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Summer Internship Report                                               On Valuation of Maruti Suzuki Ltd. and Study of Sal...
ACKNOWLEDGEMENTThe special thank goes to my supervisor and research head, Mr. Parthiv Shah. The supervisionand support tha...
EXECUTIVE SUMMARYJhaveri Securities is one of biggest share brokering house in Gujarat with a client base ofapproximately ...
Jhaveri Securities ..........................................................................................................
Balance Sheet Abstract ......................................................................................................
Beta Calculation ............................................................................................................
Jhaveri SecuritiesJHAVERI Securities is one of the largest stock broking houses in Gujarat with the client base ofover 700...
Services OfferedEquity Trading:For more than 15 years, Equity Broking is mainstay at JHAVERI. From “Saudas in the Ring” to...
7S FrameworkThe 7-S framework of McKinsey is a Value Based Management (VBM) model that describeshow one can holistically a...
STRATEGYStrategy is the way company aims to improve its position vis-à-vis competition. The companyresponds to the competi...
is handled by separate department and Mr. Kamal Jhaveri the CMD of the Jhaveri Securities withMr. Manish Shah overlooks th...
Page | 11
Valuation: Maruti Suzuki Ltd.Company HistoryMaruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is Indias largest passenge...
Shareholding Pattern                                ShareHolding pattern                                     0            ...
Investment RationaleMaruti Suzuki is a market leader in the domestic passenger car market with a market share of51.2% in F...
portion of commodity cost increase. Adverse forex movement is likely to impact operating   profits by ~2% in FY11E and FY1...
The previous domestic monthly sales high was in Feb 2010. Segment wise, A2 and A3   registered highest domestic monthly sa...
Financial AnalysisKey RatiosRatios to measure ‘Short Term Solvency’    1. Current Ratio =                                 ...
The turnover figures are extremely good the inventory turnover ratio of 27.86 suggests that theinventory is turned over 27...
Historical TrendsNet Sales                                                                  Net Sales             25000   ...
Return on CapitalMaruti’s average return on capital for the last 14 years has been 17.42%, and for the last 5 yearsit aver...
Working Capital: Company’s working capital currently is negative but as its growth will slowdown it will become difficult ...
Free Cash Flow to Firm 3    Particulars                                 2014E      2013E      2012E      2011E        2010...
Balance Sheet Abstract 4                                            2014E      2013E      2012E      2011E      2010      ...
Profit and Loss Account Abstract 5                                                           2014E     2013E     2012E    ...
Preference Dividend    Equity Dividend (%)                               665.91%    660.33%    576.74%    503.51%    224.7...
Price Variations                         Maruti Suzuki Ltd Stock price (Source: Money Control.com)ConclusionThe analysis o...
Sales Trends in Automobile IndustryOverview                   14                   12                   10                ...
In the last 10 years in terms of growth Indian Automobile Industry has clearly outperformed theworld average by a gigantic...
planning commission report 8 this number is 7). Projections 9 for car penetration for India areextremely good at 382 per 1...
Economy as a FactorSale of Commercial Vehicles is backed by strong IIP numbers (17.6% YoY). This has createdhigh growth ex...
SWOT- AnalysisSTRENGTHS       1. Indian Automobile Industry is globally cost competitive: It is possible because of cheap ...
OPPOURTINITES          1. India has a large pool of cheap talent which can be utilized in decreasing the R&D              ...
PORTERS FIVE FORCES ANALYSIS OFAUTOMOBILE INDUSTRYPorters Five Forces is a way of examining the attractiveness of an indus...
manufacturers must mass-produce the automobiles so that they are affordable to the consumer.The huge amount of capital req...
devastating to the previous suppliers business. As a result, suppliers are extremely susceptible tothe demands and require...
extensively competing in price with Maruti-800, which was the lowest price available car beforethe launch of Nano.KEY CERT...
Industry BreakupIndian Automobile Industry can be broken up into four categories:  Domestic Market Share for 2009-10  Pass...
Two Wheelers Segment             1,20,00,000             1,00,00,000               80,00,000               60,00,000      ...
1200000            1000000             800000             600000                                                          ...
ScootersScooters segment has given a comeback and this segment is proving to be the biggest thrivingand upbeat two-wheeler...
0                                                                        --Suzuki Motorcycle                        0     ...
Three Wheeler Segment             7,00,000             6,00,000             5,00,000             4,00,000             3,00...
Passenger Vehicles Segment             30,00,000             25,00,000             20,00,000             15,00,000        ...
300000             250000             200000             150000                                                           ...
Passenger CarsThe passenger cars total sales grew by 26% to 181130 units in May 2010 largely on demand.The domestic sales ...
Bajaj Auto Ltd.Sales         Net Profit           EPS(TTM) CMP                                          52W-High          ...
•   EBITDA margin for the quarter was the highest ever at 22.9% and 21.7% for Q4FY10       and FY10.   •   There are many ...
Hero HondaSales        Net Profit             EPS(TTM) CMP                                               52W-High         ...
•   Hero Honda introduced two new models in April – the refreshed Glamour and Glamour       FI. It plans to continue to bu...
TVS Motor Co.Sales         Net Profit                 EPS(TTM) CMP                                                        ...
•   The moped segments total sales grew by 29% to 54877 units in May 2010 on healthy       demand. It solely represents TV...
Ashok LeylandSales             Net Profit     EPS(TTM) CMP                  52W-High       52W-Low           Mkt. Cap     ...
8000             7000             6000                                                                                    ...
Mahindra and MahindraSales        Net Profit              EPS(TTM) CMP                                           52W-High ...
•   Three-wheeler volumes too were robust, at 145.7% yoy and 13% mom. This growth is       attributable to good demand for...
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
Report on Indian Automobile industry
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Report on Indian Automobile industry

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This is a report on Indian Automobile industry, which separate comments on each segment, future trends. it also has specific focus on valuation of Maruti Suzuki India Ltd.

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  1. 1. Summer Internship Report On Valuation of Maruti Suzuki Ltd. and Study of Sales Trends in Automobile Industry At: In partial fulfilment of the requirements for: Masters of Business Administration (Full Time) Submitted by: Tanesh Gagnani Roll No. 081121 Batch of 2011 Internship period: April 12, 2010 to June 07, 2010 Under the guidance of:Parthiv Shah Prof Parag RijwaniResearch Head IMNUJhaveri Securities Pvt. Ltd. Ahmedabad
  2. 2. ACKNOWLEDGEMENTThe special thank goes to my supervisor and research head, Mr. Parthiv Shah. The supervisionand support that he gave truly helped the progression and smoothness of the internship program.The co-operation is much indeed appreciated.My grateful thanks also go to Mr. Nipun Bhadd, Ms. Pratik Sharma, Mr. Arpit Amin, Mr.Mukesh Khayani and Ms. Meha Debuy. A big contribution and hard worked from all of youduring the eight week is very great indeed. My project during the program would be nothingwithout the enthusiasm and imagination from all of you. Besides, this internship program mademe realize the value of working together as a team and as a new experience in workingenvironment, which challenges us every minute. Not to forget, great appreciation goes to the restof Jhaveri Securities staff who help me from time to time during the project. The whole programreally brought us together to work in a team and develop respect of each other.I would also like to appreciate the contribution of my faculty, Prof Parag Rijwani, for hisconstant support throughout the internship.Last but not the least I would like to thank all the other people who contributed to the successfulcompletion of the project. Tanesh GagnaniPage | 1
  3. 3. EXECUTIVE SUMMARYJhaveri Securities is one of biggest share brokering house in Gujarat with a client base ofapproximately 70000 and presence in every major city in Gujarat. It provides all the facilitiesranging from basic stock broking with strong support from in house research department tocommodity trading, mutual funds, derivative trading and currency derivatives.In the first part of this report valuation of Maruti Suzuki Ltd. has been. The valuation methodused for this is two stage FCFF. In this valuation the first stage is considered of high growthphase in which the company will grow at a rate of 10.8% from 2012, since 2010 had aexceptionally high growth in profits for 2011 the growth projection is kept at 13.5%, terminalgrowth rate is kept equal to risk free rate i.e. 4.58%. In the end the fair value of Maruti is foundto be Rs1465 which is approximately 5% higher than current market price of Rs.1396. Thereforethe call given on Maruti Suzuki Ltd. is ‘BUY’.India’s automobile industry is 7th largest in the world and it also its growth rate is also one of thefastest in the world. In the last 5 years Indian automobile industry has grown at a phenomenalCAGR of 12.4%, while the world average for the same duration has been just .81%. During 2007to 2009 the growth of Indian automobile industry considerably slowed down but 2010 has beenphenomenal for Indian companies almost all of the companies across all segments have bouncedback with brilliant numbers. This was attributed to three factors: 1. Increase in sales due to increase in demand 2. Increase in profit margins due to decline in raw material prices. 3. Low base effect.Now since economic scenario seems favorable the growth is likely to continue.Page | 2
  4. 4. Jhaveri Securities ............................................................................................................................ 6Services Offered.............................................................................................................................. 7 Derivatives Trading: ................................................................................................................... 7 Commodity Trading:................................................................................................................... 7 Currency Derivatives: ................................................................................................................. 7 Mutual Fund ................................................................................................................................ 77S Framework ................................................................................................................................. 8 STRATEGY................................................................................................................................ 9 STRUCTURE ............................................................................................................................. 9 SYSTEMS................................................................................................................................... 9 STYLE ...................................................................................................................................... 10 STAFF....................................................................................................................................... 10 SHARED VALUES .................................................................................................................. 10Company History .......................................................................................................................... 12Shareholding Pattern ..................................................................................................................... 13Investment Rationale .................................................................................................................... 14Financial Analysis......................................................................................................................... 17 Key Ratios................................................................................................................................. 17 Ratios to measure ‘Short Term Solvency’ ................................................................................ 17 Turnover Measures ................................................................................................................... 17 Receivables Turnover ............................................................................................................... 18Historical Trends........................................................................................................................... 19 Net Sales ................................................................................................................................... 19 Growth rates in PBIT and Net Profit ........................................................................................ 19 Return on Net-Worth ................................................................................................................ 19 Dividend Pay-out ratio .............................................................................................................. 19 Reinvestment Rate .................................................................................................................... 19 Return on Capital ...................................................................................................................... 20 Growth Rate .............................................................................................................................. 20 Valuation ................................................................................................................................... 20Free Cash Flow to Firm ................................................................................................................ 22Page | 3
  5. 5. Balance Sheet Abstract ................................................................................................................. 23Profit and Loss Account Abstract ................................................................................................. 24EPS................................................................................................................................................ 25Price Variations............................................................................................................................. 26Conclusion .................................................................................................................................... 26Overview ....................................................................................................................................... 27Economy as a Factor ..................................................................................................................... 30STRENGTHS ............................................................................................................................... 31WEAKNESS ................................................................................................................................. 31OPPOURTINITES........................................................................................................................ 32THREATS..................................................................................................................................... 32Two Wheelers Segment ................................................................................................................ 38Three Wheeler Segment ................................................................................................................ 42Passenger Vehicles Segment......................................................................................................... 43Bajaj Auto Ltd............................................................................................................................... 46 Highlights.................................................................................................................................. 46Hero Honda ................................................................................................................................... 48 Highlights.................................................................................................................................. 48TVS Motor Co. ............................................................................................................................. 50 Highlights.................................................................................................................................. 50Ashok Leyland .............................................................................................................................. 52 Highlights.................................................................................................................................. 53 Highlights.................................................................................................................................. 54TATA Motors ............................................................................................................................... 56 Highlights.................................................................................................................................. 56Conclusion .................................................................................................................................... 58Learning’s from the project .......................................................................................................... 59Learning Soft Skills ...................................................................................................................... 59Contribution to the organization ................................................................................................... 59Passenger Vehicles Monthly Domestic Sales Data ...................................................................... 63Passenger Vehicles Monthly Export Data .................................................................................... 65Page | 4
  6. 6. Beta Calculation ............................................................................................................................ 67Page | 5
  7. 7. Jhaveri SecuritiesJHAVERI Securities is one of the largest stock broking houses in Gujarat with the client base ofover 70000, 375 franchises and 35 branches, with presence in every district of Gujarat.JHAVERI Securities was established in 1992 with its first office and current headquarters inVadodara at a highly strategic location; opposite to Vadodara stock exchange. Since its inceptionthe company has played a pivotal role in the development of primary and secondary markets inGujarat. It has membership in all the major stock exchange, offices at key locations, panel ofexperts to guide all decisions and transparent business interactions are the key elements that helpin everyday activities. This has been made possible by the managements policy of investingheavily in technology and human resource to constantly upgrade its services.At Jhaveri Securities technology and human resources work hand in hand. The latest computersoftware and the best human mind ware come together to assist clients to derive maximumbenefits of their investments. Be it long term returns or short term gains, JHAVERI has systemsin place that keep in total touch with the pulse of the market. Small movements are tracked,financial performance is charted, data collated and analyzed. No market trend is hidden from thealert market managers of JHAVERI. Guts feeling are doubly checked on the most modernsystems and software leaving no room for errors. What the client finally gets is a gist of thenumerous man hours that have gone in working out best possible options based on his individualneeds and requirements.It is the reason why Jhaveri Securities won the prestigious “Best Performing Individual FinancialAdvisor” award by CNBC in the year 2008-2009.Jhaveri Securities Vision Statement says: "Knowledge is power and power brings security. Riskis a very relative term and changes with every individual and situation. Financial management isnot just about managing risk but also managing knowledge and finally deriving answers thatgenerate wealth, security and trust".Page | 6
  8. 8. Services OfferedEquity Trading:For more than 15 years, Equity Broking is mainstay at JHAVERI. From “Saudas in the Ring” tofully computerized trading, we have delivered real value for money service with our esteemtraditional team. Extremely good infrastructure supported by qualified professionals coupledwith very competitive rates, services at JHAVERI is real value for money. Strong researchreports at regular intervals always provide guiding lights in decision making. Besides this, it alsohas extremely popular following value.Derivatives Trading:Although this is not the core strength of Jhaveri Securities but it is one of the services beingprovided by Jhaveri Securities. Jhaveri Securities does not provide any research reports ortrading calls on derivatives whatsoever.Commodity Trading:Commodity trading is another strong point of Jhaveri. Jhaveri Securities has a dedicateddepartment for commodity trading which provides advisory, daily calls and trade itself.Currency Derivatives:Jhaveri Securities has started publishing advisory reports on derivatives this May and it is in avery nascent stage.Mutual FundBesides securities Jhaveri also in the business of retailing Mutual Funds though JhaveriSecurities does not have a mutual fund of their own.All the services discussed above are provided online i.e. e-trading facility is available for all theservices discussed above.Page | 7
  9. 9. 7S FrameworkThe 7-S framework of McKinsey is a Value Based Management (VBM) model that describeshow one can holistically and effectively organize a company. Together these factors determinethe way in which a corporation operates. The model analyses an organization through seven keyelements – Structure, Strategy, Skills, Staff, Systems, Style & Super ordinate Goals. It furtherdescribes organization’s ability to change, and its proper mode of change. All these factors areinterdependent and it is impossible to make significant progress in one area without making aprogress in the others as well.Page | 8
  10. 10. STRATEGYStrategy is the way company aims to improve its position vis-à-vis competition. The companyresponds to the competitors move by planning an effective strategy. Jhaveri Security’s strategyincludes 5 components:• Ease of accessibility• Timely and accurate guidance• Quality analysis for its partners and clients• Cost leadership• Full service providerSTRUCTUREThe structure of an organization helps coordinate various tasks of the organization and henceenhance efficiency. The structure at Jhaveri Securities Pvt. Ltd. is, Kamal Jhaveri heads theorganization and is followed by the following people comprising the top management:Parthiv Shah- Head Research DepartmentManish Shah- VP OperationsThe middle level management has Zonal Heads, Branch Heads, and partners which includefranchise owners.SYSTEMSJhaveri Securities has a very good research department in place and to serve, support and adviceits branch heads, franchise owners which inturn support the huge client base of 70000. Tosupport its Research Department Jhaveri Securities has subscription of all the latest databases,libraries and tracking and charting softwares. Which serve the Research Department with allkinds of information that they might need at any stage. There is a dedicated IT department whichis responsible for all the network and provides clients with e-trading facilities. All the paper workPage | 9
  11. 11. is handled by separate department and Mr. Kamal Jhaveri the CMD of the Jhaveri Securities withMr. Manish Shah overlooks the entire organization and its operations.STYLEAs Jhaveri Securities does not require very diverse and highly expert employees for mostdepartments. Jhaveri Securities does not hire from top notch B-Schools or Tech. colleges ratherthey hire people who have experience for that particular job description and have a lot ofknowledge gained through experience.The work environment at Jhaveri Securities is collaborative and encouraging every employee togo beyond their defined roles and learn more. In addition to it the culture is also of a freeworkplace where communication is given due importance with email client and internalmessaging system. The culture ensures that a strong team spirit bonds everyone and that peopleare constantly motivated to go beyond their individual capacities.STAFFThey recruit fresher & experienced people but never from a top educational institute instead theyseek candidates with passion for stock market or people with relevant experience in the particularjob description. All the training provided to employees is of on-job experiential learning type.SHARED VALUESThere are a set of rules and regulation that need to be followed from the CMD to a support staff.Jhaveri Securities is very ethical in the business and corporate governance. They imbibe thefollowing values in every employee:• Integrity• Excellence• Learning• Fairness• AccountabilityPage | 10
  12. 12. Page | 11
  13. 13. Valuation: Maruti Suzuki Ltd.Company HistoryMaruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is Indias largest passenger car company,accounting for about 49 per cent of the domestic car market. The company offers full range ofcars from entry level Maruti 800 & Alto to stylish hatchback Ritz, A-star, Swift, Wagon R,Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. The company is asubsidiary of Suzuki Motor Corporation of Japan.The company is engaged in the business of manufacturing, purchase and sale of motor vehiclesand spare parts (automobiles). The other activities of the company include facilitation of pre-owned car sales, fleet management and car financing. They have four plants, three located atPalam Gurgaon Road, Gurgaon, Haryana and one located at Manesar Industrial Town, Gurgaon,Haryana.The company has seven subsidiary companies, namely Maruti Insurance Business Agency Ltd,Maruti Insurance Distribution Services Ltd, Maruti Insurance Agency Solutions Ltd, MarutiInsurance Agency Network Ltd, Maruti Insurance Agency Services Ltd Maruti InsuranceAgency Logistics Ltd and True Value Solutions Ltd. The first six subsidiaries are engaged in thebusiness of selling motor insurance policies to owners of Maruti Suzuki vehicles and seventhsubsidiary, True Value Solutions Ltd is engaged in the business of sale of certified pre-ownedcars under the brand Maruti True ValuePage | 12
  14. 14. Shareholding Pattern ShareHolding pattern 0 Foreign (Promoter & Group) 54.2101 0 Indian (Promoter & 100 Group) Total of Promoter 54.2101 Non Promoter (Institution) 45.7899 37.7879 Non Promoter (Non- Institution) 8.002 Source: Capital Line PlusCompany’s major stake of over 54% is held by foreign promoter group namely Suzuki group.Institution holding in Maruti is little less than 38% which also suggests the low risk and highpotential of this stock and after that about 8% of the company’s stock is held by general public.Page | 13
  15. 15. Investment RationaleMaruti Suzuki is a market leader in the domestic passenger car market with a market share of51.2% in FY10. The company has a strong product portfolio spanning across various pricepoints. Maruti has made significant investments in building an elaborate distribution networkwith 802 sales and 2470 service outlets, which in our view remains a competitive edge for thecompany. In FY10, the company achieved a key milestone of vehicle sales in excess of 1 millionunits.Over the last six months Maruti has underperformed the BSE Auto Index by 25% on the back ofheightened concerns regarding market share erosion and margin pressure on account ofcommodity cost increases and adverse currency movements. Although market share loss is agiven in light of competitive launches (Nano will surely erode some of its market share). It canbe expected that Maruti’s domestic volume growth in the passenger car segment over the nextfew years should remain good at about 10% YoY reasons for that being:1. Good volume growth despite market share loss Despite several new launches in the compact car segment, we believe volume ramp up for the new entrants would take a few years. Maruti’s strong distribution reach of 802 sales outlets and 2470 service stations remains a competitive edge. The company plans to focus on the largely under-penetrated rural markets, which currently contribute 16.5% of its domestic volumes (9 % in FY09). Furthermore, we note that Maruti’s current product portfolio is fairly diversified with the revenue share from the compact car segment accounting for 56% of total sales.2. Margin levers to partially offset input cost pressure Maruti’s calibrated capacity expansion would ensure high utilization levels over the next two years. The company has completed its platform rationalization and up gradation efforts in Q4FY10, which we feel could bring in cost efficiencies in the subsequent period. Further with the recent price hike of ~ 1% on blended basis, it would be able to partially offset somePage | 14
  16. 16. portion of commodity cost increase. Adverse forex movement is likely to impact operating profits by ~2% in FY11E and FY12E, based on Maruti’s unhedged exposure.3. Expect frequency of new launches to accelerate Maruti has been consistently launching one new model every year in addition to refreshers of its existing models. In the context of emission norms change, the company has upgraded most of its existing models to BS-IV emission standards. In addition to one new model launch, Maruti will also undertake model face-lifts at regular intervals.4. Industry outlook remains positive. Passenger car demand in India is on an up move following the growing demand for cars led by improving income and consumption levels. Favorable domestic story coupled with low penetration levels provides a huge upside opportunity for the passenger car players in the domestic market. Increasing competition will lead to an overall broadening of the car market in India. Domestic passenger vehicle segment in India have registered a 15% CAGR growth in the past 4 years. 120 100 80 60 Domestic Sales 40 Exports 20 0 May-09 Jun-09 Aug-09 Dec-09 Jul-09 Sep-09 Oct-09 Nov-09 Apr-10 May-10 Jan-10 Mar-10 Feb-10 Marutis Sales trend (Source: SIAM)5. Maruti’s current performance Maruti’s total sales grew by 23% to 88140 units in May 2010 on robust demand. The domestic sales recorded its highest monthly sales at 76120 units, up by 21% in May 2010.Page | 15
  17. 17. The previous domestic monthly sales high was in Feb 2010. Segment wise, A2 and A3 registered highest domestic monthly sales. The A2 segment that comprises of compact car brands grew by 17% to 62679 units while the A3 segment i.e. sedan models grew by impressive 61% to 10883 units in May 2010. Surprisingly the M800 sales grew by 10% to 2558 units in May 2010. The exports of Marutis passenger cars grew by healthy 33% to 12020 units on robust demand, however its market shares slipped by 100 bps to 49% in May 2010. On overall basis, Marutis total sales crossed over 1-lakh units (on including its multipurpose and utility vehicle sales).Page | 16
  18. 18. Financial AnalysisKey RatiosRatios to measure ‘Short Term Solvency’ 1. Current Ratio = Current Assets Current Liabilities = 1.788 2. Cash Ratio = Cash Current Liabilities = 0.632The value of current ratio is 1.788 is fairly good, its value is greater than 1 which suggests thatafter a period of 1 year when these assets will be converted into cash Maruti will end up gettingcash instead of paying and its value is not so high that it may suggest some inefficient use of itscurrent assets. The value of cash ratio is .632 which is on the higher side and tells us that thecompany is currently having enough cash to pay of 63.2% of its current liabilities.Turnover Measures 3. 𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 = 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑜𝑜𝑜𝑜 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑠𝑠𝑠𝑠𝑠𝑠 𝑠𝑠 𝐼𝐼 𝐼𝐼 𝐼𝐼 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = 27.86 times 4. 𝐷𝐷𝐷𝐷𝐷𝐷𝑠𝑠 ′ 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑖𝑖 𝑖𝑖 𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼 = 365 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐼𝐼 𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 =13.1 DaysPage | 17
  19. 19. The turnover figures are extremely good the inventory turnover ratio of 27.86 suggests that theinventory is turned over 27.86 times every year and the ratio of Days Sales in inventory of 13.1days tells us that Maruti holds 13.1 days of inventory with itself.Receivables Turnover 5. 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 = 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 30.315 times 6. 𝐷𝐷𝐷𝐷𝐷𝐷𝑠𝑠 ′ 𝑠𝑠𝑠𝑠𝑠𝑠 𝑠𝑠𝑠𝑠 𝑖𝑖 𝑖𝑖 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 = 365 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡The turnover figures are extremely good the receivables turnover ratio of 30.315 times suggests = 12.04 Daysthat the receivables is turned over 12.04 times every year and the ratio of Days Sales inreceivables of 13.1 days tells us that Maruti holds 13.1 days of receivables with itself.Page | 18
  20. 20. Historical TrendsNet Sales Net Sales 25000 20000 15000 10000 Net Sales 5000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: CompanyMaruti’s Net Sales has grown at a CAGR of about 14.5% for 14 years and for the last 5 years theCAGR for growth in Net sales has been 17.66%. This trend might get dampened by recession butMaruti is still likely to continue a moderate growth of about 10%.Growth rates in PBIT and Net ProfitMaruti’s last 14 year CAGR for PBIT is 9.8% and 5 year CAGR is 16%. For Net Profit the 14year CAGR has been 11.1% and 5 year CAGR has been 11.01%.Return on Net-WorthMaruti’s Average Return on net worth for the last 14 years has been 18.76%. This is extremelygood, since average return on NIFTY for the last 10 years has been 13.87%.Dividend Pay-out ratioMaruti’s average dividend payout for the last 14 years in comparison to its net profit is about10.84%. This is similar to its peers.Reinvestment RateMaruti’s average reinvestment rate for the last 14 years has been 95.3% and for the last 5 years ithas been extraordinarily high at 119.64%.Page | 19
  21. 21. Return on CapitalMaruti’s average return on capital for the last 14 years has been 17.42%, and for the last 5 yearsit averages out at 17.78%.Growth Rate 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺ℎ 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑜𝑜𝑜𝑜 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑥𝑥 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟Growth rate is nothing but multiplication of ‘Return on Capital’ and ‘Reinvestment Rate’.Average Growth Rate for the last 14 years has been 18.83% and for the last 5 years it has been19.22%.ValuationValuation method used here to value Maruti is ‘Free Cash Flow To Firm’ or FCFF. All the ratesused here are based on historical data and variations are made in them after discussions.Following are assumptions and rates used for valuation.Operating Margin: Last 14 year’s average operating margin is 14.69%, last 10 year’s averageoperating margin is 12.56%, last 5 year’s average operating margin is 16.42% but operatingmargin for 2009 was very low compared to these at 12.06. For calculation purposes we havetaken operating margin to be at 15% for the first 2011 to 2013 and after that at 14% since therewill be pressure on it due to increased competition.Reinvestment Rate: Reinvestment rate used for 2010 is kept at 75% due amazing results shownby the company a good part of this growth came from decreased raw material prices and lowbase effect. But it can be safely assumed this growth will be very difficult to maintain. Hence theReinvestment rate is assumed to be 75% for 2010 and for later years it is assumed to be 60%.Return on Capital: Last 5 years average return on capital was averaging at 18% and this Ibelieve Maruti will be able to maintain.Debt to Equity: Current Debt to Equity ratio is 9% but since Maruti will not be able to maintainits reinvestment rates there will be a substantial decrease in cash outflows hence Maruti willdecrease its Debt to Equity ratio to 5%.Dividend: Company will increase the dividend ratio to 32% of its net eventually.Other Income: Other Income will grow at a constant rate of 12% given the steady increase incash.Page | 20
  22. 22. Working Capital: Company’s working capital currently is negative but as its growth will slowdown it will become difficult to maintain a negative working capital so excess cash i.e.remainder of net profits after paying dividends and reinvestmentDepreciation: Last 14 year average depreciation is at about 8.5% this is taken as constant.Growth Rate: Since 2010 was an exceptional year growth rate for 2011 will be 13.5% but forthe consecutive 4 years high growth rate period is taken at 10.8%. 𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 10 𝑌𝑌𝑌𝑌𝑌𝑌𝑌𝑌 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 − 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆Terminal Growth Rate: Terminal Growth Rate is taken same as Risk Free RateHere Default Spread is dependent upon India’s currency risk which according to Moody’s Ratingis ‘Ba2’ which when converted into default spread comes out to be equal to 3% 1. 10 year Bondrate is on June 6 was at 7.58%. Risk Free Rate comes out to be at 4.58%.Beta 2: Beta of Maruti comes out to be ‘.8068’ after normalizing it with industry.1 http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html2 Annexure-IV and Beta Calc. in Maruti-Final.xlsPage | 21
  23. 23. Free Cash Flow to Firm 3 Particulars 2014E 2013E 2012E 2011E 2010 EBIT(1-t) 3049.824 3020.135 2736.258 2480.014 2429.996 Net Capital Expenditure[Capital Expenditure- Depreciation] 391.24 367.24 346.48 888.24 -14.39 Change in Working Capital Calculation of Growth Rate(R.R*ROC) 10.80% 10.80% 10.80% 10.80% 15.05% 1) ROC 18.00% 18.00% 18.00% 18.00% 20.07% EBIT(1-T) 3049.82 3020.14 2736.26 2480.01 2430 Book Value of Equity & Debt 18692.19 16732.21 15216.54 13784.29 12107.18 2) Reinvestment Rate 0.6 0.6 0.6 0.6 0.75 Cap ex 1789.08 1613.01 1455.15 1873.22 -14.39 Change in WC 0 0 0 0 0 EBIT(1-T) 3049.82 3020.14 2736.26 2480.01 2430 FCFF 3441.06 3387.38 3082.74 3368.25 2415.61 WACC 0.12 0.12 0.12 0.12 0.12 Present value 2204.23 2425.42 2212.39 2703.95 2164.33 Terminal Value ( 4 years high growth) 30620.24 Firm Value 42330.57 Equity Value 42330.57 Face Value 5 No of Shares 288910060 Price Per Share 1465.1814773 FCFF in Maruti-Final.xlsPage | 22
  24. 24. Balance Sheet Abstract 4 2014E 2013E 2012E 2011E 2010 SOURCES OF FUNDS : Share Capital 144.5 144.5 144.5 144.5 144.5 Reserves Total 17657.59 15790.94 14076.57 12501.64 10383.48 Equity Share Warrants 0 0 0 0 0 Equity Application Money 0 0 0 0 0 Total Shareholders’ Funds 17802.09 15935.44 14221.07 12646.14 10527.98 Total Debt 890.1 796.77 995.47 1138.15 1579.2 Total Liabilities 18692.19 16732.21 15216.54 13784.29 12107.18 APPLICATION OF FUNDS : Gross Block 16445.18 14656.1 13043.09 11587.95 9714.73 Less: Accumulated Depreciation 10250.07 8852.23 7606.46 6497.8 5512.82 Less: Impairment of Assets Net Block 6195.11 5803.88 5436.63 5090.15 4201.91 Total Assets 18692.19 16732.21 15216.54 13784.29 12107.184 Balance Sheet in Maruti-Final.xlsPage | 23
  25. 25. Profit and Loss Account Abstract 5 2014E 2013E 2012E 2011E 2010 INCOME : 49998.4 45124.9 36756.7 31947.6 Sales Turnover 6 7 40726.5 7 8 Excise Duty 7499.77 6768.74 6108.98 5513.52 2848 42498.6 38356.2 34617.5 31243.2 29099.6 Net Sales 9 2 3 6 8 Other Income 1606.44 1434.32 1280.64 1143.43 1020.92 Stock Adjustments 0 0 0 0 0 44105.1 39790.5 35898.1 32386.6 Total Income 3 4 7 9 30120.6 36548.8 32602.7 26556.7 25668.7 Total Expenditure 8 9 29424.9 7 2 Operating Profit 5949.82 5753.43 5192.63 4686.49 4451.88 Interest 63.93 57.23 71.5 81.75 33.5 Gross Profit 5885.89 5696.21 5121.13 4604.74 4418.38 Depreciation 1397.84 1245.77 1108.66 984.98 825.02 Minority Interest (before tax) 0 0 0 0 0 Profit Before Tax 4488.05 4450.44 4012.47 3619.77 3593.36 Tax 1481.06 1468.64 1324.11 1194.52 1094 Fringe Benefit Tax Deferred Tax Net Profit 3006.99 2981.79 2688.35 2425.24 2497.62 Minority Interest (after tax) 0 Profit/Loss of Associate Company Net Profit after Minority Interest & P/L Asso.Co. 3006.99 2981.79 2688.35 2425.24 2497.62 Extraordinary Items 0 Adjusted Net Profit 3006.99 2981.79 2688.35 2425.24 2497.62 Adjst. below Net Profit 3006.99 2981.79 2688.35 2425.24 2497.62 13628.4 11914.0 10339.1 P & L Balance brought forward 15495.1 5 8 5 8221 Statutory Appropriations 0 Appropriations 1124.57 1115.14 973.98 850.31 379.47 17377.5 13628.4 11914.0 10339.1 P & L Balance carried down 3 15495.1 5 8 5 Dividend 962.24 954.17 833.39 727.57 324.695 Profit and Loss in Maruti-Final.xlsPage | 24
  26. 26. Preference Dividend Equity Dividend (%) 665.91% 660.33% 576.74% 503.51% 224.70% Dividend Tax @ 16.87% 162.33 160.97 140.59 122.74 54.78 EPS before Minority Interest (Unit Curr.) 104.08 103.21 93.05 83.94 86.45 EPS before Minority Interest (Adj) (Unit Curr.) 104.08 103.21 93.05 83.94 86.45 EPS after Minority Interest (Unit Curr.) 104.08 103.21 93.05 83.94 86.45 EPS after Minority Interest (Adj) (Unit Curr.) 104.08 103.21 93.05 83.94 86.45EPS EPS before Minority Interest 120 100 80 60 EPS before Minority Interest 40 20 0 2008 2009 2010 2011E 2012E 2013E 2014EPage | 25
  27. 27. Price Variations Maruti Suzuki Ltd Stock price (Source: Money Control.com)ConclusionThe analysis of Maruti Suzuki Ltd. Suggests that the stock is slightly undervalued (consideringthe conservative estimations used) even though the best time to buy this stock was in May.Maruti’s stock is still a value buy considering all the factors like; 1. Maruti is a fundamentally very strong company. 2. Future prospects for automobile sector are great. 3. Maruti’s valuation is higher than its current stock price by 5% and if the company decides to go for expansion by installing new plants (this is a strong possibility since all the plants of Maruti are running at full capacity) in the next few years.Considering all the factors, I give it a ‘BUY’ rating.Page | 26
  28. 28. Sales Trends in Automobile IndustryOverview 14 12 10 8 5 year CAGR(%) 6 10 year CAGR(%) 4 2 0 Indian Automobile World Average for -2 Industry Automobile industry Comparison of growth of Automobile Sales in India and WorldIndian Automobile Industry is seventh largest in the world total production for 2009 being26,32,694 6 units. India also is the fourth largest automobile exporter of automobiles. Theperformance figures for Indian Automobile industry have been exceptional, over the past 10years from 2004 to 2009 the net production of automobiles in India has grown at a CAGR of12.40% 7 (5 year CAGR for passenger Cars has been 15.05%). The importance of these figuresincreases even more if we consider the total unit increase in world automobile production hasbeen at a 10 year CAGR of 0.81%.6 International Organization of Motor Vehicle Manufacturers7 Refer to Annexure- IPage | 27
  29. 29. In the last 10 years in terms of growth Indian Automobile Industry has clearly outperformed theworld average by a gigantic margin but it is not the point where we consider automobile industryin India to be a mature one, in-fact it is not showing any signs of maturing. 2009 was marked as anegative year for most world automobile industry, showing a negative growth by a whopping13.5%. Whereas Indian Automobile Industry showed a completely reverse trend and registered agrowth of 12.90%. This comes to prove that Automobile markets for developed countries may besaturated or even shrinking in face of recession but Indian automobile market remains upbeat. 1,60,00,000 1,40,00,000 1,20,00,000 1,00,00,000 Passenger Vehicles Commercial Vehicles 80,00,000 Three Wheelers 60,00,000 Two Wheelers Grand Total 40,00,000 20,00,000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total Automobiles Production in India (Source: Society of Indian Automobile Manufacturers (SIAM))Even though growth of Indian Automobile Industry has been spectacular, it still remains afraction of world automobile market with just 4.3% in terms of total volume in units producedand figure becomes even lower if we consider the share in terms of currency. Automobilepenetration (cars) is still very low in India a little over 10 cars per 1000 people (optimistic figure;Page | 28
  30. 30. planning commission report 8 this number is 7). Projections 9 for car penetration for India areextremely good at 382 per 1000 people by 2025. Automobile industry is bound to boom. 18,00,000 16,00,000 14,00,000 12,00,000 Passenger Vehicles 10,00,000 Commercial Vehicles 8,00,000 Three Wheelers Two Wheelers 6,00,000 Grand Total 4,00,000 2,00,000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Automobile Export Trends From India (Source: Society of Indian Automobile Manufacturers (SIAM))India is fast becoming a production hub for major automobile manufacturers who want tomanufacture to cars so as to export. It is estimated that within next 4 years Indian auto playersalone will investment $30 Billion 10 . This investment discussed suggests the industry’s selfperspective which and the likely trend for auto industry for this decade. This investment is aimedat not only satisfying domestic demand but also to support the export demand which have grownat a fantastic 6 year CAGR of 24.7% 11.8 Page 8 - http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_automaive.pdf9 Page 24 - http://www2.goldmansachs.com/ideas/brics/brics-at-8/BRICS-doc.pdf10 http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/Auto-cos-lines-up-30-bn-investment-in-4-years/articleshow/6009682.cms11 Annexure – IIPage | 29
  31. 31. Economy as a FactorSale of Commercial Vehicles is backed by strong IIP numbers (17.6% YoY). This has createdhigh growth expectations. Lot of new launches are expected this season with support of strongeconomic indicators growth seems certain. Margins which were under pressure due to strongsteel prices will also improve as the steel prices have started to soften.There are some concerns on the possibility rising material prices and also there is a stronglikelihood of a hike in interest rates. Given the increased competition in the small car segment itwould become very difficult for players to pass this increased cost on to the consumers.Page | 30
  32. 32. SWOT- AnalysisSTRENGTHS 1. Indian Automobile Industry is globally cost competitive: It is possible because of cheap labor availability and tax holidays provided by SEZs. 2. Government support: Indian government has also put Auto among its priorities 12 with 2012 target to become 10% of our GDP. 3. Indian Automotive Industry is following global accepted quality measures at a lower cost. This makes it a perfect destination for production-outsourcing of automobiles. 4. The availability large talent pool at cheap prices. 5. Availability of cheap R&D; 4 IITs be deemed as centers of excellence for automobile research and access to latest technology.WEAKNESS The biggest and probably the only weakness of Indian automobile Industry is its slow growth in Research and Development most companies (barring TATA and M&M) do not have adequate spending on R&D in comparison to their turnover. Maruti for instance is completely dependent upon Suzuki for any new technology all of the successful cars sold by it were developed by Suzuki; Swift, A-Star (which replaced alto in other markets as New Alto), SX4, Ritz etc. This weakness will soon become history as Indian companies are catching fast in R&D and are showing strong signs of success e.g.: M&M Scorpio Hybrid, TATA Nano. Besides R&D the other weakness is political hostility (TATA Nano Singur plant) but is only a regional problem of less developed states or pro-communist states, states like Gujarat, Maharashtra are proving to be a haven for Industries.12 Page 26 - http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_automaive.pdfPage | 31
  33. 33. OPPOURTINITES 1. India has a large pool of cheap talent which can be utilized in decreasing the R&D expenses. 2. India has potential to become manufacturing and export hub with it cheap labor availability. 3. India has very low car penetration about 10 per 1000 this number expected become 382 by 2025, this means that there is plenty of room for new entrants to enter and grow with the market without having others existing competitors having to suffer a market loss.THREATS 1. Indian markets have always suffered from duplicate products and cheap counterfeits this puts pressure on original equipment manufacturers to reduce the prices and compete with cheaper counterfeits. 2. India shares a border with china which presents it with a unique problem of cheaper counterfeits in a very huge manner through illegal imports and dumping. 3. With liberalization and foreign players entering Indian markets there is intense pressure on local players to improve and upgrade their products and if they don’t they might become extinct. 4. Certain component imports from FTA regime countries are becoming a threat existing players 13.13 Badri Narayanan G. and Pankaj Vashisht: Determinants of Competitiveness of the Indian Auto IndustryPage | 32
  34. 34. PORTERS FIVE FORCES ANALYSIS OFAUTOMOBILE INDUSTRYPorters Five Forces is a way of examining the attractiveness of an industry. It does so by lookingat five forces which act on that industry. These forces are determinants of that industrysprofitability.The five forces are:1. THE THREAT OF NEW ENTRANTS:In the automobile (car) sector, the threat of new entrants is generally very low. The industry isvery mature and it has successfully reached economies of scale. In order to compete in thisindustry a manufacture must be able to achieve economies of scale. For this to occur,Page | 33
  35. 35. manufacturers must mass-produce the automobiles so that they are affordable to the consumer.The huge amount of capital requirement, large distribution networks and brand image constitutesto other factors that restrict the entry of new barriers. The existing loyalty to major brands,incentives for using a particular buyer, higher fixed costs, scarcity of resources, high costs ofswitching companies, and government regulations constituted the barriers to entry which in turnreduced the competition in auto industry. It costs a lot to set up a car manufacturing facility, anew firm may usually have a very low brand equity, legislation and government policy such assafety, EPA and emissions are very rigid and it takes quite a lot of time to establish a strongdistribution network.2. THE BARGAINING POWER OF BUYERS/CUSTOMERS:In the automobile sector, the buyers wield considerable power. The manufacturers depend onthem to stay in business. If they cannot keep their buyers happy then they risk losing them totheir competitors. The buyers have low switching cost if they are not happy. The automobilemanufacturers are competing against each other on value, features, quality, style andcustomization to appeal to their customers. In the past when the economy was not liberalized, thecar manufacturers themselves had much of the power, but with the entry of foreign companiesafter liberalization the power switched from SELLERS to BUYERS as the foreign manufacturersoffered alternatives to domestic vehicles.However, the bargaining power with the buyers is MODERATELY high & not completely high,the reason being that the buyers are not large but few in number. Second, the buyers do not havethe ability to integrate backwards into the industry, if they want a car then they have to purchaseit from a car dealer only, they themselves won’t manufacture a car.3. THE BARGAINING POWER OF SUPPLIERS:In the automobile industry this refers to all the suppliers of parts, tires, components, electronics,and even the assembly line workers. To manufacture a car lots of different parts are required &to accomplish this there exist many suppliers. These suppliers rely on one or two automakers tobuy a majority of their products. If an automaker decided to switch suppliers, it could bePage | 34
  36. 36. devastating to the previous suppliers business. As a result, suppliers are extremely susceptible tothe demands and requirements of the automobile manufacturer and hold very little power.4. THREAT OF SUBSTITUTE PRODUCTS:The threat of substitutes to the automobile sector is fairly mild. There avail many other mode oftransportation such as walking, cycling, taking a bus, train, rickshaw and to a larger extent anairplane or helicopter but none offer the utility, convenience, independence, and value affordedby automobiles. The switching costs associated with using a different mode of transportation,such as train, may be high in terms of personal time, convenience, and utility, but not necessarilymonetarily the cost of fuel consumed on a similar round trip, daily parking, car insurance, andmaintenance). Substitutes products all depend on the geographic location of the consumer. Inplaces with high population densities (eg Mumbai), people prefer walking or cycling or taking atrain, more rather than owing a car & keep waiting at signals for 2-long hours. On the contrary,there are people who would prefer to have at least one car for the “status” title in the society.5. INTENSITY OF RIVALRY AMONG COMPETITORS:Rivalry among the competitors is very strong is this industry. Tit-for-tat price slashes, adcampaigns, and product developments keep them on the edge of innovation and profitability.One of the reasons for such high rivalry is the lack of differentiation opportunities. All thecompanies make cars (Sedans, Hatchbacks, and SUV’s). Before making any purchases thecompetitors are compared to one another constantly.As per me INTENSITY OF RIVALRY AMONG COMPETITORS is the most importantforce in automobile industry. The price, quality, durability, and many other aspects of differentmanufacturers are greatly taken into consideration when deciding which Brand to purchase. Forinstance, in India market for sedans & coupe, companies like BMW, Audi & Mercedes are intofierce competition. The price & the features offered by BMW for its 3-series model are oftencompared to the price & the features of AUDI A-4 model & Mercedes C-class models. SimilarlySkoda Fabia, Honda Jazz & Volkswagen Polo are being highly compared on features,performance & prices. Also the newly launched TATA NANO (the lowest price car) isPage | 35
  37. 37. extensively competing in price with Maruti-800, which was the lowest price available car beforethe launch of Nano.KEY CERTAINITYIn auto sector, the very requirement of a company for its survival is REGULARTECHNOLOGY UP GRADATION. For instance in the past we had just PETROL cars, thenwith the gradual hike in petrol prices, cars using diesel & CNG–Gas as fuel were manufacture &now, very recently, the renowned car companies are coming up with HYBRID cars due to theconcerns regarding the Global Warming. Thus, it is very possible that in future alsotechnological changes would be taking place keeping in view the customer’s requirement &environmental scenario.KEY UNCERTAINITY:A very vital uncertainty in Auto sector is the PRICE OF THE RAW-MATERIAL (Steel,Aluminum etc.). Changes in the cost of raw-material have a direct impact on the price of thecars, which further affect the demand of the car. Thus, if in future the price of steel increases, thesale price of car would increase, this will have a negative impact on its demand & vise-a-versa.KEY SUCCESS FACTORS:  Entering of global brands into the market providing the variety of cars with wide ranges in the prices, which gave liberty to the customers to choose as per their need.  New designs, fuel efficient engines and various offers throughout the year resulted in the growth of revenues for the automobile sector.Page | 36
  38. 38. Industry BreakupIndian Automobile Industry can be broken up into four categories: Domestic Market Share for 2009-10 Passenger Vehicles 15.86 15.86 Commercial Vehicles 4.32 4.32 Three Wheelers 3.58 3.58 Two Wheelers 76.23 76.23 Market Share 15.86 4.32 Passenger Vehicles 3.58 Commercial Vehicles Three Wheelers Two Wheelers 76.23 Market Share of each segment (source: SIAM)Page | 37
  39. 39. Two Wheelers Segment 1,20,00,000 1,00,00,000 80,00,000 60,00,000 Export 40,00,000 Domestic Sales 20,00,000 0 Yearly Sales Trend Two Wheelers (source: SIAM)Two wheeler sales are back on double digit growth path backed by robust economic growth andavailability of finances translating which have translated into this increase in demand. The two-wheeler sales grew at a healthy rate of 31% which resulted into a unit sold reach 1057773 unitsin May 2010 and sequentially it grew by 7% from 988128 units in April 2010. Of the 1057773domestic sales accounted for 936555 units and exports accounted for 121218 units with a growthrate of 29% and 51% respectively.Page | 38
  40. 40. 1200000 1000000 800000 600000 Export 400000 Domestic 200000 0 Apr-09 May-09 Jun-09 Aug-09 Dec-09 Jul-09 Sep-09 Oct-09 Nov-09 Apr-10 May-10 Jan-10 Mar-10 Feb-10 Two wheeler sales monthly data (Source: SIAM)Indian Metrological department has predicted normal South West Monsoons, which can helpimprove rural income, and there by rural demand for automobiles in general, and two wheelers inparticular. Thus the near term outlook is positive. 11 --Suzuki Motorcycle India Pvt. Ltd. --Hero Honda Motor 15 48 --Mahindra & Mahindra 5 --TVS Motor Co. --Honda Motorcycle 20 Market Share for scooters segment (Source: SIAM)Page | 39
  41. 41. ScootersScooters segment has given a comeback and this segment is proving to be the biggest thrivingand upbeat two-wheeler segment. Its total sales grew by robust 46% to 160753 units in May2010. The domestic sales grew by 45% to 157509 units and the exports zoomed ahead bywhopping 105% to 3244 units in May 2010.The scooter segment was the sole segment in two wheeler industry to remain unaffected by thesudden recession in 2008. It has been on healthy growth trail especially from November 2006with few occasional hiccups. Cashing on the trend, Piaggio would be re-entering the scootersegment beginning with Vespa LX 125 model. The board of Piaggio & Co has okayed a plan toinvest nearly Euro 30 million over two years to establish a 1.5-lakh capacity plant that willproduce a model specially developed for India, the worlds second-largest two-wheeler market.The first scooter is expected to roll out by the end of 2012.Also Honda Motorcycles (Honda) total scooter sales grew by 28% to 77695 units in May 2010on demand. Its domestic sales grew by 28% to 76980 units while the exports grew by whopping105% to 715 units in May 2010. However its market share slipped to 48% in May 2010 from55% in May 2009.Page | 40
  42. 42. 0 --Suzuki Motorcycle 0 3 7 India Pvt. Ltd. --Bajaj Auto 8 32 --Hero Honda Motor --TVS Motor Co. --Royal Enf. Sales 49 --Honda Motorcycle Motorcycles segment market share (source: SIAM)MotorcyclesThe motorcycle sales grew by 29% to 842143 units in May 2010 backed by demand in domesticas well as export markets. The domestic sales grew by 26% to 725311 units while the exportsgrew by robust 49% to 116832 units partly lifted by low base too.Bajaj Autos total sales grew by impressive 63% to 269488 units in May 2010 partly lifted bydemand and low base effect. The domestic sales grew by notable 69% to 191726 units while theexports grew by robust 51% to 77762 units in May 2010. Its market share improved to 32% inMay 2010 from 25% in May 2009.Page | 41
  43. 43. Three Wheeler Segment 7,00,000 6,00,000 5,00,000 4,00,000 3,00,000 Export 2,00,000 Domestic Sales 1,00,000 0 Yearly sales trend in three wheeler segment (source: SIAM)Three wheeler segment has grown at a rate of about 9.7% yearly in the last six years if calculatedgeometrically. While the domestic sales grew at a CAGR of about 7.6% and exports grew at aCAGR of 16.8%. 12 9 35 Bajaj Auto Piaggio M&M Others 44 Three wheeler segment Market Share for April (Source: SIAM)In three wheeler segment 88% of the market share is held by three players namely Bajaj Auto,Piaggio, and M&M.Page | 42
  44. 44. Passenger Vehicles Segment 30,00,000 25,00,000 20,00,000 15,00,000 Export 10,00,000 Domestic Sales 5,00,000 0 Passenger Cars Sales yearly trend (source: SIAM)Total passenger vehicles segment has grown at a rate of little over 15% in the last 6 years withdomestic sales growing at a rate of about 13.7% and exports growing at a rate of 22.9% 6 yearCAGR. Domestic sales were had to face some beating in 2009 but the industry showed allovermarginal growth because of exports growth was over 53%.For the current year, the passengervehicle industry continued on its robust growth trail with 31% growth in May 2010 to 223687units backed by demand and partly low base. The domestic sales grew by 35% to 190575 unitson demand and low base while the exports grew by 11% to 33112 units despite healthy base.Despite the series of price hikes in span of four months in passenger vehicle industry as well asfuel price hike, the passenger vehicle demand is undeterred owing to increased purchasing powergiven to consumers with change in tax slabs, healthy economic growth and specially thelaunches of new/variants of small cars such as VW Polo, GM Beat, Ford Figo and MarutiSuzukis new Wagon R and Eeco at attractive prices.Page | 43
  45. 45. 300000 250000 200000 150000 Exports 100000 domestic 50000 0 Apr-09 May-09 Jun-09 Aug-09 Dec-09 Jul-09 Sep-09 Oct-09 Nov-09 Apr-10 May-10 Jan-10 Mar-10 Feb-10 Passenger vehicles monthly sales (Source: SIAM) Market Share Passenger Vehicles Segment Maruti Hyundai Tata Motors M&M GM Others Source: SIAMThe compact car segment is about to see some increased competition with the launch of Nissan’s‘Made in India car Micra. This compact car would be hitting the Indian stands from July 2010.Nissan has commenced the production of first Micra at its Chennai plant in May 2010. The carhas been displayed in showroom from May 25 2010 and would hit the Indian market in July2010. Its exports are expected to begin from September 2010. Nissan is looking at exporting tomore than 100 countries including Europe, Middle East and Africa.Page | 44
  46. 46. Passenger CarsThe passenger cars total sales grew by 26% to 181130 units in May 2010 largely on demand.The domestic sales grew by healthy 30% to 148481 units on low base and demand while thegrowth in exports were restricted to 10% to 32649 units on account of high base.Utility VehicleThe utility vehicle sales grew by impressive 58% to 25783 units in May 2010 on demand andsteep low base effect. Its domestic sales grew by impressive 56% to 25432 units while theexports grew by whopping 409% to 351 units in May 2010.Multi Purpose Vehicle (MPV)The MPV sales grew by robust 51% to 16774 units in May 2010 on healthy demand. Itsdomestic sales grew by robust 51% to 16662 units while the exports grew by notable 49% to 112units in May 2010.Page | 45
  47. 47. Bajaj Auto Ltd.Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E11508.5 1814.02 117.51 2292 2309 984.9 33161.61 19.5 300 250 200 150 2Whs 100 3Whs 50 0 May-09 Dec-09 Jun-09 Apr-10 May-10 Aug-09 Nov-09 Jul-09 Sep-09 Oct-09 Jan-10 Mar-10 Feb-10 1. Bajaj Sales Trend; in 000s (source SIAM, Company)Highlights • For May ’10, Bajaj Auto reported sturdy 61.6% yoy volume growth (though 4.5% lower mom), led by robust motorcycle and three-wheeler volumes. • Motorcycles posted robust 62.9% yoy volume growth (though 2.6% lower mom), to 268,840 units. The newly-launched Discover-150 sold 12,377 units, Pulsar (75,974 units) and Discover (107,076 units) made up 68% of motorcycle sales. • In May ’10, export growth was 63.5% yoy (though 15.8% lower mom), to 95,964 units. • For Q4FY10: 80.5% growth in net sales to 3399.5 crores and 4 fold rise in net profit to 532 crores. • FY10 sales grew over 35% to 11508 crores while net profit showed a 160% growth to all time high at 1702 crores.Page | 46
  48. 48. • EBITDA margin for the quarter was the highest ever at 22.9% and 21.7% for Q4FY10 and FY10. • There are many strategic launches planned for FY11 such as Discover 100cc, Pulsar 135cc and Platina 125cc all these combined with already launched Discover 150cc would expand volume based growth. • FY10 YoY units growth in 2Wh’s for BAL has been 31% and for 3Wh’s has been 24%. This was a result of strong domestic demand.Page | 47
  49. 49. Hero HondaSales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E15758.18 2231.83 111.8 1984.35 2094 1311.7 39625 17.75 Hero Honda: Sales Volume 500 450 400 350 300 250 200 150 Sales Volume 100 50 0 Aug-09 Sep-09 Oct-09 May-09 Feb-10 Dec-09 Jun-09 Nov-09 Apr-10 May-10 Jul-09 Jan-10 Mar-10 2. All figures in 000s (Source SIAM)Highlights • Hero Hondas total scooter sales grew by impressive 64% to 24746 units in May 2010 despite high base. Its domestic sales grew by robust 61% to 23738 units while the exports surged by significant 200% to 1008 units in May 2010. Its market share grew by 100 bps to 15% in May 2010. • Hero Hondas total sales grew by 12% to 411187 units in May 2010 purely on demand. The domestic sales grew by 12% to 401320 units while the exports grew by 16% to 9867 units in May 2010. However its market shares slipped by 700 bps to 49% in May 2010. The company raised prices of its products by up to Rs 1,000 with immediate effect in June 2010 due to rising input costs.Page | 48
  50. 50. • Hero Honda introduced two new models in April – the refreshed Glamour and Glamour FI. It plans to continue to build on its strategy of innovation and technology focus by introducing new products and product refreshes. • Hero Honda recently crossed a significant milestone by covering 100,000 villages under its rural initiative:“Har Gaaon Har Angan”. This umbrella platform for all rural initiatives has helped in steadily widening its presence in rural and upcountry markets, taking its contribution to sales to 42% of the total.Page | 49
  51. 51. TVS Motor Co.Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E4356.07 132.69 3.64 97.1 108.8 40.5 2306.55 26.68 180 160 140 120 100 80 Motorcycles & Mopeds 60 Scooter 40 20 0 May-09 Jun-09 Aug-09 Dec-09 Jul-09 Sep-09 Oct-09 Nov-09 Apr-10 May-10 Jan-10 Mar-10 Feb-10 3 TVS Motors Sales; All figures in 000s (source SIAM, Company)Highlights • TVS Motors scooter sales grew by robust 42% to 31884 units in May 2010 though partly driven by demand and partly low base effect. The domestic sales grew by robust 40% to 30567 units while the exports grew by whopping 101% to 1317 units in May 2010. The market share was intact at 20% in May 2010. • TVSs total sales grew by 27% to 67906 units in May 2010 on demand as well as low base. Its domestic sales grew by 21% to 52319 units while the exports grew by robust 51% to 15587 units in May 2010. Its market share was intact at 8% in May 2010.Page | 50
  52. 52. • The moped segments total sales grew by 29% to 54877 units in May 2010 on healthy demand. It solely represents TVS motor. Its domestic sales grew by 27% to 53735 units. Its exports grew by outstanding 661% to 1142 units in May 2010 lifted by both robust demand and low base. • Motorcycle volumes increased 26.9% yoy and 2.9% mom, marking the sixth consecutive month of mom volume growth. In Feb ’10, TVS introduced the auto-clutch motorcycle Jive in Tamil Nadu and Andhra Pradesh, with the countrywide launch coming in Mar and Apr. This has contributed to TVS’ motorcycle growth. • Three-wheeler volumes increased 217.3% year on year (but lower 85.8% month on month) to 2,313 units. Exports increased 62.1% year on year (though 6.1% lower mom), to 18,046 units, marking the sixth consecutive month of year on year volume growth for TVS’ exports.Page | 51
  53. 53. Ashok LeylandSales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E7244.71 426.21 3.2 62.5 70.35 31.1 8321.27 19.67 10000 9000 8000 7000 6000 5000 Production 4000 Sales Domestic Sales Exports 3000 2000 1000 0 4 Production and Sales Figures (source: Ashok Leyland Website)Page | 52
  54. 54. 8000 7000 6000 May-09 5000 May-10 4000 3000 2000 1000 0 Production Production Production Production Sales Exports Sales Exports Sales Exports Sales Exports Sales Domestic Sales Domestic Sales Domestic Sales Domestic MDV Passenger MDV Goods LCV Total 5. Sales Breakup (source: Ashok Leyland website)Highlights • The Ashok Leyland-Nissan joint ventures for LCV will the roll-out of the first wave of products next year with a capacity of 1.5Lac units. • It is expected the JV will launch 3 new vehicles in next 3 years. • Total vehicle sales more than trebled to 6,502 units (228.9% YOY) in May. Domestic sales surged to 5,973 units compared with 1,697 in May 2009 while exports nearly doubled to 529 units. • The M&HCV passenger and goods segment were the main drivers of volumes, which increased 103.1% and 315.2% YoY to 1,436 units and 4,958 units, respectively. • The LCV segment recorded strong growth of 42.1% YoY and 111.8% MoM though the base is very low. Going forward, with the Pantnagar plant reaching full capacity utilization we expect larger LCV sales in the northern region. • Exports improved in volume terms by 88.9% YoY and 3.7% MoM to 529 units though according to contribution to total sales the segment declined slightly on YoY basis.Page | 53
  55. 55. Mahindra and MahindraSales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E18602.11 2087.75 36.89 631.65 641.8 347 35745.07 17.12 60 50 40 30 UV & 3Whs 20 Tractor 10 0 May-09 Jun-09 Aug-09 Dec-09 Jul-09 Sep-09 Oct-09 Nov-09 Apr-10 May-10 Jan-10 Mar-10 Feb-10 Monthly Sales trend (Source: SIAM)Highlights • Mahindra & Mahindras (M&M) total scooter sales grew by whopping 260% to 8206 units in May 2010. The robust growth is partly driven by fact that M&M entered the scooter space only in April 2009 thus driven by low base. Its domestic sales grew by whopping 267% to 8046 units while the exports grew by impressive 82% to 160 units in May 2010. Its market share grew by 300 bps to 5% in May 2010 • Domestic UV sales grew 50% yoy, while exports grew 275% yoy (from a low base), driving overall UV growth to 55%. • Domestic tractor volumes rose 29% yoy, while export growth was just 3% yoy. Overall tractor growth came in at 27.8% yoy and 5.8% mom. The launch of an ultra-cheap entry- level tractor aimed at small and marginal farmers could provide the necessary impetus to M&M’s tractor volumesPage | 54
  56. 56. • Three-wheeler volumes too were robust, at 145.7% yoy and 13% mom. This growth is attributable to good demand for Gio and Maxximo • LCV volumes grew 21.2% yoy, while Logan sales shot up 94.8% (primarily on the export of 350 units).Page | 55

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