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WIKI ANALYSIS
Established in 1983, Maruti Suzuki India (NSE:MARUTI) is India`s largest automobile company by volumes.[1] The company is a subsidiary of Suzuki Motor Corporation and has a passenger car market share of over 52%.[2] The company has over 7 million cars plying on the Indian roads with its brand name.[3] It has two fully-integrated production facilities in Gurgaon, Haryana with a combined capability of 10,00,000 units/annum.[3] The company has best distribution reach in the country with 681 sales outlets in 454 cities.[3] And with 2767 company authorised service centres in 1314 cities, the company offers a complete package of different automotive services. [3] 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.[4]
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 of car along with after sales service and used car outlets. Increasing share of export in the sales of the company has made the company vulnerable to Rupee/USD volatility.
Business Overview
With 70,023 units exported, exports comprise of around 10% of Maruti suzuki's annual sales. The export volume for the company grew by over 32% in FY2008-09.[5] The company through a joint venture with Suzuki Powertrain India has begun manufacture diesel engines, petrol engines and transmission assemblies for four-wheelers with an investment of Rs 175 crore.[6] The diesel engine manufacturing unit has an annual capacity of 1,00,000 units (1 lakhs units = 0.1million). Further it is planned to scaled up the capacity to 300,000 engines/annum by 2010.[6]
The company has two fully integrated manufacturing plants in Gurgaon and Manesar in Haryana. Maruti’s Gurgaon facility has an installed capacity of 7,00,000 units per annum. The Manesar facilities, launched in February 2007 comprise a vehicle assembly plant with a capacity of 3,00,000 units per year.[7]
Business and Financial Metrics
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%.[8] In the same period, net profit grew from Rs 542 crore to Rs 1,218 crore by over 20% average annual growth rate.[8].Inspite of the general economic slowdown, the sales of Maruti Suzuki increased from Rs 17,860 Crore to Rs 20358 Crore.[4] 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%.[4]
The company plans to continue with its Rs. 9,000 Crore expansion plan which is to be completed by Dec 2010.[9] Under the same expansion plans the company increased the capacity of its Manesar plant by 70% in Jan 2009.[9]
Share holding pattern: Suzuki Motor (SZKMF) owns 38.61% of Maruti Suzuki India. FIIs and Banks financial institutions and Insurance companies own another 20.73% and 15.83% of the company.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.[10]
| Entity | Percentage |
|---|---|
| Suzuki Motor Corporation | 54.21% |
| FII's | 20.73% |
| Banks Fin. Inst. and Insurance | 15.83% |
| Private Corporate Bodies | 4.41% |
| General public | 1.98% |
| Others | 0.05% |
| NRI's/OCB's/Foreign Others | 0.04% |
Business segments
Passenger car (98.96% of sales): 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. [13] 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.[14] 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.[13] 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.[13] 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.[13]
Multi Utility Vehicles (1.04% of sales): This segment contributes only about 1.04% of the sales of the company.[13] The company has a presence in this segment through the brands Gypsy and Grand Vitara.[13] 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.[13]
Key Trends and Forces
Increased competition in the Indian small car market to reduce the market share and sales
The small car market in India accounts for more than 57% of the automobile sales.[15] Further it has been growing at a rate of 13% per annum.[15] The government is also extending incentives to the small car segment in the form of lower excise duty of 12% as against 24% on bigger cars.[15] This has attracted global players to foray in to the compact car segment in the country. General motors and Ford have announced plans to launch its small car in India by 2010. [16][17]. Honda, Nissan Renault and Toyota have also announced plans to manufacture and market their small cars in India by 2011.[18][19] The entry of global players in the market would 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.[20]
Delay in the new launches would result in loss in market share and sales
The 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.[21] 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.[22][23][24] 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.[25][26] 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 price fluctuations directly affect the operating margin and net profit margin
Raw material costs comprises of about 79.8%% of the price of the finished products.[29] 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.[30] In August 2008 steel prices peaked to over 1100$/tonne 40% higher then the steel price in January 2008.[31] Whereas on the other hand in March 2009, the steel prices have fallen to 4 year low of $473/tonne.[32] Tyres are also an important part of the raw material required for manufacturing. Tyre prices are correlated to the rubber prices. The chart above shows the volatility present in the rubber market. The rubber volatility also affects the 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.[33]
INR / USD relationship
Exports contribute to 10% of Maruti Suzuki's total sales.[34] 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 to 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[35], thereby benefiting Maruti Suzuki India. But with the government taking steps to restore investor confidence in the economy, the Rupee is again appreciating.[36]
Competition
Passenger Cars:
- Tata Motors -Based in Mumbai, India, Tata Motors Limited is a part of Tata Group. It manufactures commercial and passenger vehicles primarily in India. It offers passenger cars, multi-utility vehicles, and pick-ups; medium and heavy commercial vehicles, such as rigid trucks, tractor trailers, and tippers; intermediate, light, and small commercial trucks; buses; and defense related vehicles. The company, through its subsidiaries, also provide engineering and automotive products; manufacture of construction equipment; automotive vehicle components manufacturing and supply chain activities; and provision of machine tools and factory automation products, as well as offers high-precision tooling, and plastic and electronic components for automotive and computer applications. In addition, it provides automotive retailing and services, as well as financing for the vehicles sold by the company. The company markets its products in Europe, Africa, the Middle East, south Asia, south east Asia, and Australia.[37]
- Hyundai Motor Company - Based in Seoul, South Korea, Hyundai Motor Company manufactures and distributes motor vehicles and parts worldwide. It offers passenger cars, recreational vehicles and commercial vehicles, including light commercial vehicles; medium and heavy duty trucks; special vehicles, such as refrigerated van truck, dry van truck, wing body truck, and trailer wing body/bottle carriers; medium and large size buses; and bare chassis.[38]
- Honda - Headquartered in Tokyo, Honda Motor Co., Ltd., together with its subsidiaries develops, manufactures and distributes motorcycles, automobiles, and power products worldwide. Its motorcycle business manufactures motorcycles, all-terrain vehicles, and personal watercrafts. Honda’s motorcycle line consists of sports, business, and commuter models. Its automobile business offers passenger cars, multiwagons, minivans, sport utility vehicles and mini cars. The company also offers various financial services to its customers and dealers. In addition, it manufactures various power products, including power tillers, portable generators, general-purpose engines, grass cutters, outboard engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers, and lawn tractors. Honda sells its products through various outlets, wholesalers, and independent retail dealers.[39]
- Toyota - Headquartered in Toyota City, Japan, Toyota Motor Corporation operates in the automotive industry worldwide. It designs, manufactures, assembles, and distributes passenger cars, recreational and sport-utility vehicles, minivans and trucks, and related parts and accessories. It also offeres hybrid vehicles. Its products also comprise conventional engine vehicles, including subcompact and compact cars, mini-vehicles, passenger vehicles, commercial vehicles,auto parts, mid-size models and luxury models.In addition, Toyota offers sports and specialty vehicles, recreational and sport-utility vehicles, pickup trucks, minivans and cab wagons, trucks and buses. Further, the company provides finance to dealers and their customers for the purchase or lease of Toyota vehicles. Additionally, it is also involved in the design and manufacture of prefabricated housing and information technology-related businesses, including intelligent transport systems and an e-commerce marketplace, called Gazoo.com.[40]
Utility Vehicles:
- Tata Motors - Profile same as above.
- Swaraj Mazda - Headquartered in Nawanshahar district, Punjab, the Company's principal activity is to manufacture and sale of commercial vehicles and spares for both goods and passenger applications.[41] The company has inked a technical assistance agreement with Isuzu Motors, Japan on Jun. 30, 2006. The agreement is for the expansion of vehicle production capacity, new assembly line for Isuzu vehicles and also setting up of in-house facilities for the manufacture of luxury buses based on existing Mazda and Isuzu chassis.[42]
- Mahindra & Mahindra Ltd - The company manufactures a range of automotive vehicles, agricultural tractors, implements, and industrial engines. It is also involved in property development and construction activities. The company offers various multi utility vehicles, light commercial vehicles, three-wheelers, and tractors as well as spare parts and related services. It also provides various services related to financing, leasing, and hire purchase of automobiles and tractors. In addition it also offers design and engineering services to the automotive, aerospace, and general engineering industries; and produces automotive components, as well as forgings, gears, steel, stampings, and special polymers. It is headquartered in Mumbai, India.[43]
Financial Comparison of the competitors:
| Financial metrics FY2007 | |||
|---|---|---|---|
| Name | Revenue in Rs Crore | Net Profit Margin | Operating Margin |
| Tata Motors[44] | 28,738 | 6.96% | 10.44% |
| Hyundai[45] | 33,46,021 | 2.81% | 4.09% |
| Toyota[46] | 14,31,096 | 5.80% | 8.64% |
| Mahindra & Mahindra Ltd[47] | 30,150 | 10.34% | 11.45% |
| Ashok Leyland[48] | 7,729 | 5.83% | 10.09% |
| Honda[49] | 6,55,892 | 4.24% | 7.94% |
| Swaraj Mazda[50] | 671 | 3.75% | 7.80% |
Market share
References
- ↑ Auto mart, Maruti Suzuki India Ltd.
- ↑ Maruti suzuki, Annual report, Business highlights, Maruti suzuki market share
- ↑ 3.0 3.1 3.2 3.3 Maruti suzuki annual report 2008-09, company at a glance
- ↑ 4.0 4.1 4.2 Maruti suzuki Director's Report 2008-09
- ↑ maruti suzuki sales
- ↑ 6.0 6.1 Marutisuzuki Deisel engine manufacturing facility
- ↑ Marutisuzuki website
- ↑ 8.0 8.1 rediff money, Maruti Suzuki, profit and loss statement
- ↑ 9.0 9.1 The telegraph, Maruti suzuki expansion plans
- ↑ Money control, Maruti suzuki , MFs invested in maruti suzuki
- ↑ 12.0 12.1 maruti suzuki company website,Investors section, company at a glance
- ↑ 13.0 13.1 13.2 13.3 13.4 13.5 13.6 maruti suzuki website, sales figures
- ↑ Stockwatch, maruti suzuki
- ↑ 15.0 15.1 15.2 Value notes,General Motors Attempts to Penetrate Small Car Segment,encouraging factors
- ↑ Value notes,General Motors Attempts to Penetrate Small Car Segment
- ↑ Burn your fuel, Ford small car in India by 2010
- ↑ Sify, Businessline,Toyota thinks big for India small car
- ↑ Dance with shadows, Honda plans small car for India
- ↑ Maruti suzuki official website, monthly sales data
- ↑ Suzuki to Make India Production Hub, Launch New Car, The Economic Times
- ↑ Maruti Suzuki to launch A-star by month end, The Hindu Business line
- ↑ Vicky.in, Maruti Suzuki to launch Ritz in April 2009
- ↑ New Estilo from Maruti Suzuki
- ↑ Maruti Suzuki Strengthens Position With Launch of Kizashi
- ↑ Business standard,Maruti Suzuki plans to launch 660 cc car
- ↑ steel on the net, MEPS Steel Product Price Levels across 2007 - 2008, Current prices & historic pricing levels.
- ↑ Malaysian rubber board, monthly average prices
- ↑ Maruti suzuki website, Company at a glance, Profit and loss ratios
- ↑ One steel, steel and tube holdings limited,chairman's address
- ↑ High Beam, Builders Feel Squeeze as Steel Prices Jump
- ↑ Purchasing, Steel-market prices reflect lack of demand at OEM, service center levels
- ↑ Directors report 2008-09
- ↑ Maruti Suzuki, Annual report FY2008-09, Company at a glance
- ↑ , New strains on the balance of payments, People's Democracy
- ↑ , India Rupee Ends 3-Week Slide as Spending Plan May Boost Growth, Bloomberg.com
- ↑ Linkedin company profile, tata motors
- ↑ Hyundai Motor Co, Company Description
- ↑ Honda Motor Co. Ltd.,Company Description
- ↑ Linkedin Toyota
- ↑ Alacra store, Swaraj Mazda
- ↑ Swaraj Mazda Limited, business profile,myiris
- ↑ Linkedin, Manendar and manendra
- ↑ rediff money, maruti suzuki profile
- ↑ Google Finance, Hyundai Motor Company
- ↑ Google finance, Toyota motor company
- ↑ Mahendra & Mahendra, Presentation
- ↑ Ashok Leyland rediff moneyt
- ↑ google finance, honda motor company
- ↑ rediff money, Swaraj Mazda
- ↑ Indian auto sector, passenger cars market
- ↑ Indian auto sector, utility vehicles market
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