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Hidden Gem - Maruti Suzuki India Ltd (CMP: ₹ 14,350; Rating: BUY; Target Price: ₹ 16,550)

ICICIdirect Research 22 Aug 2025 DISCLAIMER

Fundamental levers for outperformance…
Maruti Suzuki (MSIL) is the market leader in the domestic passenger vehicle (PV) space with market share pegged at ~41% as of FY25 and popular models being WagonR, Swift, Baleno, Dzire, Ertiga, Brezza, among others. It is a market leader in each sub-segment - cars (66.9%), UV (25.8%), vans (90%).
Although India is the world’s third largest passenger vehicle market, car penetration still remains low at ~30 cars per 1000 people vs. developed economies in the West (~500 cars per 1000 people) & China (~200 cars per 1000 people).
The major income tax slab overhaul announced for FY26 is also expected to boost purchasing power, favourably impacting entry and mid-sized vehicle demand in our view. Additionally, upcoming Pay Commission revisions could further stimulate demand, benefiting Maruti.
In the recent past, government has proposed GST 2.0 reform which aims to rationalize the current multi-slab structure into a simpler framework. Currently, automobiles are taxed at highest GST slab rate i.e. 28%. A compensation cess, ranging from 1-22%, is levied on top of this rate. If the base GST rate of 28% gets revised to 18%, this is positive for sector & is expected to drive demand. For compact cars effective taxation (GST+ cess) can get revised from 28- 31% to 21% while big SUV’s effective taxation can potentially decline from ~50% to ~40%.
Maruti's is also gearing up for a big domestic and export play with new plant commissioning within its broader aim to increase capacity from ~24 lakh units to ~40 lakh units by FY31. Exports, now constitute ~18% of volumes and are set to grow by 20% in FY26 led by e-Vitara exports to Europe, Japan, among others.
Importantly, Maruti’s pragmatic approach to decarbonization — spanning CNG, hybrids, and EVs — rather than EV-only bets, aligns better with India’s evolving customer base and regulatory landscape. This diversification across technologies, geographies, and customer segments de-risks growth & earnings visibility over medium term
With macro-economic triggers in term of rationalisation of income tax rate, GST rate and 8th pay commission roll-out, amidst optimism around upcoming festive demand, exports & new launches, we upgrade the stock to BUY with revised target price of ₹ 16,550; valuing it at 28x PE on FY27. Sales/PAT at MSIL are seen growing ~15% over FY25-27E (Volume CAGR: 10%)

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