report maruti

7/29/2019 report maruti

1/43

Sym b iosi s I ns t i t u te o f Managem en t Stu d ies

Com pany Pro j ect St udy

Ana lys is o f th e Au t o Sect o r in I nd ia and Valua t ion

o f Ma ru t i U dyog

at

Re l igar e Secur i t ies L td , Mum bai

Su b m i t t e d b y :

D hruv Sha rm aPGDM-Mark et in g and F inance

2 0 0 5 - 0 7Ro l l No . 59 ( 2A)

dhruvsharma05@gmai l . com
mailto:[email protected]:[email protected]


2/43

Analysis of the Auto Sector in India and Valuation of Maruti Udyog Ltd.

2

A c k n o w l e d g e m e n t

The Summer Project at Religare Securities Ltd, Mumbai offered both a learning

experience, as well as a glimpse into the daily management functions of an organization.

During the tenure of this project, I was fortunate to have interacted with people, who in

their own capacities have encouraged and guided me.

I would like to take this opportunity to express my sincere gratitude to my project guide

Mr. Sonal Kumar, Senior Analyst and Mr Arvind Jain, Research Analyst, for their support

and encouragement at every step. The project would not have been successful without

their invaluable guidance throughout the tenure.

Last but not the least I would like to thank Brig. H. Chukerbuti, Director, Symbiosis

Institute of Management Studies, for providing me with this opportunity.

Sincerely,

Dhruv Sharma


3/43


3

Table o f Cont ent s

Executive Summary ...........................................................................................................................................5

Project Details ......................................................................................................................................................6Project Title ......................................................................................................................................................6

Project Objectives ..........................................................................................................................................6

Religare................................................................................................................................................................... 7

Group Companies ............................................................................................................................................... 8

Religare Securities Limited ......................................................................................................................... 8

Religare Commodities Limited .................................................................................................................. 8

Religare Finvest .............................................................................................................................................. 8

Religare Insurance Broking Ltd. ...............................................................................................................9

Auto Sector at a glance .................................................................................................................................. 10

Commercial Vehicles................................................................................................................................... 10

Passenger Vehicles ...................................................................................................................................... 11

Two-wheelers ................................................................................................................................................ 12

Three-wheelers ............................................................................................................................................. 13Tractors............................................................................................................................................................ 14

Correlation and regression analysis of commercial vehicles ............................................................ 15

Calculations.........................................................................................................................................................19

Multiple Regression ..........................................................................................................................................21

Maruti Udyog - Introduction .........................................................................................................................22

Financials in brief.............................................................................................................................................. 22

Shareholding Pattern....................................................................................................................................... 23

Stock Performance ...........................................................................................................................................23

Car Segment.......................................................................................................................................................23

Critical Factors ................................................................................................................................................... 24

Small cars to provide growth momentum .......................................................................................... 24

Entry into diesel segment would help cater to entire market.....................................................24Strong product pipeline To help maintain leadership position................................................ 24

Excise duty cut fails to boost volumes................................................................................................. 24

Intense competition leading to margin pressure ............................................................................. 24

Expensive valuations ....................................................................................................................................... 25

Business mix.......................................................................................................................................................25

Sales mix ..........................................................................................................................................................26

Strong growth in volumes. ........................................................................................................................27

Other significant factors ................................................................................................................................. 27

Excise duty cut to boost volumes of small cars ............................................................................... 27

Launch of new products to drive growth ............................................................................................27

Entry into diesel segment to push volumes....................................................................................... 28

Alternative Fuels...........................................................................................................................................28

Export earnings to witness volatility..................................................................................................... 30EBITDA margins to witness pressure ................................................................................................... 30

Maruti to buy out 30% stake held by SMC in Maruti Suzuki Automobiles India ................. 31

Diesel engine plant to be set up in JV with Suzuki ......................................................................... 31

Tie-up with Nissan to boost volumes ................................................................................................... 31

To set up auto components JV................................................................................................................31

Competition and distribution network..................................................................................................31

Hardening interest rates to slow demand growth ........................................................................... 33

Strong Motorcycle sales peek into future car sales ......................................................................... 33


4/43


4

Capex ....................................................................................................................................................................34

Financials ............................................................................................................................................................. 35

Peer group comparison................................................................................................................................... 41

Valuations .......................................................................................................................................................41

Sensitivity Analysis...................................................................................................................................... 41

Party spoilers...................................................................................................................................................... 43Competition .................................................................................................................................................... 43

Hardening interest rates ...........................................................................................................................43

Increasing incentives.................................................................................................................................. 43

Risks to our view............................................................................................................................................... 43


5/43


5

Execu t i ve Sum m ar y

The automobile industry has grown 19%yoy in the first two months of FY07. Keysegments like M&HCVs and passenger vehicles, laggards in FY06, have also

posted a strong recovery. With sustained growth momentum, we estimate 18%

volume CAGR for key industry segments over FY06-08. The impact of interestrate and fuel price hikes has been offset by price cuts on passenger cars and

freight hikes by fleet operators. Though further increases in interest rates (up to50-150bp) and fuel prices would lead to a small incremental cash outgo for

buyers, we do not expect demand to slow down in the near term on this count.

The two most influential factors can be considered to be excise duty cuts on small cars

and the Supreme Court ban on overloading.

Source: SIAM

After a weak FY06, MUL has witnessed a sharp bounce back in sales volumes (up26% YTD to 101,401 units) in FY07. With ~80% of its volumes accounted for by

small cars, MUL has been the biggest beneficiary of the excise duty cut on small cars.MULs exports, led by M-800, grew by 13% during April-May 2006 to 3,945 units

as against a 29% decline in FY06 to 34,781 units.


6/43


6

Pro jec t Deta i ls

Pro jec t T i t l e


Pro jec t Ob jec t i ves

Determining the effect of various factors on Auto Sector(Commercial Vehicles inparticular)

Valuation of Maruti Udyog Ltd.s share price


7/43


7

Rel igare

Religare is driven by ethical and dynamic process for wealth creation. Based on this, thecompany started its endeavour in the financial market.

Religare Enterprises Limited (A Ranbaxy Promoter Group Company) through Religare

Securities Limited, Religare Finvest Limited, Religare Commodities Limited and ReligareInsurance Advisory Services Limited provides integrated financial solutions to its

corporate, retail and wealth management clients. Today, we provide various financial

services which include Investment Banking, Corporate Finance, Portfolio ManagementServices, Equity & Commodity Broking, Insurance and Mutual Funds. Plus, theres a lot

more to come your way.

Religare is proud of being a truly professional financial service provider managed by ahighly skilled team, who have proven track record in their respective domains. Religare

operations are managed by more than 2000 highly skilled professionals who subscribe to

Religare philosophy and are spread across its country wide branches.

Today, we have a growing network of more than 150 branches and more than 300business partners spread across more than 180 cities in India and a fully operational

international office at London. However, our target is to have 350 branches and 1000business partners in 300 cities of India and more than 7 International offices by the end of

2006.

Unlike a traditional broking firm, Religare group works on the philosophy of partnering forwealth creation. We not only execute trades for our clients but also provide them critical

and timely investment advice. The growing list of financial institutions with which Religare

is empanelled as an approved broker is a reflection of the high level service standardmaintained by the company.


8/43


8

Group Compan ies

Religare Enterprises Limited group comprises of Religare Securities Limited, ReligareCommodities Limited, Religare Finvest Limited and Religare Insurance Broking Limited

which deal in equity, commodity and financial services business.

Rel igare Secur i t ies L imi ted

RSL is one of the leading broking houses of India and are dealing into Equity Broking,

Depository Services, Portfolio Management Services, Institutional Equity Brokerage &

Research, Investment Banking and Corporate Finance.

Extension of services has been a constant feature in Religare to regard the needs of ourclients. Consequently, company is soon going to launch Internet Trading and Merchant

Banking. This would take care of different investment needs of different classes of

investors.

To facilitate free and fare trading process Religare is a member of major financial

institutions like, National Stock Exchange of India, Bombay Stock Exchange of India,

Depository Participant with National Securities Depository Limited and Central DepositoryServices (I) Limited, and a SEBI approved Portfolio Manager.

RSL serves a platform to all segments of investors to avail the opportunities offered by

investing in Indian equities either on their own or through managed funds in PortfolioManagement.

Rel iga re Com m od i t ies L imi t ed

Religare is a member of NCDEX and MCX and provides platform for trading in

commodities, which is an online facility also.

RCL provides platform to both agro and non-agro commodity traders to derive the actualprice of the commodity and also to trade and hedge actively in the growing commodity

trading market in India.

With this realisation, Religare Commodities is coming up with its branches at 42 mandi

locations. It is a flagship effort from our team which would be helpful in facilitating tradeand speculating price of commodities in future.

Rel igare F invest

Religare Finvest Limited (RFL), a Non Banking Finance Company (NBFC) is aggressively

making a name in the financial services arena in India. In a fast paced, constantlychanging dynamic business environment, RFL has delivered the most competitive products

and services.


9/43


9

RFL is primarily engaged in the business of providing finance against securities in thesecondary market. It also provides finance for application in Initial Public Offers to non-

retail clients in the primary market.

RFL is also planning to initiate personal loan portfolio as fund based activity and mutual

fund distribution as fee based activities.

Along with this, the company also undertakes non-fund based advisory operations in thefield of Corporate Financing in the nature of Credit Syndication which includes inter alia,

bills discounting, inter corporate deposit, working capital loan syndication, placement ofprivate equity and other structured products.

Rel iga re In surance Brok in g L td .

Religare has been taking care of financial services for long but there was a missing link.

Financial planning is incomplete without protective measure i.e. structured products to

take care of event of things that may go wrong.

Consequently, Religare is soon coming up with Religare Insurance Broking Limited. Ascomposite insurance broker, we would deal in both insurance and reinsurance, providing

our clients risk transfer solutions on life and non-life sides.

This service will take benefit of Religares vast business empire spread throughout thecountry -- providing our valued clients insurance services across India. We aim to have a

wide reach with our services literally! Thats why we are catering the insurancerequirements of both retail and corporate segments with products of all the insurance

companies on life and non-life side.

Still, there is more in store. We also cater individuals with a complete suite of insurance

solutions, both life and general to mitigate risks to life and assets through our existingnetwork of over 150 branches expected to reach 250 by the end of this year!

For corporate clients, we will be offering value based customised solutions to cover all

risks which their business is exposed to. Our clients will be supported by an operationsteam equipped with the best of technology support.

Religare Insurance Broking aims to provide neutral, transparent and professional risktransfer advice to become the first choice of India.


10/43


10

Auto Sec tor a t a g lance

The Indian Automobile sector can be broadly classified into the following categories: Commercial Vehicles

Passenger Vehicles Two-wheelers

Three-wheelers Tractors

Commercia l Vehic les

The major players in this segment are Tata Motors, Ashok Leyland, Eicher Motors, M&M

and Swaraj Mazda.

Source: Religare Research, CRIS INFAC


11/43


11


Passenger Vehic les

This segment is dominated by Maruti Udyog and Tata Motors.




12/43


12

Two -wh e e l e rs

The major players are Bajaj Auto, Hero Honda, TVS Motors and Kinetic Engineering.




13/43


13

Three-w hee lers

The major players are M&M, Bajaj Auto and Atul Auto

Source: Religare Research



14/43


14

Tracto rs

The main players are M&M, Punjab Tractors, Eicher Motors and Escorts




15/43


15

Cor r e la t ion and r egress ion ana lys is o f comm erc ia l veh ic les

The variables involved were:

Veh ic le Popu la t ion : which is defined as as total registered vehicles in India at thebeginning of the year, plus that years annual sales and less the estimated non-

functional/junked vehicles for the year.

I I P ( I n d e x o f I n d u s t r i a l Pr o d u c t i on ) : The values of this variable were taken with lag,

as effects of industrial production in one year materialize in the subsequent years.

W PI o f com m er c ial veh i c les: For this, same year data is taken as it is the prevailingprices that affect the purchase decision.

Cr ed i t am oun t ou t s t and ing f o r T r anspo r t Ope r a t o r s: The variable taken represents

the total credit amount outstanding for transport operators given by all scheduled

commercial banks.

W o r k i n g p o p u l at i o n: This has been estimated as a percentage of total working agepopulation, working age population refers to population between the age group 15 to 65.


16/43


16

YEMarch

CommercialVehiclePopulation(V) Actual sales (A) IIP(I) WPI(W)

Credit Amount( C)

WorkingPopulation(P)

EstimatedSales(E)

1980-81 716,000 75,083 39 66.20 9,142,600,000 16,200,000 78,826

1981-82 786,000 82,449 43 69.30 12,182,900,000 17,840,000 83,794

1982-83 860,000 90,559 47 70.50 15,231,700,000 19,750,000 87,365

1983-84 941,000 90,790 49 67.00 19,086,500,000 21,950,000 87,532

1984-85 1,045,000 98,929 52 67.90 22,572,900,000 23,550,000 90,958

1985-86 1,090,000 96,722 56 73.70 23,976,700,000 26,270,000 102,611

1986-87 1,229,000 103,693 61 78.30 26,019,100,000 30,130,000 111,268

1987-88 1,383,000 118,559 67 81.20 25,575,300,000 30,250,000 109,478

1988-89 1,457,000 117,413 72 86.70 27,646,900,000 30,050,000 117,104

1989-90 1,603,000 124,444 78 95.50 29,883,600,000 32,780,000 130,544

1990-91 1,687,000 141,782 84 103.50 36,392,600,000 34,630,000 140,944

1991-92 1,872,000 139,015 91 111.00 35,806,500,000 36,300,000 142,636

1992-93 1,967,000 120,636 92 117.00 37,432,000,000 36,760,000 106,795

1993-94 2,083,000 142,703 94 118.00 37,573,800,000 36,280,000 142,069

1994-95 2,217,000 168,919 100 124.40 39,568,900,000 36,690,000 166,665

1995-96 2,480,000 200,083 109 135.90 39,569,000,000 36,740,000 195,700

1996-97 2,748,000 221,676 123 146.10 45,774,800,000 37,430,000 228,535

1997-98 3,064,000 143,814 131 151.50 78,117,250,000 39,140,000 152,155

1998-99 3,094,000 129,822 140 157.40 64,684,900,000 40,090,000 148,139

1999-00 3,277,000 161,611 145 165.40 70,733,900,000 40,370,000 160,081

2000-01 3,582,000 136,585 155 175.50 80,750,000,000 41,340,000 138,813

2001-02 3,714,000 146,671 163 178.00 87,010,000,000 42,000,000 144,040

2002-03 3,851,000 190,682 167 185.90 93,230,000,000 41,170,000 184,900

2003-04 3,993,000 260,345 177 188.00 94,090,000,000 41,390,000 252,034

2004-05 4,141,000 318,438 189 196.90 105,107,600,000 42,380,000 318,194

2005-06 4,293,000 372,438 202 202.50 112,622,300,000 43,140,000 313,632


17/43


17

We see that the above variables have a linear relation with V. This can be showngraphically:

V V/s I

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

0 50 100 150 200 250

Series1

V V/s W

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

0.00 50.00 100.00 150.00 200.00 250.00

W

V V/s W

V V/s C

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

0 50,000,0

00,000

100,000,

000,000

150,000,

000,000

C

V V/s C


18/43


18

V V/s P

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

0 10,000

,000

20,000

,000

30,000

,000

40,000

,000

50,000

,000

V V/s P


19/43


19

Calcu la t ions

V A I W C P E

Summation 59,173,000 3,993,861 2,726 3,213 1,269,781,750,000 874,620,000 3,934,812SqSummation

3,501,443,929,000,000 15,950,925,687,321 7,431,076 10,325,297 1,612,345,692,633,060,000,000,000 764,960,144,400,000,000 15,482,745,475,344

ysq34,331,810,653,84

6.20

xsq 61,257.38 54,103.67 24,191,288,655,110,100,000,000 1,664,708,984,615,380 105,126,090,075.85

B or beta (slope) 23,605.34 25,109.81 0.00003686

A or alpha (intercept) -199,044.75 -827,398.58 475,755.16

ln alpha 15.27 15.27 15.27 15.27

ln beta b 1.26 1.26 1.26 1.26

RelativeChange 0.04b ln loglinmodel

0.0027853826 0.0064660667 0.0000000000 0.0000000476 -0.0000079373

Change 152,000.00

b for linlogmodel

2,613,663.3999

13,531,476.7624 16,553,744.1573 28,520,659.7661 490,720.1262

Meanupto Y(t-1) 2,195,200.00

Meanupto Y(t) 2,275,884.62

Changein Mean 80,684.62

Change

in X 13.00 5.60 7,514,700,000.00 760,000.00 -4,562.00

Newbeta 6,206.51 14,407.97 0.0000107 0.11 -17.69

New a(intercept)

1,625,156.03 495,226.14 1,751,518.26 -1,295,389.59 4,952,500.75


20/43


20

Change (no. of units) 1.00 1.00 1.00

Unit(s) as a % (U) 0.49505 0.49 0.0000000009

Change in V 23,605.34 25,109.81 0.0000368594

% Change in V 0.55 0.58 0.00000000086

Factor(U) to bemultiplied withso as tobeconverted to 1 % 2.02 2.03 1,126,223,000.00 431,400.00 3,136.32

%Changein V fora 1%changeinindependentvariables 1.11 1.18 0.97 1.30 1.08

Mean 2,275,884.62 153,610.04 104.85 123.59 48,837,759,615.38 33,639,230.77 151,338.92


21/43


21

Mul t i p le Regression

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.999

R Square 0.998Adjusted RSquare 0.997

Standard Error 60088

Observations 26

ANOVA

Df SS MS FSignificance

F

Regression 5 3.42596E+13 6.85192E+12 1898 5E-26

Residual 20 72210288182 3610514409

Total 25 3.43318E+13

CoefficientsStandard

Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper

Intercept -513067.7184 95522 -5.37 3E-05 -712323.6007 -313811.8361 -712323.6007 -31381

X Variable 1 9381 4571 2.052 0.053 -155 18916 -155

X Variable 2 12280 3035 4.046 6E-04 5948 18611 5948

X Variable 3 4E-06 3E-06 1.494 0.151 -0 1E-05 -0

X Variable 4 0.005 0.004 1.276 0.217 -0 0.013 -0

X Variable 5 -0.56 0.424 -1.32 0.203 -1.44 0.326 -1.44


22/43


22

M ar u t i U d y o g - I n t r o d u c t i o n

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament, tomeet the growing demand of a personal mode of transport caused by the lack of an

efficient public transport system.

Suzuki Motor Company was chosen from seven prospective partners worldwide. This wasdue not only to their undisputed leadership in small cars but also to their commitment to

actively bring to MUL contemporary technology and Japanese management practices

(which had catapulted Japan over USA to the status of the top auto manufacturing countryin the world).

A licence and a Joint Venture agreement was signed between Govt of India and Suzuki

Motor Company (now Suzuki Motor Corporation of Japan) in Oct 1982.

The objectives of MUL then were:

* Modernization of the Indian Automobile Industry.

* Production of fuel-efficient vehicles to conserve scarce resources.* Production of large number of motor vehicles which was necessary for economic

growth.

Today, Maruti Udyog is the largest passenger vehicles company in India, where it accountsfor roughly 52% of the total passenger car market and 46% of the total passenger

vehicles market. Its competitors include Hyundai Motors, Fiat India, Tata Motors, GeneralMotors, Honda Siel Cars, and Hindustan Motors. It is also involved in consumer financing,

insurance and buying/selling of used cars. Japan's Suzuki Motor Corp owns 54.2 percent in

the company. Company has presence in the Utility Vehicles (UVs), Multi Purpose Vehicles(MPVs), and mini (A1), compact (A2) and mid size (A3) car segments.

Financ ia ls in b r ie f

Year to 31 March FY03 FY04 FY05 FY06E FY07E FY08E

Net Revenues (Rs mn) 74,772 93,348 112,102 123,524 145,692 164,433

Net Profit (Rs.mn) 1,464 5,421 8,536 11,891 13,090 14,235

EPS (Rs.) 5.1 18.8 29.5 41.1 45.3 49.3

EPS growth (%) 28.3 270.3 57.5 39.3 10.1 8.7

P/E (x) 153.3 41.4 26.3 18.9 17.1 15.8

Div. yield (%) 0.2 0.2 0.3 0.5 0.5 0.6

RoCE (%) 9.8 21.8 31.2 34.0 31.5 29.2RoE (%) 5.0 16.2 21.4 24.2 21.7 19.6

Price/BV (x) 7.2 6.2 5.1 4.1 3.4 2.8

EV/EBITDA (x) 36.4 15.5 12.1 10.1 8.6 7.6

EV/Sales (x) 2.9 2.2 1.8 1.6 1.3 1.1

PEG Ratio 5.42 0.15 0.46 0.48 1.70 1.80


23/43


23

Shar eho ld ing Pat t e r n

Stock Per fo rmance

Car Segm ent

The brand (or reputation of a car) and durability (or efficiency of a vehicle in terms of fuel

consumption) are the two major factors that customers have in mind when it comes todecision-making. Maruti ranks in the top quartile of both the factors. Presence in the mini

and compact car segments has enabled Maruti to maintain its market share in excess of

50% for past many years. Lower running costs of its vehicles, and strong distributionnetwork has enabled Maruti to maintain its competitiveness in the hyper competitive

passenger car market. Maruti, which is 54.2 percent, owned by Japan's Suzuki Motor Corphas been receiving good support from its parent company. Maruti would be participating in

Suzukis world wide program in sourcing cheaper raw materials and has found a place inSuzukis recent tie-up with Nissan Motors. Suzuki will play an important role in drawing

Marutis international footprints.


24/43


24

Cr i t ica l Factors

Sm a l l cars t o p ro v i d e g ro w t h m o me n tu m

In FY06 growth in passenger car volumes was led mainly by sales of compact cars, where

Maruti is the industry leader with a market share of 58.5%. With increasing city traffic,commuters find it easy to drive a small/compact car. Increasing interest rates and high

fuel costs have increased operating cost of a car, thus commuters would prefer asmall/compact car as they offer better fuel efficiency as compared to a mid-size or large

car.

En t r y i n t o d i e sel se gm e n t w o u l d h e l p ca te r t o e n t i r e m a rke t

Maruti would be entering the diesel car segment with the launch of diesel version ofSwift.Current diesel variants account for ~20 percent of the total passenger car volumes. The

key growth driver for the diesel segment is the gap between diesel and petrol prices at the

retail level.

St r ong p rodu ct p ipe l ine To he lp m a in ta in leadersh ip pos it i on

In FY06 growth in sales was largely due to the launch ofSwift, which strengthens our

belief that going ahead bulk of the volumes growth would be led by new model launches.After a long gap Maruti has got aggressive with its new product launches, excluding

variants, it would be launching five new models in the next five years. In FY07, thecompany would be launching 3 new variants and 1 new model, which include an LPG

variant ofWagon R, re-designed Zen, diesel variant ofSwiftandayet to be announcednew model.

Exc ise du ty cu t fa i l s to boost vo lum es

Reduction in excise duty has resulted in price cuts in the range of 5-7%; if the recent

monthly data after the excise duty cut is any indication then it seems that the excise duty

cut has definitely boosted sales of small cars. But lately hardening of interest rates,increase in road taxes in few states and higher fuel prices have reduced the impact of

lower excise duty. Further extension of excise duty cut on vehicles run on alternative fuelwould improve sales.

I n t e n se co mp e t i t i o n l e a d in g t o m a rg i n p re ssu re

Competition in the passenger car segment has started to heat up as existing players suchas Hyundai Motors, GM, Toyota and Ford are becoming more aggressive, and trying to

gain market share through introduction of new models and aggressive expansion of

distribution network. In the compact car segment Maruti is facing competition fromHyundai Santroand Tata Indica.


25/43


25

Expens ive va lua t ions

Despite correction of 25% from its peak, Maruti still appears expensive. The stock

currently trades at 21.1x and 13.8x earnings, 11.5x and 8.9x cash earnings andEV/EBITDA of 12.0x and 8.6x for FY07E and FY08E respectively. We initiate coverage on

the stock with a Market Performer rating. Our DCF points to a share price of Rs700, or10% below current levels. At our target price it would trade at 14x FY08E earnings.

Bus iness m ix

Maruti is the largest passenger vehicle company in India. It has presence in the passenger

car and multi purpose vehicle sub-segment.

Segments - Total volumes sales - Annual

FY03 FY04 FY05 FY06

Passenger Vehicles 306,549 403,618 464,825 489,892

UVs 3,471 3,703 5,290 4,468MPVs 52,412 60,215 66,169 67,459

Total 362,432 467,536 536,284 561,819

Segments Domestic sales - Annual

FY03 FY04 FY05 FY06


UVs 3,241 3,624 5,204 4,374

MPVs 51,910 59,377 65,019 66,366

Total 330,182 417,031 487,402 527,038

Segments - Export sales - Annual

FY03 FY04 FY05 FY06

Passenger Vehicles 31,518 49,588 47,646 33,594UVs 230 79 86 94

MPVs 502 838 1,150 1,093

Total 32,250 50,505 48,882 34,781

Segments - Total industry sales - Domestic Market

FY03 FY04 FY05 FY06


UVs 114,010 146,777 176,223 194,577

MPVs 52,028 59,407 65,033 66,366

Total 707,686 903,989 1,061,194 1,143,037

Source: SIAM


26/43


26

Sales m ix

Maruti derives significant revenues from the sale of passenger cars, which contribute 85%to total vehicles sales. In this segment the company has been able to improve its market

share due to innovative sales and marketing programs, and launch of new variants andmodels. In FY06 Marutis market share improved by 150 basis points to 46% as compared

to 45% in FY05.

In the other two segments including UVs and MPVs, the company has been doing poorly

as it has not addressed this market properly and has poor products, whereas itscompetitors have been busy launching new variants/models.

Sales mix - Maruti Udyog

FY03 FY04 FY05 FY06

Passenger cars 306,549 403,618 464,825 489,892

Domestic 275,031 354,030 417,179 456,298

Exports 31,518 49,588 47,646 33,594

UVs 3,471 3,703 5,290 4,468

Domestic 3,241 3,624 5,204 4,374

Exports 230 79 86 94

MPVs 52,412 60,215 66,169 67,459

Domestic 51,910 59,377 65,019 66,366

Exports 502 838 1,150 1,093

Total 362,432 467,536 536,284 561,819

Domestic 330,182 417,031 487,402 527,038

Exports 32,250 50,505 48,882 34,781

Source: SIAM

Segment ModelsPassenger cars Maruti 800, Alto, Zen, Swift, Wagon R, Baleno, Esteem

UVs Gypsy, Grand VitaraMPVs Omni, Versa

Source:Company


27/43


27

St r o n g g r o w t h i n v o l u m e s .

Growth in volumes was led mainly by strong sales of compact cars, where Maruti is theindustry leader with market share of 46% and launch ofSwift in FY06 further

strengthened companys position. In FY06 company sold 53,171 Swiftconstituting 16% ofits total sales in the compact segment. With its aggressive plans for the next few years we

believe it would continue to dominate the small and the compact car segments.

Passenger vehicles: Market Share - Maruti Udyog (in %)

FY03 FY04 FY05 FY06

Passenger Vehicles 50.8 50.7 50.9 51.7

UVs 2.8 2.5 3.0 2.2

MPVs 99.8 99.9 100.0 100.0

Total Passenger Vehicles 46.7 46.1 45.9 46.1


Ot he r s ign i f i can t f ac t o r s

Exc ise du ty cu t to boost v o lum es o f sm a l l ca rs

In the FY07 budget the Indian government reduced the excise duty on small cars from 24

percent to 16 percent. A small car has been defined as any vehicle whose overall lengthdoes not exceed 4000mm. Also the vehicle should have an engine capacity upto 1500cc

for diesel cars and upto 1200cc for petrol cars.Cars that would fall under the proposeddefinition include the Maruti 80 0, Maruti Wagon R, Maruti Zen, Maruti Alto, Hyundai

Santroand the diesel variant of Tata Indica. This reduction in excise duty has resulted in

price reductions in the range of 5-7 percent. Lately as per media reports, the governmentis considering doing away with cubic capacity as one of the two criteria defining small cars

and would also include vehicles run on alternative fuels under the small car definition. Ifthe government does agree to this proposal, the petrol variant of Tata Motor Indica,Maruti Swift, Hyundai Getzand Maruti WagonR Duowill also become eligible for lower

excise duty. In FY06 mini and compact cars accounted for 85% of total passenger carsales.

Reduction in excise duty has resulted in price cuts in the range of 5-7%. If the recent

monthly data after the excise duty cut is any indication then it seems that the excise dutycut has definitely boosted sales of small cars. But lately hardening of interest rates,

increase in road taxes in few states and higher fuel prices have reduced the impact oflower excise duty.

L au n ch o f n e w p r o d u c t s t o d r i ve g ro w t h

In our view, it is the general improvement in the economy that spurs new car sales, which

then is determined by the appeal of new models. An automaker with weak products islikely to fall behind in the race. After a long gap Maruti has got aggressive with it new

product launches, excluding launch of variants, it would be launching five new models inthe next five years.


28/43


28

Over the past few years volumes growth was led by new model/variant launches. In FY06,Maruti had launched Swift in the compact car segment which was instrumental in Marutis

improvement in market share. Sales from Swiftcontributed 83% to the growth of Marutisales in the compact car segment, whereas its contribution to total vehicle sales growth

was 134%, thus had there been no new model launch in FY06 Maruti would have even

found it difficult to even post positive growth.

New model contribution to vehicle growth Maruti

FY05 FY06 Increase

Compact Car sales 271,280 335,136 63,856

Total Passenger car sales 417,179 456,298 39,119Total passenger vehiclessales 487,402 527,038 39,636

Contribution by Swift 53,171

Swiftcontribution to Compact car sales growth (%) 83

Swiftcontribution to Passenger car growth (%) 136

Swiftcontribution to Total growth (%) 134


In FY07, the company would be launching 3 new variants and 1 new model, which include

an LPG variant ofWagon R, re-designed Zen, diesel variant ofSwiftandyet to be

announced new model which we believe could be in the mid size segment after whichcompany may discontinue Baleno. All these three launches would help Maruti maintain its

market share in the passenger car segment.

Ent r y in to d iese l segment t o push vo lum es

Maruti would be entering the diesel car segment with the launch of diesel version ofSwift.

Current diesel variants account of ~20 percent of the total passenger car volumes.

In this high oil price environment, we believe, going ahead sale of diesel models willcontinue to show higher growth as more diverse models are introduced in the passenger

car segment. Maruti with its launch of a diesel model in FY07 would be able to capture

significant market share in the diesel segment. The key growth driver for the dieselsegment is the gap between diesel and petrol prices at the retail level.

Al te rna t i v e Fue ls

In continuation of its aggressive strategy, Maruti is coming up with LPG and CNG variants.

This would help Maruti in tapping the cost as well as environment conscious segment of

customers. Both LPG and CNG variants are more economical as compared to diesel/petrol,and also cause relatively lower levels of pollution. An area of concern is availability of CNG

as there is a dearth of CNG stations which can be attributed to high cost of setting up aCNG station. This shortcoming is non existent in case of LPG as it does not require any

major investment and can be supplied from the same station where petrol and diesel issold.

In July07 Maruti would introduce "WagonR Duo" a new variant of Wagon R which runsboth on Petrol and LPG. Vehicles sales are likely to show strong growth after the launch of


29/43


29

this new variant. Running cost this variant is likely to be 20-25 percent lower whencompared with diesel variants in this segment.


30/43


30

Expor t ea rn ings to w i tness vo lat i l i t y

Maruti plans to introduce a new model In FY09 catering specifically to export markets.

Exports by company have been partially hit due to poor port infrastructure and lack ofnew models to address the European markets. Over the next two years exports

contribution total sales is likely to fall, but from FY09 with the introduction of new modelfor export market we believe export contribution increase significantly.

Geographical sales mix - Maruti Udyog (Rs mn)

FY02 FY03 FY04 FY05 FY06E FY07E FY08E FY09E

Domestic 68,680 66,330 81,394 99,278 113,042 134,973 153,019 174,468

% of sales 97.2 91.4 89.6 91.0 94.2 95.0 95.3 88.5

Export 1,997 6,205 9,418 9,830 6,992 7,038 7,488 22,565

% of sales 2.8 8.6 10.4 9.0 5.8 5.0 4.7 11.5

Total 70,677 72,535 90,812 109,108 120,034 142,011 160,507 197,033

Source: Company, Religare Research

In Europe, few of Marutis models are already being exported by Suzuki so therefore tillthe roll out of the new model, company would work with Suzuki and focus on the non-

European countries.

EBI TDA marg ins to w i tness p ressure

Surging commodity prices and increasing employee costs would strain EDITDA margin,

which is expected to decline from 15.6% in FY06 to 15.0% in FY07 and further to 13.9%in FY08. In FY07 despite fall in excise duty on small cars companys gross realization (it

also includes excise duty) are likely to remain at last year levels mainly due to expectedhike in car prices in July06 and better product mix due to lower share of mini cars.

There is little scope in reducing costs by localization as almost all its models have beenlocalized to the extent of 75-90%, including the recently launched Swift, which is 90%localized.

The company has started its new cost reduction program called Next Leap, which targetsto achieve 20% cost reduction and productivity improvement over FY06-08. Under this

initiative, Maruti intends to reduce the import content in the raw material costs bylocalizing production.

0

5,000

10,000

15,00020,000

25,000

30,000(Rs mn)

72.0

73.0

74.0

75.0

76.0

77.0

78.0

79.0(%)

Raw material cost % of sales


31/43


31

Raw material price trend - Quarterly

Ma ru t i t o b u y o u t 3 0 % s ta ke h e ld b y SMC i n Ma ru t i Su zu k i Au to mo b i l e s I n d i a

In May 2006, Maruti announced that it would buy out the entire 30% stake held by SuzukiMotor Corporation in Maruti Suzuki Automobiles India Limited (MSAIL). MSAIL will now be

merged with Maruti. Maruti Udyog will buy SMC share at par, with total outgo ofRs120mn. MSAIL is setting up a 250,000-car assembly plant, which is expect to be

commissioned in Q3FY07.

Diese l eng ine p lan t to be se t up in JV w i t h Suzuk i

Maruti has formed a JV with Suzuki to set up a diesel engine plant, where Maruti will hold49% stake. This will be the only operation of Suzukis car business in India that will not be

fully owned by Maruti. The diesel engine plant is being set up at a cost of Rs15.2b with an

initial capacity of 100,000 units, ramping up to 250,000 units in the next three years. Thisplant is expected to be commissioned by Q3FY07.

T ie -up w i th N issan to boost vo lum es

Suzuki has entered into an agreement with Nissan for manufacturing compact cars at theMaruti Udyog plant in Manesar. The cars manufactured by Maruti would be exported to the

European market under the Nissan brand.

The exact time frame for production of Nissan cars by Maruti or the models to be

produced have not been disclosed. Nissan currently has only one model, the SUV X-Trail in

India, which it imports as a fully built unit.

To se t up au t o compon en ts JV

Maruti Udyog is setting up a joint venture with Bellsonica Corp of Japan for manufacturingsheet metal components which will be used for its own requirements as well as for

Suzuki's motorcycles in India. Maruti is yet to disclose its stake in the panned jointventure.

Co mp e t i t i o n a n d d i s t r i b u t i o n n e tw o rk

Maruti has the strongest passenger car distribution network and local know-how to stayahead of the competition. However, competition in the passenger car segment has startedto heat up as existing players such as Hyundai Motors, GM, Toyota and Ford becoming

more aggressive, and trying to gain market share through introduction of new models and

aggressive expansion of distribution network.

In our view, Maruti benefits from its strong distribution franchise and brand equity, which

translates into a more stable sales performance relative to its peers. While Marutis

position remains firm in the market, competition in the small car segment is increasing,


32/43


32

especially from Hyundai and Tata Motors. In FY06 Maruti expanded its dealer network by12% and has a target of similar growth in FY07. Maruti currently has network strength of

382 sales outlets in 230 cities, and 187 Maruti TrueValue outlets.

In the longer run, defending a 52% market share in passenger cars will be even more

difficult as long time competitors such as Hyundai, Honda and Ford turn more aggressiveand new competitors like GM and Toyota start to gain ground.


33/43


33

Ha rd en i n g i n t e re st r a te s t o s l o w d e m a n d g ro w th

With tightening liquidity situation, consumer financing companies have increased theirfinancing rates and down-payment requirements. As the availability of financing falls, car

and motorcycle purchases will also decline. Weak rupee (leads to partial increase in carprices as critical components are imported) and higher fuel costs will also contribute to the

decline in car volume growth.

St r on g M o t o r cyc le sales peek i n t o f u t u r e ca r sa les

The replacement demand for motorcycles has not grown at par with the demand for

scooters and mopeds. Though premium segment motorcycles have grown in absolute

terms its share in total motorcycle sales has declined from 11.5 percent in FY04 to 10.5percent in FY05 and further to less than 10% in FY06.

The above two factors indicate that people who already have motorcycles are not tooinclined towards buying a motorcycle again and would rather graduate to a four wheeler

and this holds true to a larger extent for buyers of motorcycles constituting the premiumsegment. The strong growth in motorcycle sales in past few years indicate better times for

car manufacturers in future periods.

In the table below, we have presented the ratio of car sales to motorcycles sales in few ofthe emerging and developed economies:

Ratio of Car to Motorcycle sales - Emerging and developed economies

Year MotorcyclesPassenger

CarsRatio(Cars/M-

C)

China CY04 15,994,049 2,421,067 0.1513730

CY05 17,200,000 2,922,270 0.1698994Indonesia CY04 3,890,000 483,295 0.1242404

CY05 5,070,000 468,186 0.0923444

India CY04 4,754,822 802,808 0.1688408

CY05 5,580,053 852,974 0.1528613

Japan CY04 700,021 4,600,000 6.5712314

CY05 710,521 3,928,400 5.5289006

US CY04 965,339 7,500,000 7.7692914

CY05 1,008,994 7,800,000 7.7304721



34/43


34

In the chart below, we observe that in Japan cars/motorcycle (c/m) sales ratio has beensteadily increasing for the last 45 years, this was the period when disposable income had

witnessed massive jump in Japan. In India the current c/m ratio is equal Japans ratio in1960s. Assuming demographic changes in terms of age profile and disposable incomes,

c/m sales ratio is expected to improve.

Car/motorcycle (c/m) sales ratio - Japan

Year c/m ratio

1960 0.10

1965 0.45

1970 2.00

1975 2.42

1980 1.20

1985 1.48

1990 3.15

1995 3.66

2000 5.46

2005 5.53

Source: JAMA and Religare Research

C/M sales ratio - Japan

00.5

11.5

22.5

33.5

44.5

55.5

6

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Year

c/mr

atio

Capex

As part of its ongoing expansion plans Maruti would be spending Rs9.5bn and Rs4.8bn in

FY07 and FY08 respectively. Bulk of these expenses would be incurred in setting up theassembly plant at Manesar, which is likely to be commissioned in Q3FY07.


35/43


35

Financia ls

Balance sheet

Year to 31 March (Rs mn) FY02 FY03 FY04 FY05 FY06E FY07E FY08E FY09E FY01

Liabilities

Equity share capital 1,323 1,445 1,445 1,445 1,445 1,445 1,445 1,445 1,4

Face value 5 5 5 5 5 5 5 5

Preference share capital 0 0 0 0 0 0 0 0

Total Reserves and Surplus 25,750 29,535 34,467 42,343 53,081 64,853 77,604 94,353 113,7

Total shareholders' funds 27,073 30,980 35,912 43,788 54,526 66,298 79,049 95,798 115,1Total shareholders' funds excl prefcapital 27,073 30,980 35,912 43,788 54,526 66,298 79,049 95,798 115,1

Book value (Rs) 102 107 124 152 189 229 274 331 3

Debt/Equity Ratio (x) 0.24 0.15 0.09 0.07 0.05 0.04 0.00 0.00 0

LOANS

Secured loans 3,951 3,000 3,119 3,076 2,776 2,376 0 0

Unsecured loans 2,609 1,560 0 0 0 0 0 0

Total loans 6,560 4,560 3,119 3,076 2,776 2,376 0 0

minority interest 0 0 0 0 0 0 0 0

Deferred Tax liability (net) 0 2,071 1,833 1,100 780 1,180 1,680 2,180 2,6

Total Liabilities 33,633 37,611 40,864 47,964 58,081 69,853 80,729 97,978 117,8

Capex 1,291 529 4,864 2,400 9,500 4,750 4,000 4,0

Assets

Gross Block 43,847 45,138 45,667 50,531 52,931 62,431 67,181 71,181 75,1

Depreciation 19,546 22,581 27,359 31,794 34,648 38,506 42,432 46,401 50,3

Actual depreciation for the year

dep % gross block 44.6 50.0 59.9 62.9 65.5 61.7 63.2 65.2 67

Net fixed assets 24,301 22,557 18,308 18,737 18,283 23,925 24,749 24,780 24,8

Capital WIP 724 93 749 421 360 475 713 600 6

Technical know how 0 0 0 0 0 0 0 0

Total non-current assets 25,025 22,650 19,057 19,158 18,643 24,400 25,461 25,380 25,4

INVESTMENTS

Diret investment in a company 0 0 0 0 0 0 0 0

Mutal funds and others 968 1,032 16,773 15,166 14,171 19,171 24,171 39,171 59,1

Total Investments 968 1,032 16,773 15,166 14,171 19,171 24,171 39,171 59,1

Deffered tax assets 0 0 0 0 0 0 0 0

Current assets

Inventories 6,811 4,870 4,398 6,666 8,890 10,485 11,834 14,503 16,0

Days of sales 34 24 17 22 26 26 26 26 Sundry debtors 8,393 6,711 6,894 5,995 6,760 7,185 7,884 9,661 10,6

Days of sales 42 33 27 20 20 18 18 18

Cash & bank balances 719 9,894 2,402 10,294 19,870 21,204 25,984 27,709 27,4

Days of sales 4 48 9 34 59 53 58 50

Loans and Advances 4,604 5,755 5,744 6,082 6,540 6,540 6,540 6,540 6,5

As a % of sales 6.3 7.7 6.2 5.4 5.3 4.5 4.0 3.2 2

Other current assets 479 598 751 683 480 480 480 480 4

As a % of sales 0.7 0.8 0.8 0.6 0.4 0.3 0.3 0.2 0


36/43


36

Total current assets 21,006 27,828 20,189 29,720 42,540 45,895 52,722 58,893 61,1

Current liabilities

Creditors 4,988 3,729 4,538 5,365 5,912 6,973 7,869 9,644 10,6

As a % of sales 6.8 5.0 4.9 4.8 4.8 4.8 4.8 4.8 4

Adv/initial dep from dealers/customers 1,799 1,725 1,978 1,526 1,526 1,526 1,526 1,526 1,5

As a % of sales 2.5 2.3 2.1 1.4 1.2 1.0 0.9 0.8 0

Other liabilities 4,788 5,905 5,598 5,297 6,176 7,285 8,222 10,076 11,1

As a % of sales 6.6 7.9 6.0 4.7 5.0 5.0 5.0 5.0 5

Total Current liabilities 11,575 11,359 12,114 12,188 13,614 15,783 17,617 21,245 23,3

Proposed dividends & div tax 397 482 489 659 1,153 1,318 1,483 1,648 1,9

Provision for tax 102 330 568 876 148 154 168 215 2

others provisions 2,484 2,615 2,147 2,357 2,357 2,357 2,357 2,357 2,3

Total Provisions 2,983 3,427 3,204 3,892 3,659 3,829 4,008 4,220 4,5

Net current assets 6,448 13,042 4,871 13,640 25,268 26,282 31,097 33,427 33,2

Miscellaneous expenditure 1,192 887 163 0 0 0 0 0

Debit balance in the P&L account 0 0 0 0 0 0 0 0

Total Assets 33,633 37,611 40,864 47,964 58,081 69,853 80,729 97,978 117,8

Difference 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0

Calculation of operating working capital

Inventories 6,811 4,870 4,398 6,666 8,890 10,485 11,834 14,503 16,0

Sundry debtors 8,393 6,711 6,894 5,995 6,760 7,185 7,884 9,661 10,6

Other current assets 5,083 6,353 6,495 6,765 7,020 7,020 7,020 7,020 7,0

Total Current Assets 20,287 17,934 17,787 19,426 22,670 24,690 26,738 31,184 33,7

Creditors 4,988 3,729 4,538 5,365 5,912 6,973 7,869 9,644 10,6

Other current liabilities 6,587 7,630 7,576 6,823 7,702 8,811 9,748 11,602 12,6Total current liabilities 11,575 11,359 12,114 12,188 13,614 15,783 17,617 21,245 23,3

Working capital 8,712 6,575 5,673 7,238 9,056 8,907 9,121 9,939 10,4

(Inc)/dec in working capital 2,137 902 (1,565) (1,818) 149 (214) (818) (46

Capital employed 33,633 35,540 39,031 46,864 57,302 68,674 79,049 95,798 115,1


Value per share 5 68 17 71 138 147 180 192 1


Investments 968 1,032 16,773 15,166 14,171 19,171 24,171 39,171 59,1

Total 1,687 10,926 19,175 25,460 34,041 40,375 50,155 66,880 86,6

Value per share 13 76 133 176 236 279 347 463 6


37/43


37

Income statement

Year to 31 March (Rs mn) FY02 FY03 FY04 FY05 FY06E FY07E FY08E FY09E FY10

Gross sales 90,809 90,636 110,196 132,914 147,043 167,072 188,831 231,803 256,36

Less: Excise duty 20,132 18,101 19,384 23,806 27,009 25,061 28,325 34,770 38,45

Excise as a % of sales 22.2 20.0 17.6 17.9 18.4 15.0 15.0 15.0 15

Net sales 70,677 72,535 90,812 109,108 120,034 142,011 160,507 197,033 217,91

Other operating income 2,301 2,237 2,536 2,994 3,490 3,682 3,926 4,478 4,80

Total Net sales 72,978 74,772 93,348 112,102 123,524 145,692 164,433 201,511 222,72

% growth 2.5 24.8 20.1 10.2 17.9 12.9 22.5 10

Expenditure

RM costs 56,917 56,924 69,875 84,752 92,170 109,269 124,969 153,148 169,26

% of net sales 78.0 76.1 74.9 75.6 74.6 75.0 76.0 76.0 76

Consumption of stores 458 415 516 646 712 840 948 1,161 1,28

% of net sales 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.Staff costs 2,289 2,136 1,779 1,960 2,287 2,598 2,856 3,309 3,55

% of net sales 3.1 2.9 1.9 1.7 1.9 1.8 1.7 1.6 1.

Manufacturing, administrative and other exp 3,351 3,22

% of net sales 4.6 4.3 3.9 3.9 3.9 4.0 4.0 4.0 4.

Selling and distribution expenses 4,821 6,078 4,060 3,699 4,382 5,390 6,172 7,577 8,38

% of net sales 6.6 8.1 4.3 3.3 3.5 3.7 3.8 3.8 3.

Total expense 67,836 68,782 79,865 95,398 104,316 123,901 141,602 173,348 191,47

% growth 1.4 16.1 19.4 9.3 18.8 14.3 22.4 10

% of net sales 93.0 92.0 85.6 85.1 84.4 85.0 86.1 86.0 86

EBITDA 5,142 5,990 13,483 16,704 19,209 21,791 22,830 28,163 31,24

EBITDA growth (%) 16.5 125.1 23.9 15.0 13.4 4.8 23.4 10

EBITDA margin (%) 7.0 8.0 14.4 14.9 15.6 15.0 13.9 14.0 14

Depreciation 3,429 3,221 4,949 4,568 2,854 3,858 3,926 3,969 3,95

% growth (6.1) 53.6 (7.7) (37.5) 35.2 1.8 1.1 (0.3

% of gross block 15.6 7.2 10.9 9.5 5.5 6.7 12.6 11.8 #DIV/0

% of net block 28.2 13.7 24.2 24.7 15.4 15.4 15.4 15.4 15

EBIT 1,713 2,769 8,534 12,136 16,354 17,933 18,904 24,194 27,28

EBIT growth (%) 61.6 208.2 42.2 34.8 9.7 5.4 28.0 12

EBIT margin (%) 2.3 3.7 9.1 10.8 13.2 12.3 11.5 12.0 12

VRS & other ext ord exp/ (inc) 318 371 1,196 0 0 0 0 0

Other Income 879 1,387 1,518 1,436 1,350 1,905 2,641 3,316 4,56

% growth 58 9 (5) (6) 41 39 26 3

Interest exp/(inc) 764 558 434 360 204 193 89 0

% growth (27.0) (22.2) (17.1) (43.4) (5.2) (53.9) (100.0) #DIV/0

% of loan 23.3 10.0 11.3 11.6 7.0 7.5 7.5 7.5 7

Prior period adjustment 3 20 0 0 0 0 0 0

Deferred revenue exp. written off 324 386 724 163 0 0 0 0


38/43


38

PBT 1,183 2,821 7,698 13,049 17,500 19,645 21,456 27,510 31,84

% growth 138.5 172.9 69.5 34.1 12.3 9.2 28.2 15

PBT margin (%) 1.6 3.7 8.1 11.5 14.0 13.3 12.8 13.4 14

Current year taxes 138 351 2,515 5,246 5,873 6,090 6,651 8,528 9,87

Effective current tax rate (%) 11.7 12.4 32.7 40.2 33.6 31.0 31.0 31.0 31

Deferred taxes 0 1,006 (238) (733) (320) 400 500 500 50

Fringe benefit tax 0 0 0 0 57 65 70 85 10

Taxes 138 1,357 2,277 4,513 5,609 6,555 7,221 9,113 10,47

Effective tax rate (%) 11.7 48.1 29.6 34.6 32.1 33.4 33.7 33.1 32

Prior period adjustments exp/ (inc) 0 0 0 0 0.0 0.0 0.0 0.0 0

PAT 1,045 1,464 5,421 8,536 11,891 13,090 14,235 18,397 21,37

PAT growth (%) 40.1 270.3 57.5 39.3 10.1 8.7 29.2 16

PAT margin (%) 1.4 1.9 5.7 7.5 9.5 8.9 8.5 9.0 9.

Ext ord inc/(exp) (Adj for taxes) 0 0 0 0 (234.0) 0 0 0

Adjusted net profits 1,045 1,464 5,421 8,536 12,125 13,090 14,235 18,397 21,37

Adj PAT growth (%) 40.1 270.3 57.5 42.0 8.0 8.7 29.2 16

Adj PAT margins 1.4 1.9 5.7 7.5 9.7 8.9 8.5 9.0 9

DPS (Rs) 1.5 1.5 1.5 2.0 3.5 4.0 4.5 5.0 6

Retained earnings 648 982 4,932 7,877 10,738 11,772 12,752 16,749 19,39

Basic and diluted EPS(reported) 4.0 5.1 18.8 29.6 41.2

Basic and diluted EPS(calculated) 3.9 5.1 18.8 29.5 41.1 45.3 49.3 63.7 74

EPS Growth 28% 270% 57% 39% 10% 9% 29% 16%

Adj EPS 3.9 5.1 18.8 29.5 42.0 45.3 49.3 63.7 74

CPS 16.9 16.2 35.9 45.3 51.0 58.6 62.8 77.4 87

Price 777 777 777 777 777 777 777 777 77P/E 196.6 153.3 41.4 26.3 18.9 17.1 15.8 12.2 10

Cash P/E 45.9 47.9 21.6 17.1 15.2 13.2 12.4 10.0 8

Dividend yield (%) 0.2 0.2 0.2 0.3 0.5 0.5 0.6 0.6 0

Market Capitalization 205,462 224,409 224,409 224,409 224,409 224,409 224,409 224,409 224,40

Enterprise Value 210,335 218,043 208,353 202,025 193,144 186,409 174,254 157,529 137,77

P/BV 7.6 7.2 6.2 5.1 4.1 3.4 2.8 2.3 1

EV/EBITDA 40.9 36.4 15.5 12.1 10.1 8.6 7.6 5.6 4

EV/Sales 2.9 2.9 2.2 1.8 1.6 1.3 1.1 0.8 0

PER SHARE DATA

Year-end shares (m) 265 289 289 289 289 289 289 289 28

Weighted avg shares (m) 265 277 289 289 289 289 289 289 28

DPS (Rs) 1.5 1.5 1.5 2.0 3.5 4.0 4.5 5.0 6

Dividends (Rs mn) 397 427 434 578 1,012 1,156 1,301 1,445 1,73

Tax on dividend (Rs mn) 0 55 56 81 142 162 182 203 24

Equity div outflow (Rs mn) 397 482 489 659 1,153 1,318 1,483 1,648 1,97

Dividend pay-out (%) 38.0 32.9 9.0 7.7 9.7 10.1 10.4 9.0 9

Pref div outflow (Rsm) 0 0 0 0 0 0 0 0

Book Value 102 107 124 152 189 229 274 331 39


39/43


39

Growth

Net sales (%) 2.5 24.8 20.1 10.2 17.9 12.9

Reported net profit (%) 40.1 270.3 57.5 39.3 10.1 8.7

EBITDA (%) 16.5 125.1 23.9 15.0 13.4 4.8

Valuations

EPS (Rs) 5.1 18.8 29.5 41.1 45.3 49.3

BVPS (Rs) 107.2 124.3 151.5 188.7 229.4 273.5

EV/EBITDA (x) 36.4 15.5 12.1 10.1 8.6 7.6

Profitability

NPM (%) 1.9 5.7 7.5 9.5 8.9 8.5

EBITDA margin (%) 8.0 14.4 14.9 15.6 15.0 13.9

RoE (%) 5.0 16.2 21.4 24.2 21.7 19.6

RoCE (%) 9.8 21.8 31.2 34.0 31.5 29.2

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

FY02 FY03 FY04 FY05 FY06E FY07E

(Rsmn)

Total Net sales EBITDA PAT

0.0

4.0

8.0

12.0

16.0

20.0

24.0

FY02 FY03 FY04 FY05 FY06E FY07E

(

EBITDA margin (%) PAT margin (%)


40/43


40

0.0

50.0

100.0

150.0

200.0

250.0

300.0

FY02 FY03 FY04 FY05

(%)

EBITDA PAT Net Sales

Debt/Equity Ratio (x)

0.0

0.1

0.1

0.2

0.2

0.3

0.3

FY02 FY03 FY04 FY05 FY06E FY07E FY08E

0.2 0.3 0.5 0.5

9.8

31.2

34.0

0.2

31.5

21.8

0

5

10

15

20

25

30

35

40

(%)

Div. yield (%) RoCE (%)


41/43


41

Peer g r ou p com par i son

Va lua t ions

Marutis immediate outlook is positive. While Maruti will introduce a number of new

models, but it would be difficult for the company to maintain its market share as itscompetitors including Toyota, Ford, GM and Tata Motors are getting aggressive with new

product launches. In spite of this we expect company to report strong earnings growth

mainly due to better industry outlook and company export thrust.

Peer comparision: FY08E

PE P/BV EV/EBITDA

Maruti 15.8 2.8 9.8

M&M 16.7 3.1 10.1

Tata Motors 14.1 3.0 7.7

Source: Religare Research and Bloomberg

EV/EBITDA - P/BV

MarutiTata MotorsM&M

1.0

2.0

3.0

4.0

6.0 7.0 8.0 9.0 10.0 11.0 12.0

EV/EBITDA

P/BV

Peer comparision: Financials - FY08E

(Rs mn) Sales EBITDAEBITDAmargin PAT

PATmargin EPS

Marketprice PER

Maruti 164,433 22,830 13.88 14,235 8.66 49.25 777 15.76

M&M 103,964 13,375 12.87 8,533 8.21 34.73 580 16.71

Tata Motors 294,482 40,455 13.74 25,708 8.73 55.43 780 14.08

Sens i t i v i t y Ana lys is

The following grid gives a sensitivity analysis based on different discount rates and

perpetual growth rates:

Discount Rate

11.9% 12.4% 12.9% 13.4% 13.9% 14.4% 14.9% 15.4%

2.00% 900 868 839 814 792 772 755 739

2.50% 919 884 854 827 803 782 763 746

3.00% 940 902 869 840 815 792 772 754

3.50% 964 923 887 855 828 804 782 763

PerpetualGrowth

rat

4.00% 991 946 906 872 842 816 793 772


42/43


42

4.50% 1,022 971 928 890 858 830 805 783

5.00% 1,057 1,001 952 911 876 845 818 794

5.50% 1,098 1,034 980 934 895 861 832 806

6.00% 1,145 1,073 1,012 961 917 880 848 820

The following grid gives a sensitivity analysis based on different market risk premiums andperpetual growth rates:

Market Risk Premium

2.5% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

2.00% 1,113 1,051 947 862 792 734 684 641

2.50% 1,144 1,077 966 876 803 742 690 646

3.00% 1,179 1,106 987 892 815 751 697 652

3.50% 1,219 1,140 1,011 909 828 761 705 658

4.00% 1,265 1,178 1,038 929 842 772 713 664

4.50% 1,319 1,222 1,068 950 858 783 722 671

5.00% 1,383 1,274 1,103 975 876 796 732 679

5.50% 1,461 1,335 1,143 1,002 895 811 743 687

PerpetualGrowthrate

6.00% 1,555 1,409 1,190 1,034 917 827 755 696

DCF Valuation per share (Rs)

Sum of PV of Free Cash Flow 148,210Present Value of TerminalValue 78,071

Enterprise Value 226,281

Net debt (17,094)

Equity Value 243,375

Shares outstanding (mn) 289.00

Implied share price 842

Market Price as on date 777

Expected Premium 8.45%

Assumptions

Risk free rate* 8.0%

Market Risk Premium* 6.0%

Adjusted Beta* 1.00

Cost of equity 14.0%

Effective tax rate 33.4%Cost of Debt 9.0%

Cost of Debt after tax 6.0%

% debt 1.4%

% equity 98.6%

WACC 13.9%

*:From Bloomberg


43/43


Based on our DCF valuation, assuming a WACC of 13.9% and terminal growth rate of 4%,we arrive at target price of Rs842. This translates to 9% upside from current levels. At

this target price, the stock is trading at 17.2x FY08 earnings, a 14% premium to ourtarget sector multiple.

Par ty spo i le rs

Compet i t i on

Intense competition will force Maruti to engage in a price war or hefty promotions todefend market share. Fight for market share may even extend price war beyond period of

weaker sales.

Harden ing in te res t ra tes

Tight liquidity in the Indian financial system would push banks to raise interest rates.Rising interest rates are likely to have a negative impact on volumes; this would certainly

trigger tighter competition and rising marketing expenses, and depressing profitability.

I ncreas ing incen t i ves

The strong market over the past three years eased competitive conditions as there was noneed to cut prices and offer big incentives to gain volume. It was indeed a sellers rather

than a buyers market, with customers willing to wait almost three to five months to get

the latest model Maruti Swift in FY06. But it would be little different in FY07 & FY08 as

backlogged orders for passenger car companies are evaporating and more so for Maruti.

Risks t o ou r v iew

The obvious risk to our negative view is that the movement of Marutis share price issometimes influenced by fund flows instead of fundamentals. However, over the longer

term, we believe fundamentals will provide a stronger base for the share priceperformance.

Maruti has outperformed since its listing in 2003. This performance can not be sustained

as it was driven by strong volumes growth, which is unlike to sustain at such higher level

over the next two years.

The biggest risk to our view is increase in disposable income, which can alter our negativeview on Maruti.

Easing liquidity position in the Indian financial market may lead to lower interest rates as

against our assumption of tight liquidity and higher interest rates. Lower interest rates

l d t t th i l 90% f hi l i I di fi d

report maruti

Documents

Transcript of report maruti