Tata Motors vs Maruti Suzuki: Which Auto Stock is Better?

In the past few years, the Indian automobile industry has seen a slowdown in sales.

A declining economic growth rate, higher insurance costs, road tax, and uncertainty during the BS4 transition have all contributed to the slump.

The pandemic and semiconductor crisis have only made things worse for auto companies.

Despite all these challenges, automobile companies have a positive medium-term outlook.

Why?

Higher demand post-Covid for personal mobility due to safety concerns has kept the demand for passenger cars strong.

The industry is also expecting a high demand for electronic vehicles (EV). Companies are launching new models and revamping the existing ones to meet the rising demand.

Two companies that have a high chance to capitalise on this demand are Maruti Suzuki and Tata Motors.

This article compares these two companies based on their product offerings, fundamentals, profitability, and future potential to capture the rising demand.

Business Overview

Tata Motors is the automobile arm of the prestigious Tata Group.

The company designs manufactures, assembles, and sells passenger, utility, commercial vehicles, and defence equipment.

It also offers vehicle financing, car service, spare parts, and accessories.

Tata Motors also has an established presence in the global luxury car market via its subsidiary Jaguar and Land Rover.

Maruti Suzuki is a subsidiary of Japan's Suzuki Motor Corporation. It is India's largest passenger vehicle company.

It primarily manufactures passenger and commercial vehicles in India.

However, the company also offers spare parts and accessories, vehicle financing, and insurance through its subsidiaries.

Tata Motors vs Maruti Suzuki Business Overview

	Tata Motors	Maruti Suzuki
Products	Cars Sports utility Trucks and buses Defence Financing Spare parts Service	Passenger vehiclesUtility vehicles Vans Genuine parts and accessories Service Pre owned cars Driving school Insurance Smart finance
Brands	Indica Harrier Tiago Hexa Tigor Nexon EV Altroz Xenon Yodha Jaguar Land Rover	Maruti 800 Alto Swift Baleno Igniz Ciaz S-Cross Vitara Brezza Wagon-R
Competitive Advantage	Geographical diversification of revenue Established market position in commercial vehicles Market leadership in EV Strong legacy of Jaguar Land Rover	Making affordable and fuel efficient cars Economical after sales services and spare parts Widest dealership network Market leadership in passenger vehicles Cost competitiveness
Key Risks	Intense competition Cyclicality of the industry	Intense competition Cyclicality of the industry

Data Source: Annual Reports

Tata Motors is a market leader in the commercial vehicle segment. It also has a leading market share in India's passenger EV segment.

On the other hand, Maruti Suzuki has market leadership in passenger vehicles in India. By launching Nexa, the company set foot in the premium car market.

Revenue

In the last five years (2017-2021), the revenue of Maruti Suzuki has grown at a CAGR of 2 .5%, while Tata Motors's revenue has seen a marginal de-growth of 1 %.

The auto industry faced a slowdown post-2018. This was driven by an increase in product cost due to stringent product regulations, increased insurance premiums, and issues related to vehicle financing.

This severely impacted the revenue of both companies.

However, Maruti Suzuki's revenue saw a positive growth against a de-growth for Tata Motors. This was mainly due to its dominant position in the passenger vehicle segment, strong product portfolio, and established presence in the entry-level car market.

Tata Motors' revenue was impacted mainly due to a fall in Jaguar Land Rover sales and exchange rate fluctuations.

Tata Motors vs Maruti Suzuki Revenue Growth (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Revenue (in m)
Tata Motors	2,972,818	3,062,338	2,643,384	2,555,873	2,828,778
Maruti Suzuki	797,226	887,522	789,944	733,083	900,745
Revenue Growth (%)
Tata Motors		3.0%	-13.7%	-3.3%	10.7%
Maruti Suzuki		11.3%	-11.0%	-7.2%	22.9%

Source: Equitymaster

Sales Volume

In the last five years, the sales volumes of both Tata Motors and Maruti Suzuki have seen a de-growth of 2.3% and 1.5%, respectively. However, the pent-up demand from the pandemic has aided the volume growth of the companies in the last fiscal.

Tata Motors vs Maruti Suzuki Sales Volume Growth (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Sales Volume (in lakhs)
Tata Motors	12	13	10	8	11
Maruti Suzuki	18	19	16	15	17
Sales Volume Growth (%)
Tata Motors		4.3%	-24.6%	-12.9%	29.7%
Maruti Suzuki		4.7%	-16.1%	-6.8%	13.4%

Data Source: Company Website

Tata Motors sales volume fell due to slower than usual economic activity, increased axle load norms, and transition to BS4 to BS6.

The pandemic also further slowed down the production of commercial vehicles.

However, the growing share of passenger vehicles slightly offset this with new product launches in the domestic market.

Maruti Suzuki's sales volume was impacted by failing launches in the compact SUV, sedan, and entry-level car segments.

Market Share

Maruti Suzuki has the highest market share (43.4%) in the passenger vehicles market in India. Its next closest competitor Hyundai has around 15% market share, followed by Tata Motors with 12.1%.

Its ability to manufacture affordable and fuel-efficient cars, its wide distribution network and after-sales services have also helped it retain its market share.

Tata Motors vs Maruti Suzuki Market Share April-March 2022

Market Share	Tata Motors	Maruti Suzuki
Passenger Vehicles	12.1%	43.4%
Commercial Vehicles	49.8%	4.7%

Data Source: Company Website

On the other hand, Tata Motors is a market leader in the commercial vehicles segment with a market share of 49 .8 % in India.

An extensive service network along the length and breadth of the country and strong brand loyalty from its customers has helped the company maintain its leadership in the segment.

Tata Motors share in the passenger vehicles segment has seen a steep growth from 6% a few years ago to 12.1% in March 2022.

This was mainly due to the success of its new product launches, focused action in targeted micro-markets and growth in the EV segment.

Profit margins

Operating profit margin indicates what percentage of the operating revenue is the profit after paying for all operating expenses.

Maruti Suzuki is leading with a five-year average operating profit margin of 10.7% against 5.7% of Tata Motors.

Tata Motors vs Maruti Suzuki Profit Margins (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Operating Profit Margin (%)
Tata Motors	10.6%	-2.1%	5.7%	6.2%	8.2%
Maruti Suzuki	15.4%	12.6%	9.7%	7.6%	8.3%
Net Profit Margin (%)
Tata Motors	2.3%	-9.6%	-4.2%	-5.2%	-4%
Maruti Suzuki	9.9%	8.7%	7.3%	6%	4%

Source: Equitymaster

Maruti Suzuki is again leading with a five-year average net profit margin of 7.2%. On the other hand, Tata Motors has a five-year average net loss margin of 4.1%.

Maruti Suzuki's profit margins are higher than Tata Motors mainly due to the cost reduction initiatives taken by the company, low-interest expenses and an increase in selling prices to offset commodity inflation.

Tata Motors profit margins are impacted by the increasing cost of raw materials, especially steel, and the low increase in selling prices.

Manufacturing facilities

Tata Motors has nine manufacturing facilities with a capacity to produce 480,000 units per annum.

The company is also home to the country's biggest engine development facility. It also has its own climate and pedestrian testing facility.

On the other hand, Maruti Suzuki has two state-of-the-art manufacturing facilities with a capacity to produce 1.5 m units per annum.

To cater to the increasing market demand, a manufacturing facility with 0.25 m units capacity has been set up. This increased the total capacity of Suzuki Motor Gujarat Private Limited (SMG) to 0.75 m units.

SMG, a subsidiary of Suzuki Motor Corporation, is being set up to manufacture cars for Maruti Suzuki in India.

Distribution network

Maruti Suzuki has the widest distribution network among all the automobile companies in India. It has over 4,000 touchpoints across 2,014 cities in India.

The company also has a doorstep service facility in over 130 cities and quick response teams in over 32 cities.

On the other hand, Tata Motors has 8,800 touchpoints in over 125 countries.

With a diverse geographical presence, Tata Motors has the added advantage of understanding customer expectations from diverse backgrounds enabling it to cater to ever-changing consumer preferences.

Research & Development

Tata Motors has 11 research and development facilities in the country. During the financial year 2022 , the company filed for 129 patents and has 56 patents and 146 design approvals in its name.

It also has access to Jaguar Land Rover's technological capabilities, aiding it in bringing world-class innovation to its products.

On the other hand, Maruti Suzuki has two research and development facilities in India that are supported by its parent organization Suzuki Motor Corporation.

During the financial year 2021, the company filed for 110 patents and also got approval for 31 patents.

Dividends

A company shares profits with its shareholders in the form of dividends. Dividends can be in the form of cash or stock.

Dividend ratios such as dividend payout ratio and dividend yield can be used to compare both companies' dividends.

The dividend payout ratio determines how much dividend is paid from the earnings. In contrast, the dividend yield tells us what percentage of the share price the dividend amount is on a per-share basis.

The higher the ratios, the better.

Tata Motors vs Maruti Suzuki Dividend Ratios (2017-2022)

	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Dividend Payout Ratio (%)
Tata Motors	0%	0%	0%	0%	0%
Maruti Suzuki	31.3%	32.2%	32.6%	32.2%	48.8%
Average Dividend Yield (%)
Tata Motors	0%	0%	0%	0%	0%
Maruti Suzuki	1%	1%	1%	0.7%	0.5%

Source: Equitymaster

Maruti Suzuki has consistently paid dividends for the last five years. Its five-year average dividend payout stands at 35.4 %. Its five-year average dividend yield stands at 0.8 %. Lower debt has enabled the company to pay a consistent dividend.

On the other hand, Tata Motors hasn't paid any dividends in the last five years.

Inventory days

Inventory days measure the time taken by the company to convert its inventory into sales. Tata Motors and Maruti Suzuki's 5-year average inventory days are 64 and 20 days, respectively.

Tata Motors vs Maruti Suzuki Inventory Days (2017-2022)

Inventory Days	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Motors	56	54	63	75	70
Maruti Suzuki	21	19	23	23	15

Source: Equitymaster

Maruti Suzuki is more efficient in managing its inventory and has a better sales performance than Tata Motors.

Debt-to-equity ratio

The debt-to-equity ratio shows how much leverage a company is using. The lower the debt, the better the company's risk profile.

Tata Motors vs Maruti Suzuki Debt to Equity Ratio (2017-2022)

Debt to Equity Ratio	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Motors	0.6	1.2	1.3	1.7	2.2
Maruti Suzuki	0	0	0	0	0

Source: Equitymaster

Tata Motors had a debt to equity ratio of 2.2 x in the financial year 2022 while Maruti Suzuki is a debt-free company.

Strong cash flows and support from its parent company have enabled Maruti Suzuki to run debt-free . Tata Motors aims to become net debt-free by 2024.

Return on capital employed (ROCE)

Return on capital employed measures the company's efficiency in generating profit from the capital invested.

The five-year average ROCE for Maruti Suzuki stands at 16.4 %. For Tata Motors, the five-year average ROCE is negative. However, the ratio has been improving over the last four years.

Tata Motors vs Maruti Suzuki Return on Capital Employed (2017-2022)

ROCE (%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Motors	10.1%	-19.6%	-2.3%	-1.6%	1.6%
Maruti Suzuki	26.7%	22.4%	14.4%	10%	8%

Source: Equitymaster

Maruti Suzuki is doing better at generating profit on the capital invested than Tata Motors.

Return on equity (RoE)

Return on equity (RoE) measures how efficiently the company uses its equity capital to generate profit.

The five-year average ROE of Maruti Suzuki stands at 12%. For Tata Motors, higher commodity prices have kept profits, and along with it the ROE, below zero.

Tata Motors vs Maruti Suzuki Return on Equity (2017-2022)

ROE (%)	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Motors	7.1%	-48.1%	-17.6%	-23.6%	-25.2%
Maruti Suzuki	18.1%	15.9%	11.3%	8%	7%

Source: Equitymaster

Again, Maruti Suzuki has been more effective in terms of generating returns for its shareholders than Tata Motors.

Valuations

Price to Earnings ratio (P/E) and Price to Book Value (P/BV) are valuation ratios used by analysts to determine the relative value of a stock.

PE ratio uses the company's earnings to determine how much a shareholder is willing to invest against one rupee of earnings.

P/BV ratio, on the other hand, uses a company's book value to determine how much a shareholder is willing to pay against one rupee of book value.

Maruti Suzuki's P/E and P/BV ratios stood at 68.5 and 4.8 , respectively, for the financial year 2022 . For the last five years, the average is 41.8 and 4.6 , respectively.

For Tata Motors, the P/E for the financial year 2022 is below zero due to losses. Its P/BV stands at 3 .5 for the financial year 2022 . The five-year average P/E and P/BV are -1.5 and 1.8 , respectively.

Tata Motors vs Maruti Suzuki Valuation Ratios (2021-2022)

	P/BV Ratio	5 year average P/BV	Average P/E Ratio	5 year average PE
Tata Motors	3.5	1.8	-13.7	-1.5
Maruti Suzuki	4.8	4.6	68.5	41.8

Source: Equitymaster

Maruti Suzuki's shares are trading at a premium when compared to Tata Motors in terms of both P/E and P/BV.

Apart from P/E and P/BV, another very popular valuation for making an investment decision is EV/EBITDA. It measures the value of the company by considering its true earnings.

Lower the number, the more attractive the investment for takeover.

Tata Motors vs Maruti Suzuki EV/EBITDA (2017-2022)

EV/EBITDA	2017-2018	2018-2019	2019-2020	2020-2021	2021-2022
Tata Motors	4.7	4.8	5.3	5.9	9.0
Maruti Suzuki	19	14.9	12.2	24.7	35.3

Source: Ace Equity

Tata Motors is cheaper than Maruti Suzuki, making it a better option for a takeover in the near term.

Sustainability efforts

The automobile industry's contribution to greenhouse gases has always been on the higher side. However, with changing times, the industry is developing more environmental-friendly products to address the climate change issue.

Electric vehicles and compressed natural gas (CNG) engines have been on the rise and both companies have been investing in the same.

Tata Motors has taken initiatives to reduce its consumption of natural resources such as water and move towards renewable energy. It is also using innovative methods to limit and control waste generation.

Maruti Suzuki, on the other hand, has been using eco-friendly vehicles in manufacturing since 2005 to reduce carbon emissions. The company is also extensively using railways to transport its products.

It has also set up a vehicle scrapping and recycling facility in Noida to create an ecosystem that phases out unfit automobiles out of the Indian roads.

Electric Vehicle Revolution

Electric mobility is gaining traction all over the world. Raising concerns over the environment has led to the faster adoption of EVs.

Even the governments of several countries have been taking initiatives to ensure a smoother shift to EVs.

India is not alien to this emerging trend.

Being the fifth largest passenger vehicle manufacturer globally, India is also witnessing rapid EV growth.

Tata Motors is already a dominant player in the EV segment. The company has recently completed the formation of Tata Passenger Electric Mobility (TPEML), its subsidiary, which will handle all the EV manufacturing.

It has committed to invest US$ 2 bn in the EV sector over the next few years and aims to launch 10 EVs by 2025.

The company has the highest market share (85%) in the passenger EV segment and sold close to 30,500 electric cars in total as of 31 May 2022. Increasing fuel prices have boosted the sales of its EVs.

Tata Motors is also hiring vendors on a guaranteed production plan of manufacturing 50,000 EVs for financial year 2023.

Along with its group peers, such as Tata Power and Tata Chemical, it is also developing Indian EV infrastructure in the country.

On the other hand, Maruti Suzuki has no plans to launch its first EV before 2025 mainly because the company believes the transition to EVs will be gradual.

Hence, the company is focusing on hybrid models by manufacturing normal and CNG engine cars and promoting them.

However, the company is not completely ignoring this emerging technology. Its parent organisation, Suzuki Motor Corporation, is developing a battery manufacturing ecosystem in India.

The company aims to set up first India's cell level lithium battery manufacturing and recycling of lithium-ion batteries.

In addition to this, the company is also investing to set up EV manufacturing plant in Gujarat.

However, Tata Motors has the edge over Maruti Suzuki when it comes to EV and related technology.

Future Prospects

The pandemic has increased the need for personal mobility. People prefer to travel by their own vehicles than use public transport in these uncertain times to ensure maximum safety.

Apart from this, an increase in disposable income and pent-up demand will also drive the demand for automobiles.

Both Tata Motors and Maruti Suzuki are dominant players in their respective fields and are set to benefit from this rising demand.

Shortage of semiconductors has led to slower growth in production, while rising commodity prices have led to higher costs.

However, as the semiconductor crisis eases and commodity prices stabilise, both companies will see strong growth in revenue and margins.

Which is better?

Maruti Suzuki has more stability in its financials when compared to Tata Motors.

Maruti Suzuki is doing a better job than Tata Motors in terms of revenue, volumes, profit margins, leverage, and return to shareholders.

It is also leading in terms of dividends and operational efficiency.

However, in terms of valuations, Tata Motors shares are slightly cheaper when compared to Maruti Suzuki.

Tata Motors also has the edge over Maruti in terms of geographical diversification, electric mobility, and related technology.

Before you consider investing for a long term in a multibagger stock for next 10 years ensure you check the company's fundamentals. Understand what its future prospects are.

You can also check the valuations of the companies before taking a call and invest in undervalued stocks.

Still confused which is better?

Use our feature-rich comparison tool, which draws a detailed comparison between any two companies. This tool also includes a graphical analysis making it easy to see trends!

Tata Motors vs Maruti Suzuki

You can also compare both the companies with their peers.

Tata Motors vs Ashok Leyland

Maruti Suzuki vs Mahindra & Mahindra

Tata Motors vs Force Motors

Maruti Suzuki vs Hindustan Motors

Check out Tata Motor’s factsheet and Maruti Suzuki’s factsheet for a detailed analysis.

You can also check out the latest quarterly results for Tata Motors and Maruti Suzuki.

Since stocks from the automobile sector interest you, check out Equitymaster's powerful Indian stock screener tool to find the top automobile companies in India.

With EV revolution picking up pace, you can also check out top EV penny stocks in India.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...