CAPARO MARUTI LIMITED

Long-term Bank Facilities Short-term Bank Facilities CARE A+ PR1+

Rating CARE has assigned a CARE A+ [Single A Plus] rating to the Long-term Bank Facilities aggregating Rs.35.96 cr of Caparo Maruti Limited (CML). This rating is applicable for facilities having tenure of more than one year. Facilities with this rating are considered to offer adequate safety for timely servicing of debt obligations. Such facilities carry low credit risk. Also, CARE has assigned a PR1+ [PR One Plus] rating to the Short-term Bank Facilities aggregating Rs.4.50 cr of CML. This rating is applicable for facilities having tenure up to one year. Facilities with this rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk. CARE assigns + or - signs to be shown after the assigned rating (wherever necessary) to indicate the relative position within the band covered by the rating symbol. The ratings draw strength from the experienced promoters, strong business association with Maruti Suzuki India Ltd. (MSIL) with over 95% sales over the years emanating from MSIL for various models, favourable capital structure marked by low gearing levels and efficient working capital management. The ratings are constrained by CMLs moderate scale of operations, limited diversification and risks associated with frequent capex requirement for scaling up the operations. Going forward, ability of CML to sustain growth in sales and profitability and effective completion and efficient operations of the ongoing projects shall be the key rating sensitivities. Background Caparo Maruri Ltd. (CML) incorporated in 1994 is engaged in the manufacturing of auto components viz

sheet metal components. CML is 75:25 joint venture between a Caparo Group company namely Caparo India Ltd., U.K. and Maruti Suzuki India Limited (MSIL) respectively. CML is part of the Caparo Group, a USD1.6 bn conglomerate with operations in more than 60 sites in the UK, USA, India, Canada, Poland and Spain. Caparo Group started its business in India in 1994 as a joint venture with MSIL through CML. Presently it has other group companies in India engaged in similar lines of business. MSIL, formerly Maruti Udyog Limited, a subsidiary of Suzuki Motor Corporation of Japan, is Indias largest passenger car company enjoying over 50% of the domestic car market share and has a track record of around two decades with a turnover of Rs.20,358 cr and PAT of Rs.1,218 cr in FY09. Operations CML is an exclusive supplier of sheet metal stampings and weldments of specific design to MSIL. CML has three manufacturing plants located at various locations across India including Gurgaon and Bawal (Haryana) and Halol (Gujarat). The two main plants located at Gurgaon and Bawal (Haryana) manufacture sheet metal components and transport it to MSILs plants located at Gurgaon and Manesar (Haryana) respectively. The Gurgaon plant was set up in 1995 over an area of 4 acres and has four press machines for stampings. The Bawal plant was set up in 2003 with 12 press machines over an area of 15 acres land. The two units cater to around 90,000 vehicles in a month. The third plant of CML situated at Halol was set up in 2003 over an area of 2 acres. At present, this plant does job work for General Motors model Tavera and forms a very small percentage of the total sales. CML caters to various small and mid-sized models of MSIL viz. Alto, Zen, Wagon R, Swift, SX4 etc. MSIL provides assistance to CML for developing the production mechanisms, sharing of risk in case of raw material fluctuation, granting loans for die procurement

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etc. CML has plants devoted to production for MSIL which is also reflected by the fact that 95%-98% of the overall sales of company are made to MSIL. CML has both contractual as well as non-contractual arrangements for sourcing raw material with almost entire raw material being sourced domestically. Strong business association with MSIL via completely devoted sales also provided the company with benefits such as optimum inventory management and shorter cash realization cycle thereby leading to effective working capital management. Ongoing expansions - CML is engaged in an expansion project for adding new press machines, expense on tools/dyes for a new model being launched by MSIL, land and building development etc at its current facilities. The estimated cost involved for the expansion is Rs.26.25 cr which is proposed to be financed through debt to internal accrual ratio of 2:1. The tie up for the debt is in process. The work on the project is expected to begin in April 2010 and the expected date of completion is February 2011. Financial Performance Financial performance of CML has shown an improvement over the years with the growth in operating income at a Compounded Annual Growth rate (CAGR) of 27% from FY07 to FY09. PBILDT as well PAT have grown due to economies of scale with the increase in business volume. CML has more or less stable profitability margins as it earns a fixed mark-up on the cost of production, though with improving economies of scale and operating efficiencies, the profit margins have witnessed improvement over a period of time. The interest cost as well as solvency position depicted by the debt-equity and overall gearing ratios is comfortable and declining over the years with the accretion of profits and reducing debt levels. Industry Review The auto component industry derives its growth from the automobile sector which in turn is cyclical and dependent on the growth of the economy and improvement in infrastructure. Thus, the economic contraction in the domestic market experienced during 2008-09 which was characterized by high interest rates,

lower demand and high crude oil prices had an adverse impact on the automobile industry and also resulted in demand contraction in the auto component industry. However, during H1FY10, the domestic demand for automobiles - especially two-wheelers, passenger cars and Light Commercial Vehicles (LCVs) - has shown distinct signs of revival. Financial Results Rs. crore Y.E. / as on March 31, Working Results Period (months) Net Sales Total Operating Income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity Share Capital Networth Total Capital Employed Key Ratios Growth Growth in Total Operating Income (%) Growth in PAT [after D.Tax] (%) Profitability PBILDT/Total Operating Income (%) PAT/Total Income (%) ROCE (%) Average Cost of Borrowing (%) Solvency Long Term Debt Equity (times) Overall Gearing (times) Interest Coverage (times) Term Debt/Gross Cash Accruals (years) Liquidity Current Ratio (times) Quick Ratio (times) Turnover Average Collection Period (days) Average Creditors (days) Average Inventory (days) 12 147.51 156.19 18.98 3.52 10.25 6.50 4.15 14.22 10.00 28.61 75.22 2007 2008 Audited 12 212.66 220.74 29.03 3.99 12.46 14.07 8.83 20.69 10.00 36.84 83.38 12 249.89 254.72 40.10 4.93 13.03 23.68 15.19 27.71 10.00 51.52 96.21 2009

12.15 2.64 1.05 1.63 2.48 2.10 0.91 0.72 12 11 20

41.33 112.77 13.15 3.97 22.77 8.57 0.98 1.26 4.15 1.74 1.04 0.81 17 20 29

15.39 72.03 15.74 5.93 31.86 10.81 0.66 0.87 5.49 1.22 1.05 0.79 17 26 29

CAREVIEW

The domestic Passenger Vehicle (PV) segment sales are expected to grow at a Compounded Annual Rate of growth (CAGR) of 13.9% from 1.55 million units in FY09 to 2.98 million units in FY14. Domestic sales of small cars are forecasted to increase at a CAGR of 15.8% from 0.94 million units in FY09 to 1.95 million units in FY14. Domestic Passenger Car (PC) market has presence of around 13 players. However, the market is primarily controlled by three players MSIL, Hyundai Motors and Tata Motors, which cumulatively accounted for 85.4% share in FY09. Maruti Suzuki leads with 52.2% share, followed by Hyundai Motors with 20% share and

Tata Motors with 13.2% share. Other key players include Honda Siel (4.1%), General Motors (3.8%) and Ford India (2.1%). Maruti Suzuki saw its domestic PV sales growing at a CAGR of 11.4% from 420,947 units in FY04 to 722,144 units in FY09 as against the industry CAGR of 11.5%. The number of PCs of MSIL sold has increased from 402,496 to 491,054 in the period April-November 2009 on y-o-y basis. This increased off-take of sales of MSIL has positive demand implications for the auto component suppliers such as CML.

January 2010 Disclaimer

CAREs ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.

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