase in our FY17 estimate,” analysts Jatin Chawla and Akshay Saxena said in a research note dated July 14.

The upgrade augmented the market value of the car maker by Rs 3,211 crore to Rs 1.255 lakh crore on Wednesday. With this gain the gap in market capitalisation of Maruti with that of its competitor Tata Motors narrowed to Rs 557 crore. The total market value of Tata Motors on Wednesday stood at Rs 1.260 lakh crore. This is the smallest difference between the market value of two auto majors since April 2010.

On the other hand, the slowdown in Chinese market – the biggest market for its luxury cars- has been a big cause of worry for Tata Motors. The stock has lost about 34% from the peak it touched in the end of January this year. In the January-March quarter, sales of Jaguar Land Rover (JLR) units fell 20% compared to 36% growth in the same quarter of FY14. As a result, the carmaker reported a 56% y-o-y decline in net profit to Rs 1,716.5 crore.

According to Credit Suisse, a probable increase in overseas investment limit in Maruti stock in October 2015 to 40% from current 26% could also be another catalyst, which may result into its inclusion in MSCI benchmark index.

In the quarter ended June 30, Maruti Suzuki enjoyed a market share of 46.8% with domestic sales of 305694 passenger vehicles, while Tata Motors sold 37102 units to get a share of 5.7%.

In the passenger cars segment, Maruti’s domestic sales of 256008 contributed 53% of the market share and Tata Motors sold 26617, with a share of 5.5%.

However, Tata Motors enjoys a 45% share in the commercial vehicles space, where Maruti Suzuki is not present.