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2010 Maruti Suzuki India Limited

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					  Ashika Stock Broking Ltd



                                             Initiating Coverage on
              Maruti Suzuki India Limited
                                                                COUNT ON US


                                                       Large Cap: Automobiles




Body Type                    Fuel Type                     Engine Capacity

Hatchback, Sedan, MUV, SUV   Petrol, Diesel, LPG/CNG       800cc – 2200cc              2010
Maruti Suzuki India Limited (MSIL), a premiere manufacturer of compact           RECOMMENDATION: BUY
passenger cars and multi-utility vehicle (MUV) in Indian Sub-Continent.
Impact of royalty payments over the financial indeed exaggerated the pressure    Date: 05th Oct’2010
on the margins; however, with rising demand as well as aggressive launches
                                                                                 CMP: Rs.1503
reduced this impact up to an extent. We valued the company using DCF
method. We see an upward potential of ~21.5% to Rs.1826/share from current       Target: Rs.1826
market price of Rs.1503/share. We recommend “BUY” on this scrip.
                                                                                 Period: 12 months


                                              226/1, A.J.C Bose Road,
                                     Trinity, 7th Floor, Kolkata-700020, India
                                                                                      Institutional Equities
                                                                                               1
                                                                                                                        Maruti Suzuki-Initiating Coverage

                        Company Information                                                   Investment Rationale:

 BSE Code                                                     532500                           Rising middle class income:

 NSE Code                                                   MARUTI                            There has been a dynamic shift in India’s purchasing power in last
                                                                                              one decade. People became highly skilled & are available at
 Bloomberg Code                                              MSIL IN                          competitive rates as compared to any developed nation in the world.
                                                                                              This has led many multinationals to enter and establish a base in
 Market Cap (Rs. Cr)                                         Rs.43420
                                                                                              India. Rising employment opportunities coupled with higher salaries
 Free Float                                                   45.79%                          has increased the per capita income of economy & thereby increased
                                                                                              the discretionary spending with in individuals. This phenomenon
 52-wk Hi-Lo (Rs.)                                          1692-1126                         increased the urban spending.

 Avg. volume (1 year) (NSE)                                   671013                           Lower Penetration rate of vehicles in India:

 Face Value                                                        Rs.5                        India has penetration rate of 9.7 vehicles per 1000 people as
                                                                                              compared to 600 vehicles per 1000 people in US. This is expected to
           Latest Shareholding Pattern as on 30/06/2010                                       increase in coming years to come. Factors like rising residual
                                                                                              income of population coupled with increasing competition in the
Promoters                                                      54.21%
                                                                                              compact car segment are playing a positive and pivotal role, so there
MF/UTI                                                          2.92%                         exists huge potential of rise in penetration rate for cars in the
                                                                                              economy.
FIs/Banks & Insurance                                          14.10%
                                                                                               Capacity Addition:
FIIs                                                           20.09%
                                                                                              MSIL has envisaged a capex of Rs.7525 crore till 2014(E); out of
Non Institution                                                 8.68%
                                                                                              which company is expending Rs.1700 crore in establishing second
                         RV of NIFTY and MSIL                                                 plant in Manesar, with an installed capacity of 2.5 lakh units/annum.
                                                                    7                         This plant will be operational by FY12(E). Company has incurred an
135
                                                                    6                         capex of Rs.1925 crore for establishing third plant in Manesar, with
                                                                        Volume (in million)




                                                                                              an installed capacity of 3 lakh units/annum. Company is expending
120                                                                 5                         Rs.2400 crore in establishing a R&D centre and engine plant in
                                                                    4                         Rohtak; Rs.1500 crore in upgrading 8EMI spending as well as cost
105                                                                                           of spare parts. International majors like GM, Hyundai, Ford has
                                                                    3
                                                                                              introduced compact models in Indian market in last one year. Most
                                                                    2                         of the models are launched slightly at a premium tag as compared to
 90
                                                                                              products of MSIL. However, many models have lower power to
                                                                    1
                                                                                              weight ratio as compared Maruti’s product line-up; Higher this
 75                                                                 0                         ratio, model will be more fuel efficient. Higher the fuel efficiency,
  Aug-09     Oct-09     Dec-09   Feb-10   Apr-10   Jun-10     Aug-10                          lower will be the cost/km.
               Volume                NIFTY                  MSIL
                                                                                               Royalty Payment:

                                                                                               Royalty payments is the next big expenditure for MSIL after the
                                                                                              raw material cost. Company pays royalty at a rate of 5% on local
Paras Bothra                                                                                  sales & 8% on exports on all latest models, except M-800, Omni and
paras@ashikagroup.com
(033) 22839952-Extn:129
                                                                                              Gypsy. Company has to pay “up-front fees” for any advanced
                                                                                              technology and royalty on products. However, successful launches
Ratish Nair                                                                                   of models and impressive demand from domestic market have
ratish.n@ashikagroup.com                                                                      factored the impact of royalty.
(033) 2283 9952-Extn:115

                                                                                                 2                                         Institutional Equities
                                                                                                                                           Maruti Suzuki-Initiating Coverage
                                                                A. Rising per capita income- After the liberalization, domestic economy started
                                                                   witnessing growth accompanied with higher inflationary trend and privatization of PSUs,
                                                                   which lead to retrenchment of employees; however by FY03, there was a substantial rise in
It is a proven fact that if the per                                hiring by corporate, which ultimately increased the purchasing power of individuals.
capita income of any economy
                                                                   India’s per capita income has grown with a CAGR of 12.7% from FY05 to FY10 due to
exceeds US$3000, discretionary
spending in that economy rises.                                    sharp rise in middle income house-holds.
                                                                   Factors that fuelled the growth in per capita income are- (A) Younger working population.
                                                                   As per the study of United Nations, between FY10 to FY30, India will add another 241
                                                                   million people in working age population; which is well ahead of Brazil & China.
                                                                   According to this study, Brazil will add another 18 million people and China will add a
                                                                   meager population of 10 million in to working age population. (B) Reduction in interest
                                                                   rates coupled with bank’s focus towards new avenues for growth and rise in younger
                                                                   working class population after FY03 played a pivotal role in rise in Consumerism. All of
                                                                   these factors have led in growth in consumer durables; especially in car sales.
                                                                   Another factor which fuelled the growth rate in per capita income is rise in rural income
India’s per capita income in last five
years has increased at a CAGR of                                   due to implementation of various rural upliftment scheme like NREGA.
12.7% p.a.


                                                      Exhibit-1: Per capita income of India                                               Exhibit-2: Momentum of Key Policy Rates
                                      50                                                                                    11
                                                                                                                                                                                      Rev. Repo
                                      45                                                                                                                                              Repo
                 Rs./annum (‘000)




                                                                                                                             9
                                                                                                                                                                                      CRR
                                      40
                                                                                                                             8
                                      35                                                                       %
                                                                                                                             6
                                      30

                                                                                                                             5
                                      25

                                      20                                                                                     3
                                              FY05       FY06      FY07    FY08     FY09      FY10                           Mar-04     Mar-05   Mar-06   Mar-07   Mar-08   Mar-09   Mar-10
                                           Source: Economic Review                                                                Source: RBI



                                                     Exhibit-3: Monthly sales of Passenger Vehicles                                       Exhibit-4: Monthly sales of Two Wheelers
                                0.22                                                                                        1
                                                                                                                          0.95
                                     0.2
                                                                                                                           0.9
                 Volume in Million




                                                                                                      Volume in Million




                                0.18                                                                                      0.85
                                                                                                                           0.8
                                0.16                                                                                      0.75
                                                                                                                           0.7
                                0.14
                                                                                                                          0.65
                                0.12                                                                                       0.6
                                                                                                                          0.55
                                     0.1
                                                                                                                           0.5
                                                                                                                                 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10


                                           Source: SIAM                                                                          Source: SIAM




                                                                                                 3                                                                 Institutional Equities
                                                                                                    Maruti Suzuki-Initiating Coverage
                                            Middle income groups- In an emerging economy, the middle income groups acts as an
Middle income groups acts as a
driving factor behind the growth of         growth engine, which provides sustainable and essential platform for economic growth.
any emerging nation.                        Studies shown that rise in per capita income will increase discretionary spending, which
                                            means that individual will expend more for optional items as compared to necessary items.
                                            According to Exhibit-1, India’s per capita income has grown with a CAGR of 12.7% from
                                            FY05 to FY10; which is reflected in growth rate of Consumer durables as per Exhibit-5.

                           Exhibit-5: Performance of Consumer Durables           Rs. bn            Exhibit-6: PFCE and its performance
                60.0%
                                                                                 29000                                                                     66.0%

                                                                                                                                                           64.0%
                45.0%
                                                                                 25500
                                                                                                                                                           62.0%

                30.0%                                                            22000                                                                     60.0%

                                                                                                                                                           58.0%
                15.0%                                                            18500
                                                                                                                                                           56.0%

                 0.0%                                                            15000                                                                     54.0%
                                                                                                 FY06         FY07        FY08      FY09       FY10

               -15.0%                                                                                   Private Consumption                as a % of GDP

                        Source: MOSPI                                                     Source: GDP data

                                           Another factor that drives the per capita income of Indian economy is Private and Final
                                           Consumption Expenditure (PFCE). In FY06, PCFE as a percentage to GDP at constant
                                           prices ( based on 2004-05 prices) stood at 64.4% which decline to 57.6% by the end of
PFCE in an economy is a leading            FY10 and in Q1FY11, this ratio stood at 56.5%. By looking in to Exhibit-6, PFCE is rising
indicator in the economy. Rise in          in actual terms but declining in percentage terms; which means that whatever kind of
PFCE defines that in coming future         capital investment economy has incurred in past, it has started generating revenue from it.
demand for goods & services will
increase.                                  From FY06 to FY10, PFCE has grown at a CAGR of 7.3%.

                                                                                                                     Exhibit-7: RV of Job Index
                                                                                         105.0
                                           Urban consumption is expected to
                                           remain strong, as fear of retrenchment
                                           has subdued and corporate hiring is on         95.0

                                           fast track coupled with higher salary,
                                           which is shown in Exhibit-7.                   85.0

                                           It is a proven fact that middle income
                                           groups invests more in education to 75.0
                                           obtain relevant skills; ultimately, this
                                           will increase the Labour productivity in 65.0
                                           India. According to Mr. Subir Gokarn,          Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10
                                           deputy governor-RBI, India will add             Source: Naukri Job Speak
                                           another 120 million people in working
Rising investment in the economy,          age population in next 10 years, China will add only 19 million. This is the real opportunity
growth in services sector and rising
salaries in organized sector will
                                           for growth because when an individual will move to higher productivity sector, this will
increase the level of PFCE.                increase Labour productivity, which ultimately will contribute to growth and also create
                                           larger opportunities.




                                                                         4                                                       Institutional Equities
                                                                                                                                            Maruti Suzuki-Initiating Coverage
                                        B. Lower vehicle penetration rate in India- As compared to developed nations, India
                                               has got lower penetration rate in the passenger vehicles. At present, India’s passenger car
                                               penetration rate is at 9.7 cars per 1000 population. As per capita income of a economy is
                                               growing, demand for commutation will increase rapidly in coming future. The proportion
                                               of younger working population as a percentage of overall population is rising at a faster
                                               pace. This has led to increase in urbanization, which in turn will increase demand for two
                                               wheelers and four wheelers in India.

                               Exhibit-8: PDI & its growth                                                                          Exhibit-9: Vehicle Penetration Ratio in India
             55000
                               PDI
                                                                       20.0%                                                                                                  9.68
                                                                                                        9.50
                               Growth




                                                                                      Per 1000 people
                                                                       17.5%
             40000                                                                                      8.75
             Rs. Bn
                                                                       15.0%
                                                                                                        8.00                            7.73                   7.79
             25000
                                                                       12.5%                            7.25


             10000                                                     10.0%                            6.50
                        FY05   FY06     FY07     FY08   FY09   FY10*                                                                    FY08                   FY09                 FY10
                      Source: MOSPI                                                                                                Source: MOSPI; SIAM

                                               Advanced economies like US, Europe Union (EU) have higher penetration rate; out of
                                               every 1000 people of population, US have 600 cars and EU have 300 cars. Due to
                                               efficient public transportation system in EU as compared to US, EU’s penetration is less as
                                               compared to US. If we analyze both Exhibit-7 & 8, we can conclude that India’s
                                               discretionary spending will increase at a faster pace, which will enable the Indian
                                               population to tilt toward higher living standard. In coming years, there will be a significant
                                               demographic transition of buyers toward 4-wheeler segment from 2-wheeler segment.
                                               Small Car Hub- We believe that India’s low penetration rate in passenger vehicles (PV)
                                               will change dynamically in the coming years. Inductively, we can define from above stated
                                               fact that demand for hatch back models will rise substantially in near future. Global &
                                               domestic majors are concentrating on this very segment & establishing India as strategic
                                               hub for exporting their respective compact models to international market. For e.g. Hyundai
                                               India is exporting i10 and i20 range to international markets from India.
                                               If we analyze Exhibit-10, we can
                                               conclude that in past 17 months,                                                       Exhibit-10: Sales of Hatch back as a % of PV
                                                                                                                                                                                             75.0%
                                               compact models has grown at a
                                               CAGR of 33.4%. During this                                                    270
                                                                                                                                                                                             70.0%
                                               period, domestic and international
                                                                                                         Units sold ('000)




                                               manufacturers together launched                                               220
                                                                                                                                                                                             65.0%
                                               at least 10 different models in this
                                               segment. This segment is                                                      170                                                             60.0%
Rise in PDI coupled with                       contributing ~67% in passenger
competitive  pricing    by   the               vehicle segment.
manufacturers is driving compact                                                                                             120                                                             55.0%
car segment.                                   This segment is already very                                                        Apr-08    Jul-08   Oct-08    Jan-09    Apr-09    Jul-09
                                               crowded with around 25 different                                                                 PV                       % of Hatch back

                                               models with its variants of                                                         Source: SIAM
                                               different brand.
                                                                          5                                                                                       Institutional Equities
                                                                                                Maruti Suzuki-Initiating Coverage
                                              How this changes will benefit Maruti- Hatchback/compact car segment is fastest
Every models of Maruti is having
lower drag ratio as compared to its
                                              growing segment in Indian passenger vehicle sector. This segment is primarily dominated
peers.                                        by Maruti Suzuki (MSIL), followed by Hyundai Motors India (HMIL). In last eight
                                              months, around 6-7 models from the stable of both domestic and international majors has
                                              hit Indian roads. By the end of FY11(E), 2-3 models are expected to enter Indian markets.
                                              One of the prime beneficiary of change in macro variables will be that company, which has
                                              presence not only in urban areas, but also in rural areas. Other factors, that will determine
                                              the future of any model/variant in Indian automobile industry is Low cost per ownership
                                              and Distribution networks. Let’s make the comparative analysis to delineate how cost of
                                              ownership indeed affects the demand and supply of any model:

                             Exhibit-11: Power to Weight ratio in A1 segment               Exhibit-12: Power to Weight ratio in A2 segment
                  0.100                                                           0.095
                                                  Power to weight ratio for                                      Swift enjoys 11% higher
                                                  Maruti Alto is 19.3% higher                                    efficiency as compared to its
                  0.090                           than Chevrolet Spark            0.085                          peers.


                  0.080                                                           0.075


                  0.070                                                           0.065


                  0.060                                                           0.055
                                       Alto                      Spark                      Swift         i20           Fabia          Figo


                  In INR       Exhibit-13: EMI spending on A1 segment            In INR        Exhibit-14: EMI spending in A2 segment
                   4550                                                             9000


                   4375                                                             7500


                   4200                                                             6000


                   4025                                                             4500


                   3850                                                             3000
                                       Alto                      Spark                       Swift         i20           Fabia          Figo


                                              Above shown exhibits defines the major constituents of cost of ownership. Exhibit-11 &12
                                              is depicting power to weight ratio. This ratio is ascertained by dividing break horse power
                                              (bhp) by vehicle’s kerb weight. Higher this ratio means lower drag effect on vehicle.
                                              Eventually, vehicle will be more fuel efficient as compared to its peers. In the scenario of
                                              rising fuel prices, vehicle with higher fuel efficiency will be able to become show-stopper
                                              of that particular segment.
                                              Interest rate plays a crucial role in the behavior of any prospective buyer. Rise in interest
Higher fuel efficiency, low cost for          rate in the economy will impact the sales; as in India, nearly 65-70% of the vehicles are
spare parts & lower acquisition cost          purchased through loans. According to our analysis, a rise in interest rates by 50bps will
per    model     means     LOWER              impact the purchasing power of buyer because potential buyer has to churn out ~1.58%
OWNERSHIP COST.
                                              additional from his pocket. While analyzing Exhibit-13 and 14, we say that MSIL’s
                                              product attracts lower financial expenses as compared to its peers.


                                                                           6                                          Institutional Equities
                                                                       Maruti Suzuki-Initiating Coverage
                   C. Upcoming Capacity Addition- Company has envisaged a capital expansion outlay of
                      Rs.5600 crore till FY12(E); out of which company will expend Rs.1700 crore for setting up
                      a second plant in Manesar with an installed capacity of 2.5 lakh units/annum; Rs.2400
                      crore will go towards R&D expansion at Rohtak and remaining Rs.1500 crore will be
                      meant for ramping the distribution facilities. Company announced that company will ramp
                      up its production capacity by 10%, taking its annual output to 1.3mn by FY12.
                      Company envisaged an capital expenditure of Rs.1925 crore will go towards setting up
                      third plant in Manesar. This new plant will have an installed capacity of 2.5 lakh
                      units/annum. Presently, MSIL has an installed capacity of 1.2 million and by the end of
                      FY13(E), it’s installed capacity will be 1.70 million.
                      Maruti Suzuki’s overall installed capacity:


                                  Maruti Suzuki India Limited

                                                       Current installed capacity of 1.2mn units




Gurgaon Facility                                                                             Manesar
 (0.85mn units)                                                                          (0.35mn units)




                            Company invested Rs.1925 crore           Company invested Rs.1700 crore to
                            to augment the capacity by 2.5           augment the capacity by 2.5 lakh
                            lakh units by FY14(E)                    units by FY12(E).



                      Company is planning to roll out two strategic models in coming two years. Company is
                      facing stiff competition from Tata Nano. MSIL has phased out its famous model- Maruti
                      800 from 13 major cities of India. By 2012(E), company will completely phase out M-800
                      from its existing production line. Company is planning to launch strategic model in
                      compact car segment as well as a model in sedan segment.
                      Company is planning to introduce “Cervo” against Tata Nano & is also going to launch a
                      premium sedan- Maruti Suzuki “Kizhashi” against the famed models of Toyota and Honda,
                      probably by the end of FY11(E). Cervo will be equipped with 700cc engine & Kizhashi
                      will be equipped with 2.4 litre power plant.




                                               7                                           Institutional Equities
                                                                                       Maruti Suzuki-Initiating Coverage
                                D. Royalty payment- MSIL’s royalty expenses paid to Suzuki have increased as a
                                     proportion of sales from 3.5% to 5%. According to the company, the upper limit on royalty
                                     expenses defined by the government of India has been removed. Suzuki is charging higher
                                     royalty for costs that were previously not covered. In past two years, MSIL has revived it’s
                                     all model and launched new variants as well as strategic models. This has put immense
                                     pressure on Maruti’s operating model. MSIL has to pay royalty on all model, except M-
                                     800, Gypsy and Omni to its Japanese parent company, Suzuki Motors Limited.
                                      Overall royalty payment can be bifurcated into two parts: Upfront fees for advanced
                                      technology & Royalty from product. If company pays low upfront fees, then it has to
                                      churn out higher royalty expenditure or vice versa. Some of the model in the portfolio are
                                      country specific; it means that those models are meant for India only . Thus cost of
                                      designing & producing a new model incurs heavy expenditure. If the same model is meant
                                      for exports, then amortization will be lower. Now, Suzuki is making a huge expenditure
                                      for the development of new products in India, means in future MSIL will churn out more
                                      money as Royalty payments.
                                      Royalty payments will be calculated as per following:
                                          (X % of net sales) OR (fixed price/unit sold minus value of imported component).
                                      Due to this de-regulation by the govt. regarding royalty payments, Suzuki got a free hand
                                      in fixing technical fee for its existing newer & older models. As the model matures in its
                                      life cycle, fixed cost on the respective model & royalty payment reduces. Therefore, all
                                      models from Maruti will attract higher royalty fees with the exception for Maruti800,
                                      Gypsy & Omni.

                              MSIL's sales on Annual basis                                     Royalty Paid        as a % of
             1800000                                                         Quarters
                                                                                              ( in Rs. Crore)       net sales
             1600000
                                                                             2009-10
             1400000
                                                                             Q1FY10                 228              3.60%
Units Sold




             1200000
                                                                             Q2FY10                 260              3.70%
             1000000
                                                                             Q3FY10                 263              3.60%
              800000
                                                                             Q4FY10                 279              3.40%
              600000
                                                                             2010-11
              400000
                                                                             Q1FY11                 410              5.10%
                       FY08        FY09      FY10     FY11(E)   FY12(E)

                                    Initially, company’s financial got impacted because of royalty fiasco; however, rise in
                                    domestic sales more than 20% in past two months has equipped MSIL to recoup 70% of
                                    losses incurred due to royalty payment issue. Presently, company is facing
                                    huge waiting period for delivery because of capacity constraints. To meet the growing
                                    demand, company has planned to increase the capacity every month by 10% from Oct-
                                    2010. This will enable company to churn out additional 25000 units.
                                    Rising earnings because of stupendous demand as well as successful launch of new models
                                    has factored the impact of royalty payment from company’s financial; however, adverse
                                    movement of currency coupled with rising input cost are expected to put pressures on the
                                    margins. Rising Interest rate could also cyclically dent the demand in an otherwise
                                    structural growth story of automobiles in India.

                                                                 8                                        Institutional Equities
                                                                                                                                 Maruti Suzuki-Initiating Coverage
                                    MSIL's sales in A1 segment                                                                MSIL's sales in A2 segment
             95000                                                                                     1300000
                                       MSIL’s sales in this segment has
                                       declined in past 3years because                                                 Launch of Ritz and performance of Swift
                                                                                                       1150000         gave a better boost to Maruti in FY10 as
             80000                     aggressive launches by other companies
                                       & phasing out of M-800 during this                                              compared to FY09.
                                                                                                       1000000




                                                                                          Units Sold
Units Sold




             65000                     period.
                                                                                                          850000
             50000
                                                                                                          700000

             35000
                                                                                                          550000

             20000                                                                                        400000
                            FY08      FY09       FY10      FY11(E)      FY12(E)                                        FY08       FY09       FY10     FY11(E)     FY12(E)


                                    MSIL's sales in A3 segment                                                                 MSIL's sales in MUV segment
             195000                                                                                           220000
                             SX4 & D’Zire has grown by 31.3% in                                                        Launch of Eeco in Jan-2010 helped the
             170000          FY10.                                                                            190000   company. In FY10, sales in MAV segment
                                                                                                                       has grown by 30.2% in FY10 as compared
             145000
                                                                                                              160000   to -12.9% in FY09.
Units Sold




                                                                                                 Units Sold


             120000
                                                                                                              130000
              95000
                                                                                                              100000
              70000

              45000                                                                                           70000

              20000                                                                                           40000
                            FY08      FY09       FY10      FY11(E)      FY12(E)                                        FY08        FY09       FY10     FY11(E)     FY12(E)


                                    MSIL's sales in SUV segment
                    8000
                                                                                                               In past two months, company launched higher
                                                                                                               version of Alto with K10 engine, limited edition of
                    6500                                                                                       Swift, five CNG variants of Alto, SX4, Wagon R,
       Units Sold




                                                                                                               Estilo and Eeco. With in a time span of 40 days,
                    5000                                                                                       company sold 20000 units of Alto K-10 series.

                    3500


                    2000
                             FY08       FY09        FY10      FY11(E)       FY12(E)



                           1. Key Concerns for the company
                           i. Royalty cost stood at 5.1% as a percentage of net sales. However, rising volumes has factor the same
                              in FY11(E).
                           ii. Fluctuation in exchange rate. Company’s exports stood at 7.2% of overall sales. Presently, company
                               is exporting Alto to European nations and also manufacturing Pixo models for Nissan. This contract
                               will expire by the end of FY11(E).
                           iii. Rising commodity prices.




                                                                                      9                                                               Institutional Equities
                                                        Maruti Suzuki-Initiating Coverage
2. Peer set comparison-
   MSIL’s forte is in producing compact and economical models, which suit the overall
   requirement of domestic demand. Company has comfortably positioned itself in A2 and
   A3 segment of Indian automobile industry. In domestic market, company is facing stiff
   competition from Indian subsidiary of South Korean counterpart, Hyundai Motors.
   Hyundai India enjoys 25.1% market share in Indian passenger vehicle market; whereas,
   MSIL enjoys a lion share of 42.5% in FY10.
   Among Indian competitors, Tata Motors and M&M is giving “cut-throat” competition to
   MSIL. As compared to Maruti, Tata holds an impeccable portfolio, consists of cheapest car
   in the world to finest marque in Global Automotive industry. Tata is gearing-up to launch
   an MAV in October 2010.

                         Market Share in PV segment in FY10


                                             Hyundai,
                                              25.1%
                             Maruti,                        Tata ,
                             42.5%                          12.2%
                                          Others,         Mahindra,
                                          13.57%           6.6%




                    Source: SIAM



3. Valuation- Maruti Suzuki, pioneered in launching compact models in domestic vehicle
    industry, is expected to show an impeccable performance on back of enhanced & explicitly
    positioned product mix and low cost manufacturing strategy. Impact of royalty payments
    over the financial indeed exaggerated the pressure on the margins; however, with rising
    demand as well as aggressive launches reduced this impact up to an extent. Improving
    economic conditions coupled rising residual income of individuals at macro level & wider
    distribution network, availability spares at competitive prices as compared to its peers and
    capacity expansion at micro level will give explicit opportunities to the company. We
    valued the company using DCF method. We see an upward potential of ~21.5% to
    Rs.1826/share from current market price of Rs.1503/share. We recommend “BUY” on this
    scrip.




                             10                                         Institutional Equities
                                                                                                            Maruti Suzuki-Initiating Coverage
P&L Statement                                                                   C.F Statement
                         FY09      FY10    FY11(E)    FY12(E)    FY13(E)                                   FY09           FY10     FY11(E)     FY12(E)     FY13(E)
(In Rs.crore)                                                                   (In Rs.crore)
Vehicle Sold          787641    1021046   1268990    1587721    1943990         (A) Operating Activities:
Average Realization   258472     283616    282525     286685     294200         Adjusted Profit       1674.2        3592.6         3439.8      4243.6      5544.7
Total Income          20804.3   29623.1   36657.9    46546.2    58484.8         Depreciation            706.5        825.0          972.3      1182.9      1310.4
Total Expenditure     19080.5   25668.7   32578.0    41486.4    52113.3         Interest Expenses        51.0         33.5           33.6       42.7        53.7
EBITDA                1723.8    3954.3    4079.9     5059.8     6371.5          Other Income           -708.0       -496.8         -365.9      -409.4      -537.3
Depreciation           706.5     825.0     972.3     1182.9     1310.4          Income from Oper.
                                                                                                      1723.8        3954.3         4079.9      5059.8      6371.5
EBIT (Oper.                                                                     Act.
                      1017.3    3129.3    3107.6     3876.9     5061.1
Inc.)                                                                           Changes in WC          -212.8        48.1          -82.0       -111.3      235.4
Int. exp.              51.0      33.5      33.6       42.7       53.7           CF from
                                                                                                      1511.0        4002.4         3997.9      4948.5      6606.9
PBT                   966.3     3095.8    3073.9     3834.2     5007.4          Operations
Other Income           708.0     496.8     365.9      409.4      537.3          Tax Paid                457.2       1094.9         996.2       1232.1      1622.4
Adj. PBT              1674.2    3592.6    3439.8     4243.6     5544.7          Net CF from
                                                                                                     1053.8        2907.5         3001.7      3716.4      4984.5
Taxation               457.2    1094.9     996.2     1232.1     1622.4          Oper.
Reported PAT          1217.0    2497.7    2443.7     3011.5     3922.3          CapEx                -1560.3       -1212.4        -2815.0     -2633.8     -1491.3
                                                                                Investment            2007.4       -4003.3         880.5       447.3      -1826.3
Balance Sheet                                                                   Net CF from
                       FY09      FY10     FY11(E) FY12(E) FY13(E)                                     447.1        -5215.7        -1934.5     -2186.5     -3317.5
(In Rs. crore)                                                                  Invest.
Sources of Funds                                                                Equity                  0.0          0.0            0.0         0.0         0.0
Equity Capital         144.5     144.5     144.5      144.5      144.5
                                                                                Debt                  -201.3        122.5          -82.2       200.6       241.0
Reserves               9200.4   11690.6   13057.3    14945.4    17669.6
                                                                                Interest
Networth              9344.9    11835.1   13201.8    15089.9    17814.1         Expenditure
                                                                                                      -51.0         -33.5          -33.6       -42.7       -53.7
Secured Loan            0.1       26.5      0.1        0.1       0.1
                                                                                Dividend Paid
Unsecured Loan         698.8     794.9     739.1      939.7     1180.7                                589.7         294.7          165.8       162.8       216.0
                                                                                (Incl. Tax)
Loan Fund              698.9     821.4     739.2      939.8     1180.8          Net CF from
Deff. Tax Liability    234.0     220.6      0.0        0.0        0.0                                 337.4         383.7          50.0        320.6       403.3
                                                                                Financing
Deff. Tax Assets       -78.9     -83.6      0.0        0.0        0.0
Capital Employed 10198.9        12793.5   13941.0    16029.6    18994.9         Key Ratios     FY09               FY10       FY11(E)        FY12(E)     FY13(E)
Application of Funds                                                            EBITDA Margin 8.43%            13.59%        11.33%         11.07%      11.09%
Gross Block            8720.6   10406.7   13327.8    15979.7    17585.2
                                                                                Oper Margin   4.97%            10.75%         8.63%          8.48%       8.81%
Accu. Dep              4649.8    5382.0    6354.3     7537.2     8847.6
Net Block             4070.8    5024.7    6973.5     8442.5     8737.6          PAT Margin    5.95%             8.58%         6.78%          6.59%       6.83%
Capital WIP            861.3     387.6     281.5      263.4      149.1          EPS           42.13             86.45         84.58         104.24      135.77
Long Term                                                                       D/E            0.07              0.07          0.06           0.06        0.07
                      4932.1    5412.3    7255.0     8705.8     8886.7          Current Ratio  1.05              1.03          1.04           1.06        1.01
Assets
Investments           3173.3    7176.6    6296.1     5848.9     7675.1
C.A & Loans           3571.0    3674.2    4380.9     5622.4     6752.2          Valuation
                                                                                                    FY09          FY10       FY11(E)        FY12(E)     FY13(E)
Inventories            902.3     1208.8    1286.3    1693.6     1915.2          Metrices
Debtors                937.8     809.9     1091.4    1385.7     1641.6          P/E                 18.17         10.03          10.61        8.40        6.52
Other CA                98.1      84.8     107.5     136.5      171.5           P/BV                26.75         15.59          17.49       14.19       10.89
L&A                    1632.8    1570.7    1895.6    2406.7     3024.0
                                                                                EV/EBITDA            3.48          3.29           3.24        2.83        2.40
Cash                   1939.0     98.2     201.5     1175.2     2368.7
C.L. & Prov.          3416.5    3567.8    4192.5     5322.7     6687.9
Current Liabilities    3035.8    2939.4    3334.9    4234.0     5319.9          DuPont Analysis FY09              FY10       FY11(E)        FY12(E)     FY13(E)
Provisons              380.7     628.4     857.5     1088.7     1368.0          PAT/PBT              0.73         0.70        0.71           0.71        0.71
Net CA excl cash 154.5           106.4     188.4      299.7       64.3          PBT/EBIT             1.65         1.15        1.11           1.09        1.10
Capital Deployed 10198.9        12793.5   13941.0    16029.6    18994.9         EBIT/N.Sales         0.05         0.11        0.09           0.08        0.09
                                                                                N.Sales/TA           1.50         1.78        1.99           2.14        2.24
                                                                                TA/NW                1.46         1.38        1.37           1.42        1.44
                                                                                RoE                13.02% 21.10%             18.51%         19.96%      22.02%




                                                                           11                                                        Institutional Equities
                                                                               Maruti Suzuki-Initiating Coverage
About The Company:
Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a subsidiary of Suzuki Motor
Corporation, Japan. MSIL has been the leader of the Indian car market for over two and a half decades. The company
has two manufacturing facilities located at Gurgaon and Manesar, south of New Delhi, India. Both the facilities have
a combined capability to produce over a 1.2 million (1,200,000) passenger car units annually. The company plans to
expand its manufacturing capacity to 1.75 million by 2013. For this the company will be investing around Rs. 60
Billion over the period till 2014.
The company offers a wide range of cars across different segments. It offers 14 brands and over 150 variants -
Maruti 800, people movers, Omni and Eeco, international brands Alto, Alto-K10, A-star, WagonR, Swift, Ritz and
Estilo, off-roader Gypsy, SUV Grand Vitara, sedans SX4 and Swift DZire In an environment friendly initiative, in
August 2010 Maruti Suzuki introduced factory fitted CNG option on 5 models across vehicle segments. These
include Eeco, Alto, Estilo, Wagon R and Sx4.




                                                       12                                        Institutional Equities
                                                                                       Maruti Suzuki-Initiating Coverage
   Sr. No.           Name             Designation             Sectors                    Email                     Telephone
     1       Paras Bothra           Research Head                                paras@ashikagroup.com         033-22839952-129
     2       Sandip Pal            Sr. Equity Analyst                           sandip.p@ashikagroup.com       033-22839952-153

     3       Namita Poddar         Sr. Equity Analyst   Banking & Logistics     namita@ashikagroup.com         033-22839953-230

     4       Ratish Nair             Equity Analyst     Auto-Auto Ancillary     ratish.n@ashikagroup.com       033-22839952-115

     5       Abhishek Agarwal        Equity Analyst       IT & Pharma.        abhishek.ag@ashikagroup.com      033-22839952-153

     6       Megha P. Jain           Equity Analyst     Hospitality & Steel     megha.p@ashikagroup.com        033-22839952-230

     7       Avi Surana              Equity Analyst       Power & Retail          avi.s@ashikagroup.com        033-22839952-115

     8       Charmi Doshi          Derivative Analyst                         charmimalani@ashikagroup.com     033-22839952-231

     9       Prasun Chatterjee     Derivative Analyst                           prasun.c@ashikagroup.com       033-22839952-231




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                                                              13                                           Institutional Equities

				
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