Maruti Suzuki India (NSE: MARUTI), a subsidiary of Suzuki Motor Corporation, is India's largest automobile company by volume. The company has over 7 million cars on the Indian roads. It has two fully-integrated production facilities in Gurgaon, Haryana. The company has the best distribution reach in the country with 681 sales outlets in 454 cities. And with 2767 companies authorized service centers in 1314 cities, the company offers a complete package of automotive services.  Despite the economic downturn, the company has been able to achieve a sales growth of around 14% during FY2008-09. This is due to the strong presence of the company in the small car market in India.
Although the competition in the passenger cars market is increasing in India, the company still manages to maintain a market share of over 50% through timely launch of new models in different sub segments. The company has also developed a strategy to sell not just a car but a complete package along with after sales service and used car outlets. Increasing share of exports has made the company vulnerable to Rupee/USD volatility.
Maruti Suzuki India has four plants, three located in Palam Gurgaon Road, Gurgaon, Haryana and one located at Manesar Industrial Town, Gurgaon, Haryana. During the fiscal year ended March 31, 2009, the Company produced and sold over seven million cars, and exported more than 500,000 cars. The Company's subsidiaries include Maruti Insurance Business Agency Limited, Maruti Insurance Distribution Services Limited, Maruti Insurance Agency Solutions Limited, Maruti Insurance Agency Network Limited, Maruti Insurance Agency Services Limited and Maruti Insurance Agency Logistics Limited. The Company’s subsidiaries are engaged in the business of selling motor insurance policies to owners of Maruti Suzuki vehicles.
With 500,000 units exported, exports constitute around 7% of Maruti suzuki's annual sales. The export volume for the company grew by over 32% in FY2008-09. The company through a joint venture with Suzuki Powertrain India has begun to manufacture diesel engines, petrol engines and transmission assemblies for four-wheelers with an investment of Rs 175 crore. It is planned to scaled up the capacity to 300,000 engines/annum by 2010.
From FY2004 to FY 2009, sales revenues have grown from Rs 9,081 crore to Rs 20,358 crore, at average annual rate of over 20%. In the same period, net profit grew from Rs 542 crore to Rs 1,218 crore by over 20% average annual growth rate.. Despite the general economic slowdown, the sales of Maruti Suzuki increased from Rs 17,860 Crore to Rs 20358 Crore. This was mainly due to the strong presence of the company in the small car segment, which was not affected by the downturn. But due to the increase in the material cost on account of increased commodity prices and adverse foreign exchange fluctuations, the EBITDA fell from 17.5% to 12% and net profit margin fell from 9.7% to 8.2%.
The company plans to continue with its Rs. 9,000 Crore expansion plan which is to be completed by Dec 2010. Under the same expansion plans the company increased the capacity of its Manesar plant by 70% in January 2009.
Suzuki Motor (SZKMF) owns 38.61% of Maruti Suzuki India. Financial institutions and insurance companies own another 20.73% and 15.83% of the company, respectively. Reliance Vision Fund, Reliance Growth Fund, Reliance Equity Fund are the mutual funds invested in the firm, with 0.31%, 0.30% and 0.28% ownership respectively.
The Passenger car segment has been the sole focus of Maruti Suzuki India. This segment contributed to more than 98.96% of the sales in FY2008-09.  Through timely launch of new models and focused strategy the company has been able to maintain a market share of more than 52% in this segment. In 2nd quarter of 2009, the sales of this segment grew by over 9.7% as compared to the sales in the 2nd quarter of 2008. The company competes in the small car sub segment through the brands Maruti 800, Alto, Wagon R, Zen, Swift, A-star and Ritz. Whereas it has its presence in the sedan sub segment through the brands SX4 and D-zire. Omni and Versa are the brands in the van segment. This segment accounts for all the exports of Maruti Suzuki. By quarter to quarter comparison, the export market for the company grew from 12,491 units to 29,314 units by over 134% in the 2nd quarter of the last two years.
This segment contributes only about 1.04% of the sales of the company. The company has a presence in this segment through the brands Gypsy and Grand Vitara. The market share of Maruti Suzuki in this segment is less than 2%. By quarter to quarter comparison, the sales in this segment grew from 1,316 units to 1,383 units by 5.1% in the 2nd quarter of the last two years.
The small car market in India accounts for more than 57% of all automobile sales. Further, this share has been growing at a rate of 13% per annum. The government is also extending incentives to the small car segment in the form of lower excise duty of 12% compared to 24% on bigger cars. This has attracted global players to enter the compact car segment in the country. General motors and Ford have announced plans to launch its small car in India by 2010. . Honda Motor Company (HMC), Nissan Motor (NSANY) and Toyota Motor (TM) have also announced plans to manufacture and market their small cars in India by 2011. The entry of global players in the market will increase the competition and shrink Maruti Suzuki's market share and sales. This was seen in the over 57% drop in Maruti 800 car sales in June 2009 as compared to June 2008, due to the launch of Tata Nano in March 2009.
Sales in the automobile industry are heavily dependent on the frequency with which new and improved models are launched. Over the years, Maruti Suzuki India has maintained its market share by timely launch of new models. In the past two years, the company launched A-Star in October 2008, Ritz in April 2009 and a new model of zen Estilo in August 2009. In order to counter increasing competition from Tata Motors (TTM) and other foreign automobile manufacturers like General Motors (GMGMQ), Volkswagen (VLKAY), Hyundai Motor Company (005380-SE), Toyota Motor (TM) and Ford Motor Company (F), the company has made plans to further strengthen its product portfolio in the passenger vehicles segment. It has already announced the launch of Kizashi to compete in the sedan market and a new 660cc car in the small car segment. Any delay in the launch of the new models and variants would result in to loss in market share and eventual decrease in sales.
Raw material costs comprise about 79.8% of the price of the finished products. Any price increase of the raw materials have a direct bearing on the overall operating margin. As can be seen from the Amex steel index and the world steel price index, there is high degree of volatility in the steel prices. This volatility not only affects the operating margin but also the inventory management of the steel required for production. Tires are also an important part of the raw material required for manufacturing. Tire prices are correlated to rubber prices. The chart above shows the volatility present in the rubber market. The rubber volatility also affects the company's operating margin and consequently the net profit margin. In FY2009, the EBITDA margin for the company dropped to 12% from 17.8% and net profit margin dropped to 8.2% from 9.7% due to increase in the raw material prices.
Exports constitute about 7% of Maruti Suzuki's total sales. The value of the Indian rupee (INR) compared to the US dollar impacts the earnings of the company. Any appreciation in the value of the INR results in lower margins, thereby resulting in lower share price and dividend payments. During FY2008-09, the INR/USD relationship remained volatile. The flight of foreign capital amidst fears of a slowing Indian economy led to a weak INR as compared to USD, thereby benefiting Maruti Suzuki India. But with the government taking steps to restore investor confidence in the economy, the Rupee is again appreciating.
Financial Comparison of the competitors:
|Name||Revenue in Rs Crore||Net Profit Margin||Operating Margin|
|Mahindra & Mahindra Ltd||30,150||10.34%||11.45%|