Maruti Suzuki CIA 3 - vALUATION OF MS PDF

Preview

Summary

vALUATION OF MS...

Description

EQUITY RESEARCH REPORT OF MARUTI SUZUKI SUBMITTED TO-

Dr. AMBUJ GUPTA ASSOCIATE PROFESSOR CHRIST (DEEMED TO BE UNIVERSITY), LAVASA.

SUBMITTED BY-

RAHID ARZOO CHOUDHURY Reg No. 19121017 MBA (FINANCE)

Maruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is India's largest passenger car company, accounting for over 50 per cent of the domestic car market. The Japanese car major held 56.21% stake in Maruti Suzuki. Maruti Suzuki was established in February 24, 1981 only to merge with the Japanese automobile company Suzuki in October 1982. The first manufacturing factory of Maruti was established in Gurgaon, Haryana, in the same year. Mr. R.C. Bhargava is the chairman of the company and Mr. Kenichi Ayukawa is the CEO and Managing Director.

BASIC INFORMATION Ticker Symbol – Maruti. The Primary Exchange Traded – National Stock Exchange (NSE), Bombay Stock Exchange (BSE). ISIN – INE585B01010 The Primary Sector and Industry – Auto (Car & Utility Vehicles). The Investment Recommendation – Bullish. The Current Stock Price – Rs 5964.00 Current Market Capitalization – Rs 179,977.79 Crores. Target Stock Price – Rs 6085.00 Face Value – Rs 5.00

INVESTMENT SUMMARY BRIEF DESCRIPTION : A joint venture agreement was signed between the Government of India and Suzuki Motor Corporation (SMC), Japan in 1982. The Company became a subsidiary of SMC in 2002 and became ‘Maruti Suzuki Ltd.’. In terms of production volume and sales, the Company is now SMC's largest subsidiary. SMC currently holds 56.21% of its equity stake. It is a public limited company and its shares are traded at the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Maruti Suzuki India Ltd was formed as to make a people's car for middle class India. Over the years, the company's product range has widened, ownership has changed hands and the customer has evolved. Maruti Suzuki India Ltd. has its manufacturing facilities at two locations in Gurgaon and Manesar, India. Maruti Suzuki India is planning to set up its third manufacturing facility in Ahmedabad, Gujarat, soon over an area of 600 acres. VISION : “To be The Leader in the Indian Automobile Industry, Creating Customer Delight and Shareholder’s Wealth; A pride of India” MISSION : Modernization of the Indian Automobile Industry. Production of fuel-efficient vehicles to conserve scare resources. Production of large number of vehicles which was necessary for economic growth. Market penetration and diversification.

RECENT DEVELOPMENT : Toyota And Suzuki Collaborate to Strengthen Their Alliance. Maruti Suzuki planning to develop two New Cars under 5 lakhs. Maruti Suzuki India Ltd Says December 2019 Total Sales Of 133,296 Units, Up 3.9%. Maruti Suzuki Consolidated March 2020 Net Sales at Rs 18,207.70 crore, down 15.21% Y-o-Y. Maruti Suzuki India Says Zero Sales in Domestic Market in April 2020. Maruti Suzuki India May Total Sales At 18,539 Units. Maruti Suzuki transports over 6.7 lakh cars through Indian Railways in 6 years. Maruti Suzuki gains 2% on partnership with Axis Bank for easy finance solutions. India’s share in Suzuki’s global sales hits 4 year low; Co aims to triple showroom count. Maruti Suzuki partners IndusInd Bank for vehicle financing. Swift completes 15 years with sale of over 22 lakh units: Maruti Suzuki. Maruti Suzuki commissions 5 MW solar plant at Gurugram.

EARNING FORECASTKey earning indicator of the company with which earning can be forecasted are P/E ratio, P/B ratio, Revenue, EPS, ROE. P/E ratio – Maruti Suzuki current P/E ratio stands at 31.71 as compared to the 1-year median P/E of 30.27. Price-earning ratio of the Maruti Suzuki stands firmly at good position than rest of the company of auto industry. In last five year the P/E ratio has been on increasing trends giving good position/base for the future.

P/B ratio – Maruti Suzuki current P/B ratio stands at 3.64 as compared to the 1-year median P/B ratio of 4.03. Price to Book value is declining from last 1 year but was on increasing trend from 2015 till 2018. Decline in P/B ratio resulted in the decline of the share value of the Maruti Suzuki, but due to good P/E & EPS will ensure the P/B will start increasing.

Revenue – Revenue of Maruti Suzuki for the year 2019-2020 is 75,660 crores. Revenue of the Maruti Suzuki was on increasing trend till 2019 but due to Coronavirus pandemic the sales was badly effected and thus resulted in decline in revenue.

EPS (Earning Per Share) – Earning per Share of the Maruti Suzuki stands at Rs 187.90. But EPS has fallen since 2019 due to reduce in revenue resulted in decrease in PAT thus lower PAT resulted in lower Earning per Share. But the sales have started to increase that will increase the revenue that will result in increase in PAT and increase in Earning per Share.

ROE (Return on Equity) – Return on Equity of the Maruti Suzuki stands firmly at 11.57%. But it has been on decreasing trend, but Return on Equity has fallen to lowest in last 5 years due to the Coronavirus pandemic. Lower Profit after Tax has been the reason for the lower Return on Equity. But the sales of Maruti Suzuki has gained its momentum and sales has increased which will result in higher PAT that will result in higher Return on Equity.

VALUATION SUMMARY – VALUATION SUMMARY 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

52 high low Comparable Company Analysis dcf base case

dcf bright case

Precendents

BUSINESS DESCRIPTION

DETAIL DESCRIPTION OF MARUTI SUZUKI – A subsidiary of Suzuki- a Japanese automobile and motorbike manufacturer, Maruti Suzuki India Limited is an Indian automobile manufacturer. It is the most well-known and well-recognized automobile manufacturer in India. This Indian automobile company is popularly known as Maruti, which used to be called Maruti Udyog Limited at the time of its inception. Maruti Udyog Limited was founded by the Government of India in 1981, only to merge with the Japanese automobile company Suzuki in October 1982. The first manufacturing factory of Maruti was established in Gurgaon, Haryana, in the same year. Mr. R.C. Bhargava is the chairman of the company and Mr. Kenichi Ayukawa is the CEO and Managing Director. Maruti Suzuki India Ltd. primarily manufactures cars and has been the most favorite automobile brand among Indian people since its inception. The company had started in 1982; however, it commenced the production of automobiles a year later in 1983. The very first model of Maruti, Maruti Suzuki 800, made its way to

Indian roads in December 1983. The very first unit was bought by Mr. Harpal Singh of Delhi and he was handed over the keys of the car by the then Prime Minister of India Indira Gandhi. The second in the series was India's first MUV Maruti Suzuki Omni that was launched in November 1984. The other models that came into market in subsequent years were Gypsy in 1985, Maruti 1000 in 1990, Zen in 1993, Esteem in 1994, WagonR in 1999, Swift in 2005, Grand Vitara in 2007, Maruti Suzuki A-Star in 2008, Ritz in 2009, Eeco in 2009, Alto K10 in 2010, Kizashi in 2011, Ertiga in 2012, Alto 800 in 2012, Stingray in 2013, Celerio in 2013, Ciaz in 2014 and Vitara Brezza in 2015. Maruti Suzuki India Ltd. has its manufacturing facilities at two locations in India. The Gurgaon facility comprises three plants with the annual capacity of manufacturing about 3,50,000 vehicles; however, it is enabled to manufacture close to 9,00,000 units annually; the credit goes to the productivity advancements. Around 2,40,000 K-Series engines are also produced at the Gurgaon facility annually. Maruti 800, WagonR, Alto, Estilo, Gypsy, Omni, Eeco, Ritz and Ertiga are manufactured at the Gurgaon facility. Inaugurated in 2007, the Maruti Suzuki India Ltd. Manesar facility is spread over an area of around 600 acres. The Manesar facility was initially capable of manufacturing 1,00,000 units a year; however, later, in October 2008, the productivity increased to 3,00,000 vehicles annually. The production capacity of the Manesar facility eventually increased to 8,00,000 vehicles. Maruti Suzuki Celerio, A-Star, Ritz, Swift, SX4 and Swift Dzire are manufactured at the Manesar facility. Maruti Suzuki is engaged in the business of manufacturing, purchase, and sale of motor vehicles and spare parts. The other activities of the company include facilitation of pre-owned car sales, fleet management and car financing. They have

four plants located at Palam Gurgaon Road, Gurgaon, Haryana and one located at Manesar Industrial Town, Gurgaon, Haryana. The company has nine subsidiary companies, namely Maruti Insurance Business Agency Ltd, Maruti Insurance Distribution Services Ltd, Maruti Insurance Agency Solutions Ltd, Maruti Insurance Agency Network Ltd, Maruti Insurance Agency Services Ltd, Maruti Insurance Agency Logistics Ltd, True Value Solutions Ltd, Maruti Insurance Broker Ltd and J J Impex (Delhi) Pvt Ltd.

KEY DRIVERS OF MARUTI SUZUKI REVENUES AND EXPENSES – Maruti Suzuki key revenue drivers is its market share and sales. From April 2019January 2020 period, Maruti Suzuki sold a total of 12,04,404 units of passenger vehicles cornering 50.59% market share. Total Passenger Vehicle sales during the

period stood at 23,80,699 units. Market Capital of Maruti Suzuki is Rs 179977.79 Crores. Maruti Suzuki key expenses driver is labor force and its maintenance in which employee enjoy working in Maruti Suzuki. Maruti Suzuki has been constantly spending a lot on its Research & Development to give better experience to its customers. Most of the $1.5 billion allocated by Suzuki Motor Corp. for its research and development (R&D) activities will be spent on its most profitable unit Maruti Suzuki and help the Indian firm maintain its 50% market share amid increasing competition from European and Korean manufacturers. The money will be used to upgrade Maruti Suzuki’s existing models to Bharat Stage VI emission norms—most stringent globally—by 2019, to develop an entire range of hybrid vehicles and other alternative technologies.

MANAGEMENT AND GOVERNANCE CRITIQUE OF THE MANAGEMENT AND BOARD – Maruti Suzuki biggest strength lies in its healthy combination of top-down and bottom-up approach in decision making process towards empowering the employees. A major thrust is laid on the constant two-way communication, free flow of thoughts and mutual growth. Led by the MD & CEO, and enunciated across levels, communication has led to a marked change in the labourmanagement relations in recent years. A calendar for communication ensures twoway communication with employees across various levels. The unique strength of Employee-Employer Connect is a beneficiary of the unique strength it enjoys with its human resources. During the year, various channels, both

digital and non-digital were improvised to interact better with the employees. A lot of thrust was given on digitization of HR processes which led to enhanced employee experience owing to improved and faster responsiveness. Employees in turn, raise queries, give feedback and participate in different policy and procedural decisions on these platforms. The Company is an equal opportunity employer promoting gender diversity and equality at the workplace. During the year under review, the Company celebrated ‘Gender Diversity and Inclusion week thereby emphasizing its importance among the employees. In order to tap the growth opportunity going ahead, it is imperative for the Company to groom its employees and create a talent pool. The Company also carries out a comprehensive supplier assessment to identify the weak areas with an objective to improve suppliers capability. Risks get identified during assessments and appropriate mitigation measures are then taken with a time bound action plan. Maruti Suzuki has suffered a massive blow. Maruti Suzuki has announced a disappointing quarter. Maruti registered a net profit of Rs 1,489.3 crore, which was down by a huge 17.21%. Maruti Suzuki has explained that, the quarter was also marked by a combination of several adverse factors coming together which impacted profitability: Adverse Commodity prices, Adverse Foreign Exchange rates, Higher Marketing & Sales expenditure. Higher costs in resources and capacities which were earlier planned to enable a higher estimated growth. Some impacts were partially offset by the Maruti’s regular efforts in cost-reduction. SENIOR MANAGEMENT’S HISTORY WITH THE FIRM AND THEIR RECORD OF CAPITAL ALLOCATION -

Chairmen - Mr R C Bhargava. History in Maruti Suzuki 2007 till date: Chairman, Maruti Suzuki India Limited (MSIL), (Formerly Maruti Udyog Limited). 2003 : Director, Maruti Udyog Limited. 1998 : President and CEO of RCB Consulting Private Limited, a management and human resource consultancy outfit with various domestic and international clients. 1990-92: Chairman & Managing Director, Maruti Udyog Limited. 1985-90, 92-97 Managing Director, Maruti Udyog Limited. 1984-85 : Joint Managing Director Maruti Udyog Limited. 1981-83 : Director (Marketing), Maruti Udyog Limited. 1979-81 : Director (Commercial), Bharat Heavy Electricals Limited. 1977-78 : Joint Secretary, Cabinet Secretariat, Government of India. 1974-77 : Joint Secretary of Government of India, Ministry of Energy. Management Director & CEO - Mr. Kenichi Ayukawa History in Maruti Suzuki Born in 1955, Mr. Ayukawa has handled several key assignments at Suzuki Motor Corporation, Japan and in the Group's overseas operations. Mr. Ayukawa served as Managing Director of Pak Suzuki Motor Company from May 2004 to June 2008.

He served as Director on the Board of Maruti Suzuki India Limited from July 2008 to March 2013. Before taking charge as the Managing Director at Maruti Suzuki India Limited he served as Managing Executive Officer and Executive General Manager, Global Marketing at Suzuki Motor Corporation, Japan. DIRECTOR - Mr. Osamu Suzuki History in Maruti Suzuki 2002 till date: Director, Maruti Suzuki India Limited (Formerly Maruti Udyog Limited). 2000: Chairman & CEO, Suzuki Motor Corporation. 1978: President & CEO, Suzuki Motor Corporation. 1973: Senior Managing Director, Suzuki Motor Corporation. 1967: Managing Director, Suzuki Motor Corporation. 1966: Director and General Manager, Suzuki Motor Corporation. 1963: Director, Suzuki Motor Corporation. 1958: Joined Suzuki Motor Company Limited. DIRECTOR - Mr. Toshihiro Suzuki History in Maruti Suzuki 2016 : Representative Director & President (CEO & COO). 2015 : Representative Director & President (COO). 2013 : Director, Maruti Suzuki India Limited (Formerly Maruti Udyog Limited).

2011 : Representative Director and Executive Vice President, Suzuki Motor Corporation. 2006 : Director and Senior Managing Officer, Suzuki Motor Corporation. 2003 : Director, Suzuki Motor Corporation. 1994 : Joined Suzuki Motor Corporation. DIRECTOR (MARKETING & SALES) - Mr. Takahiko Hashimoto History in Maruti SuzukiApril 1992: Joined Suzuki Motor Corporation, Assigned to Spare Parts & Accessories Department. April 2008: Appointed Group Manager of Product Planning Department. April 2016: Appointed General Manager in Maruti Suzuki India Ltd. He brings with him a vast experience of over 27 years in Marketing and Sales. DIRECTOR (INDEPENDENT) - Mr. D. S. Brar. History in Maruti Suzuki 2006 till date: Independent Director, Maruti Suzuki India Limited (MSIL). 2004: Chairman, Davix Management Services Private Limited. 2004: Chairman, GVK Biosciences Private Limited. 1977-2004: Held various positions such as Chief Executive Officer and Managing. Director, President / Senior Vice President, General Manager and Business Development Manager at Ranbaxy Laboratories Limited. DIRECTOR (INDEPENDENT) - Mr. R P Singh

History in Maruti Suzuki 2013: Director, Maruti Suzuki India Limited 2005: Chairman, Punjab and Sind Bank 1976: Indian Administrative Services COMPENSATION AND INCENTIVE PLANS, AND LEVELS OF STOCK OWNERSHIP Maruti Suzuki pays its employees an average of ₹584,726 a year. Salaries at Maruti Suzuki range from an average of ₹165,301 to ₹2,021,199 a year. Maruti Suzuki employees with the job title Project Manager, (Unspecified Type / General) make the most with an average annual salary of ₹1,439,366, while employees with the title Field Sales Executive make the least with an average annual salary of ₹156,894. The country’s largest car maker Maruti Suzuki has said government’s intervention in the form of incentives is needed to make electric vehicles affordable for the masses. The company, which would start producing electric cars in the country by 2020, will also set up charging stations.

According to Maruti Suzuki, something needs to be done to reduce emissions and fuel consumption (in the remaining 60% of the new vehicle fleet) the company will continue to invest to make cleaner internal combustion engine. After BS VI (standards become effective), there is not much of a future for small diesel vehicles. Maruti Suzuki incentives is to have a production-linked incentive under which it will get benefits proportionate to the distance between the factory and point of sale to compensate for higher warehousing and logistics costs.

COMPOSITION OF THE COMPANY’S BOARD OF DIRECTORS The composition of the Maruti Suzuki Broad of Directors is very diversified that many of its director are capable of taking independent decision. Moreover Maruti Suzuki has 6 directors along with 4 independent directors who has responsibility for the smooth functioning of the company and as well as capable of taking decision making in the time of crisis. Moreover, there is a Chairman and managing Directors to look after the the directors and and independent directors. The broad

of directors have more than enough experience as well as training which is required for the company to function effectively and efficiently.

INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING COMPETITIVE ENVIRONMENT AND COMPETITIVE ANALYSIS MARKETING MIX STRATEGYThe marketing mix that Maruti Suzuki uses is Product, Price, Place, and Promotion. PRODUCTMaruti Suzuki India have a diversified product portfolio and have various cars in such categories as hatchback, SUV, sedan and van. The entire product portfolio of cars is a part of the products in the marketing mix of Maruti Suzuki. PRICEMaruti Suzuki is been known for its ‘value for money’ strategy. Maruti Suzuki has been successfully able to reduce the cost by investing more in R&D and undercutting the competition by 8%. PLACEMaruti Suzuki’s service network spreads almost every states of India and is spread across 1400+ cities manufactured at 2 factories, Manesar and Gurgaon. Maruti has around 1800+ sales outlets in all the cities combined. PROMOTIONMaruti Suzuki uses both traditional and digital promotion. Decades of experience has created platforms to leverage its brand value.

PORTER’S FIVE FORCES Porter’s five forces model is a tool that uses and analysis five industry forces to determine the intensity of competition in an industryThreats of new entrants Intensity of rivalry among existing competitors The bargaining power of suppliers The threat of substitute products The bargaining power of buyers THREATS OF NEW ENTRANTS- INCREASING The threat of entry is usually determined by the barriers to entry that existing players set up to try and barricade themselves from competition. In India, Maruti is facing increased competition from domestic rivals such as ‘Hyundai’ that has been keeping away Maruti Suzuki dominance since 2012. RIVALRY- HIGH Main rival of Maruti Suzuki is Hyundai. Both Hyundai and Maruti Suzuki shares a total of nearly 70% of the car market. Maruti Suzuki started production since 1982 while Hyundai started manufacturing operations in 1992. BARGAINING POWER OF SUPPLIERS- LOW Car requires supplies for production, automotive players are rationalizing their vendor to achieve the best quality of the supplies required for production. BARGAINING POWER OF CONSUMERS – HIGH

Increased awareness among consumers has increased expectations. Thus, innovation is critical - new features, imp...