Suzuki Powertrain merger to boost Maruti's margin: Analysts

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Many analysts have given a thumbs up to Maruti Suzuki's plans to merge Suzuki Powertrain India, which supplies diesel engines and transmissions, with itself.

Suzuki Powertrain (SPIL) is a sbusidiary of Maruti's parent Suzuki Motor Corp (SMC) of Japan. SMC holds 70% stake in SPIL, with the remaining 30% held by Maruti Suzuki.

The India's largest passenger car maker had said on Tuesday that SMC will receive one share of Maruti Suzuki (of Rs 5 each) for every 70 shares ( of Rs 10 each) it holds in SPIL. It plans to make a fresh issue of 13.17 million shares to SMC in lieu of SMC's 70% stake in SPIL, which will lead to the Japanese parent's stake in Maruti Suzuki rising to 56.2% from 54.2%.

"We think the merger is positive for Maruti. It increases its control of diesel engine facility, and at the earnings level, it is marginally accretive - SPIL makes better EBITDA margins than Maruti," said Binay Singh and Shreya Gaunekar of Morgan Stanley.

SPIL's EBITDA margins were 12.1% in FY12, versus 7.2% for Maruti, so the EBITDA margins of the combined entity could expand by 30-40 bps, the analysts added.

A key reason behind Maruti's plans to take full control of SPIL is the recent dieselation of the passenger vehicle market. Petrol prices were hiked several times over the last one year, leading to car buyers' preferences shifting to diesel vehicles.

A company official had told moneycontrol.com last week that nearly 80% of new bookings at Maruti Suzuki were now for diesel vehicles. The company's diesel variants of Ertiga multi-utility vehicle, Swift hatchback and DZire sedan have a waiting period of up to six months.

With the merger, Maruti Suzuki will be able to bring its entire diesel engine capacity under a single management control. All key initiatives to strengthen the business, including sourcing, localization, production planning, manufacturing flexibility and cost reduction can be controlled, monitored and improved by the Maruti Suzuki management, the company says.

Apart from sourcing diesel engines from Suzuki Powertrain, Maruti also has a deal with Italian car maker Fiat, which will supply it one lakh 1.3 litre diesel engines for three years, and Maruti has also announced plans to set up a diesel engine plant at Gurgaon.

"SPIL was supplying diesel engine to Maruti, while Maruti itself was setting up capacity for diesel engine. This acquisition brings complete engine sourcing under one management and reduces duplication of overheads. It also indicates management's confidence on the sustainability of diesel vehicle demand in India." say Sachin Gupta and Ashish Poddar of Edelweiss Securities.

Morgan Stanley has an "overweight" rating on Maruti and Edelweiss advises a "buy."

Other brokerages too viewed the deal was positive with both Citi and CLSA saying that the deal could be EPS accretive by 2-3% for Maruti.

Bank of America Merrill Lynch maintained its "buy" on the stock, saying the deal partially offsets downside risk to near-term profits owing to muted demand and currency variations.

CLSA too upgraded Maruti, but still has an "underperform" rating, saying rising petrol car discounts and a stronger yen will eat into Maruti's margin expansion in FY13. It says the stock could underperform until volumes see sustained recovery.

Maruti Suzuki shares were trading down 3.2% at Rs 1,108.50 in morning trade on Wednesday. The broader CNX Auto Index was itself down over 1% with investors worried that a proposed tax on diesel cars and SUVs by the government could hurt demand further.

Nachiket Kelkar
nachiket.kelkar@moneycontrol.com