Our target price of Rs14,400 is based on 24xSep’26E EV/EBIT. We choose an EV/EBIT valuation methodology for Maruti Suzuki because there is substantial recognition of financial (non-operating) income, which significantly impacts PAT and EPS.

EBIT is a more stable reflection of the company’s core operating profits since almost one-third of production takes place at the Gujarat plant, which was previously owned by Suzuki with the entire fixed cost of the plant, including the depreciation, being reflected in Maruti’s operational costs (above EBITDA line). This deflated the EBITDA while being neutral at an EBIT level. The Suzuki Gujarat plant was acquired by Maruti in Nov’23 (became a 100% subsidiary), and will be amalgamated into the company going ahead.

Our target multiple is 5% below average 1-year-forward EV/EBIT multiple the stock has traded at over the past five years based on consensus estimates (source: Bloomberg). This reflects continued weakness in small cars demand, high competition in UVs and headwinds to margins. An improvement in rural demand and new model launches by Maruti could partly offset these challenges. On a P/E basis, our TP implies a ~29x multiple (Sep’26E basis). The last 5 years’ average (based on consensus estimates) is ~28x.

Key downside risks to our investment thesis and target price for Maruti include: 1) weaker industry demand given subdued consumer sentiment; 2) higher competitive pressures, which could negatively impact pricing and, thus, margins; and 3) input cost pressures due to rise in commodity prices/conversion costs.