MSIL Analyst Report

Company report
Industrials
Autos
abc
Equity India
Global Research
Maruti Suzuki India (MSIL)

Initiate OW: The dawn approaches
Overweight
Target
price
(INR)
1,200.00
Share price (INR)
953.60
Forecast dividend yield (%)
0.8
Potential return (%)
26.6
Note: Potential return equals the percentage
difference between the current share price and
the target price, plus the forecast dividend yield
Mar
HSBC EPS
HSBC PE
2011 a 2012 e
FY12 should see competition peak and margins bottom;

both are set to normalise in FY13/14
Initiate on Maruti with OW and TP of INR1,200; EPS to grow
at 27% CAGR in FY12-14e
2013 e
79.19
12.0
62.39
15.3
86.67
11.0
Performance
1M
3M
12M
Absolute (%)
Relative^ (%)
-12.9
-6.9
-17.7
-13.5
-33.8
-17.0
Note: (V) = volatile (please see disclosure appendix)
28 November 2011
Yogesh Aggarwal*
Analyst
HSBC Securities and Capital Market
(India) Private Limited
+9122 2268 1246
yogeshaggarwal@hsbc.co.in
Vivek Gedda*
Associate
Bangalore
View HSBC Global Research at:
http://www.research.hsbc.com
*Employed by a non-US affiliate of
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to FINRA
regulations
Issuer of report:
We expect strong structural growth in Indias car industry;

Maruti is likely to be a key beneficiary
HSBC Securities and

Capital Markets
Disclaimer &
Disclosures
This report must be read
with the disclosures and
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,
which forms part of it
Maruti to be a key beneficiary of industry growth. Maruti will have a disappointing FY12,
in our view, with sales set to fall near 6% and EBITDA margin down 150bps. Admittedly,
headwinds are likely to persist near-term as well, as margins remain under pressure and the
sales growth revival is gradual. However, we see margins bottoming and competition peaking
in FY12, with both set to normalise in FY13/14. As a result, Marutis earnings are expected to
grow at a CAGR of c27% in FY12-14. Aside from robust industry growth and an improving
EBITDA margin, we see the company benefiting from a stronger go-to-market with the labour
disputes behind it and a slew of new models in the pipeline.
Competition is likely to moderate in FY13 from the peak seen in FY12. Along with the
launch of new models and variants in 2012, Maruti should regain some of its lost market
share. While it may have lost some of its customer base permanently, we expect it will
retain many customers due to its strong service network and competitively priced sparepart and maintenance services.
We believe the industry is set for years of strong structural growth. We believe Indias
car industry has years of strong growth ahead of it. Our confidence stems from empirical
data from other markets, which suggests that after penetration passes 20 cars per thousand
people, industry growth tends to accelerate. India, we believe, is close to this inflection point
and is unlikely to see a repeat of the prolonged slowdown in car sales in 2011.
We initiate on Maruti with OW and a target price of INR1,200, based on a 15% discount
to our DCF-based valuation. We are not factoring a significant improvement in margins.
Increases in commodity prices and Japanese yen appreciation are the key downside risks.
Key concerns and our take on FY13 for Maruti
High competition Besides likely moderation in competition, Maruti's new launches should improve its competitive
from global OEMs strength. Also Marutis lower maintenance cost and spare parts should be able to positively influence
word of mouth in 2012 and beyond for new cars
Yen appreciation
Yen appreciation has impacted profitability in the past. We have not assumed any change in currency.
For detailed analysis on yen sensitivity and MSIL exposure, please refer to page 28.
Dieselisation
We believe as labour issues settle for MSIL and diesel variants pick up (along with the possible
introduction of Wagon R diesel), Maruti should be able to leverage the India dieselisation phenomenon.
Slower 4W demand Car demand in India should remain strong in the long term as per our analysis.
Source: HSBC
Index^
Index level
RIC
Bloomberg
Source: HSBC
BOMBAY SE IDX
15,700
MRTI.BO
MSIL IN
Enterprise value (INRm)

Free float (%)
Market cap (USDm)
Market cap (INRm)
Source: HSBC
203822
100
5,270
275,505
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Autos
28 November 2011
Financials & valuation

Financial statements
Year to
Valuation data
03/2011a
03/2012e
03/2013e
03/2014e
Profit & loss summary (INRm)

Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
370,400
36,644
-10,135
26,509
1,839
30,437
31,088
-8,202
22,235
22,886
365,714
30,790
-11,703
19,087
2,354
24,505
24,505
-6,475
18,030
18,030
432,291
43,177
-14,698
28,479
2,216
33,759
33,759
-8,711
25,049
25,049
498,408
50,520
-17,195
33,325
2,743
39,132
39,132
-10,108
29,025
29,025
Cash flow summary (INRm)

Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
36,405
-25,592
-4,893
-2,528
-29,224
1,271
31,617
-30,288
-30,288
-2,705
1,376
-11,361
42,491
-33,839
-33,839
-3,381
-5,271
776
48,650
-29,261
-29,261
-3,381
-16,008
11,465
Year to
03/2011a
03/2012e
03/2013e
03/2014e
0.5
5.5
2.9
12.0
2.0
0.6
0.8
0.6
6.6
2.3
15.3
1.8
-5.1
0.8
0.5
4.6
1.9
11.0
1.6
0.3
1.0
0.4
3.6
1.6
9.5
1.4
5.1
1.0
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Price relative
1766
1766
1566
1566
1366
1366
1166
1166
966
966
766
766
566
566
366
Balance sheet summary (INRm)
2009
Intangible fixed assets

Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
0
69,580
63,563
25,085
184,210
37,184
3,093
-21,992
138,675
70,874
0
88,165
61,654
23,709
200,886
38,348
3,093
-20,616
154,000
87,762
0
107,306
70,795
28,979
229,168
44,287
3,093
-25,886
175,667
104,835
0
119,372
90,814
44,988
261,253
50,728
3,093
-41,895
201,311
114,470
03/2011a
03/2012e
03/2013e
03/2014e
25.0
-7.3
-15.3
-15.3
-8.4
-1.3
-16.0
-28.0
-19.5
-21.2
18.2
40.2
49.2
37.8
38.9
15.3
17.0
17.0
15.9
15.9
5.7
29.6
17.8
12.9
9.9
7.2
4.6
17.7
12.3
9.4
8.4
5.2
4.5
21.9
15.2
11.7
10.0
6.6
4.5
22.5
15.4
11.9
10.1
6.7
-15.9
-0.6
-13.4
-0.7
-14.7
-0.6
-20.8
-0.8
76.94
79.19
7.50
479.84
62.39
62.39
8.00
532.87
86.67
86.67
10.00
607.85
100.43
100.43
10.00
696.58
Ratio, growth and per share analysis

Year to
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
Per share data (INR)
EPS reported (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
Maruti Suzuki India Ltd

Source: HSBC
Note: price at close of 23 Nov 2011
366
2010
2011
Rel to BOMBAY SE SENSITIVE INDEX
2012
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Autos
28 November 2011
Investment summary
We see years of strong growth ahead for Indias car industry; in our
view, competition should peak and margins should bottom in FY12,

with both likely to normalise looking ahead, benefiting Maruti
Near-term headwinds remain, but Marutis distribution reach,
product pipeline and inexpensive valuations support its prospects

Initiate on Maruti with OW and TP of INR1,200; EPS expected to
grow at 27% CAGR in FY12-14
Maruti will have a disappointing FY12 in our

view, with sales set to fall 6% and EBITDA
margin down 150bps. Headwinds are likely to
persist near term as well, as margins remain under
pressure and the sales growth revival is gradual.
However, we see margins bottoming and
competition peaking, with both set to normalise in
FY13/14. As a result, Marutis earnings are
expected to grow at a CAGR of c27% in FY12-14.
Aside from robust industry growth and an
improving EBITDA margin, we see the company
benefiting from stronger go-to-market with the
labour disputes behind it and a slew of new models
in the pipeline.
Years of strong growth ahead
We believe the car industry in India has years of

strong growth ahead. Our confidence stems from
the empirical data we have found in other markets,
both developed and developing. Interestingly,
these markets suggest that after penetration passes
20 cars per 1,000 people, industry growth tends to
accelerate. With India close to this inflection point,
we think it is unlikely to see a prolonged
slowdown in car sales.
Competition should moderate in FY13
We believe it is unlikely that Maruti will see a rise

in competition from the highs of FY12. While
competition might intensify in some segments,
like minis, competition is likely to moderate in
others, such as the compact and super-compact
segments, as the initial euphoria around new
models subsides. Additionally, with the labour
disputes hopefully behind the company, the
company is likely to see sales growth return for its
key products, like the Swift and Swift DZire.
Chart 1.1: Market share of top auto players in India
VW
4%
Others
8%
Toyota
5%
Ford
4%
GM
5%
Hyundai
18%
Tata
11%
Honda
4%
Maruti
41%
Source: SIAM, Crisil, HSBC
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Autos
28 November 2011
Table1.1: Maruti - key concerns and our view

Key concerns
Our view for FY13
High competition from global

OEMs
Competition is likely to moderate going forward, as Maruti's new launches improve its competitive strength in
FY13
Maruti's lower maintenance cost and spare parts should also influence word of mouth in favour of Maruti in 2012
and beyond for new cars
Yen appreciation has impacted profitability in the past. We have not assumed any change in currency. Please
find the detailed analysis on yen sensitivity and Marutis exposure in the report
Maruti has also been impacted by a steep price increase in petrol vs. diesel, which created higher demand for
diesel cars. We believe as labour issues settle for Maruti and diesel variants pick up (along with the possible
introduction of Wagon R diesel), Maruti should be able to leverage the India dieselisation trend.
Car demand in India should remain good in the long term. Our analysis of developed and developing countries
suggests that industry growth accelerates once penetration exceeds 20 cars per 1,000 people. India is close to
this level.
YEN appreciation
Dieselisation
Slower car demand in India
Source: Company data, HSBC estimates
Along with the moderation of overall competition,

the launch of new models in 2012 should help
Maruti regain some lost market share. Maruti
recently launched the Swift at a marginally lower
price than the previous model. Furthermore, to
fortify its market share in the mini segment,
Maruti is also expected to launch another sub-Alto
model called Cervio in early 2012. In the supercompact segment, the company is likely to launch
a cheaper version of DZire. There are also two
new SUVs expected to be launched in 2012, as it
seeks to build a wider product portfolio.
Overall, while it is unlikely to regain its entire
past market share, Maruti should be able to grow
in line with the market in the medium-to-long
term even in a competitive market. With a
positive bias to market growth and relatively less
intense competition, we are positive on Marutis
growth in FY13 and beyond.
Initiate on Maruti with OW rating and DCF-based

TP of INR1,200
While PE is the most followed valuation method, we

believe long-term trends can only be captured by
DCF analysis. Stocks may trade at a premium or
discount to DCF based valuation depending on what
stage of the cycle that the industry is, but the longterm sustainable growth, based on the penetration
levels of the country and cost of ownership trends,
can only be captured by DCF analysis.
Our DCF assumptions are shown in Table 1.2. We
use a WACC of 11% based on a risk-free return of
3.5% and cost of equity of 11% as per HSBC
methodology.
Our DCF analysis values Maruti at INR1,405. We
apply a discount of about 15% to this DCF valuation
to reflect the near-term concerns about growth and
margins, given near-term earnings remain depressed
due to the appreciation of the Japanese yen and
Table1.2: DCF assumptions

FY12e
FY13e
CAGR FY13-18e
CAGR FY18-25e
Total domestic PV market sales growth (Cars + UVs+ Vans)

Total domestic Car sales growth
Total domestic UV + Vans market growth
5.6%
3.7%
12.5%
13.4%
13.4%
13.7%
13.1%
13.6%
11.4%
7.0%
7.3%
5.8%
Market share of Maruti in Domestic Cars

Total Sales (Domestic + Exports) Growth rates of Maruti
EBITDA margins
43.7%
-6.0%
8.4%
44.5%
14.2%
9.9%
10.8%
6.2%
Terminal growth assumed

Total PV
Value per share
Source: HSBC estimates
4%
405,796
1,405
abc

Autos
28 November 2011
HSBC estimates vs. consensus
slower ramp-up in production in light of recent

labour issues. This gives us a target price of
INR1,200, which implies a potential return of
26.6%, inclusive of a dividend yield of 0.8%.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts above
and below the hurdle rate for Indian stocks of 11%.
As our target price implies a potential return that is
above the Neutral band, we initiate coverage on the
stock with an Overweight rating. Potential return
equals the percentage difference between the current
share price and the target price, including the
forecast dividend yield when indicated.
At our target price, the stock trades at an implied PE
of 14x on our FY13 EPS estimate. This is on par
with the 10-year average PE multiple of 14x 12M
forward earnings. The stock is currently trading at
11x our FY13e EPS forecast.
Our earnings estimates are broadly in line with

consensus for FY13, with a couple of key
differences: we are more positive on the long-term
prospects for the sector and Marutis ability to
gain market share. Consequently, our DCF
valuation and therefore target price are slightly
higher than consensus.
Table 1.4: Historic valuation range and DCF summary for Maruti
DCF Target Price
Value per share
Implied PE on FY13e EPS
5-year historic average PE*
5-year max PE
5-year Min PE
Currently trading on FY13e EPS
1,405
16.2x
1,200
13.8x
13.7x
14.0x
20.2x
4.9x
11.0x
Source: Company data, HSBC estimate, DataStream. Repriced on 23 Nov 2011
Table 1.3: Past cycle and corresponding valuations

FY05-10
FY10-12
13.2%
7.4%
22.8x
7.9x
14.3x
11.1%
-15.0%
17.4x
11.2x
13.5x
CAGR Revenue
CAGR earnings
Max PE
Min PE
Average PE
FY12-14
CAGR Revenue
CAGR earnings
Current PE on FY12e EPS
Current EV/EBITDA on FY13e
EBITDA
16.7%
26.9%
15.3x
11.0x
4.7x
Source: Company data, HSBC estimate, DataStream. Repriced on 23 Nov 2011
Table1.5: HSBC vs. consensus estimates

(in INR m)
FY11
Revenue
EBITDA
EBITDA Margin
Net Profit
EPS (INR)
370,400
36,644
9.9%
22,235
76.9
____ HSBC estimates _____ __ Consensus estimates __

FY12e
FY13e
FY12e
FY13e
365,714
30,790
8.4%
18,030
62.4
432,291
42,920
9.9%
24,859
86.0
365,727
30,022
8.2%
19,698
65.5
439,935
40,020
9.1%
25,570
86.7
_______ Variance________
FY12e
FY13e
0.0%
2.6%
21bps
-8.5%
-4.7%
-1.7%
7.2%
83bps
-2.8%
-0.8%
Source: HSBC estimates, Datastream, Bloomberg
Table 1.6: Peer Comparison with other OEMS from emerging geographies

Mahindra and Mahindra Ltd
Tata Motors Ltd
Brilliance China Automotive Holdings Ltd
Geely Automobile Holdings Ltd
Great Wall Motor Co Ltd
Hyundai Motor Co
KIA Motors Corp
Ford Otomotiv Sanayi AS
Company
Valuation Multiples
Tata Motors Ltd
Hyundai Motor Co
KIA Motors Corp
Average
Income Statement
Company
(INR,m)
Tata Motors Ltd
Hyundai Motor Co
KIA Motors Corp
Average
Growth Rates & Margins
Company
Current
Price
MRTI.BO
Overweight
1,200
MAHM.NS
N/A
TAMO.NS
N/A
1114.HK Overweight (V)
11.70
0175.HK
Neutral (V)
2.10
2333.HK Overweight (V)
16.10
005380.KS Overweight (V) 280,000
000270.KS
Overweight 95,000
FROTO.IS
Neutral
15.50
943
719
162
8
2
10
218,500
71,700
15
Rating
Upside/) ______ 52 Week Range_____

(Downside
High
Low
27%
N/A
N/A
22%
-7%
28%
28%
32%
5%
1,468
877
276
11
4
15
257,000
84,600
15
910
585
138
5
1
8
161,500
47,100
10
Year End
(Month)
Shares in
issue(m)
Market Cap
(USDm)
Net Debt
(USDm)
EV (USDm)
3
3
3
12
12
12
12
12
12
289
614
2,692
5,000
7,457
2,738
220
400
351
5,318
8,619
9,305
5,013
1,771
5,024
46,138
25,201
2,795
(917)
(3,171)
(809)
90
(198)
(77)
(460)
(12)
(110)
4,401
5,449
8,495
5,103
1,573
4,947
45,678
25,190
2,685
________________P/E (x)__________________ ___________________ P/BV (x)_____________________ _________________ EV/EBITDA (x)__________________

Current
2011E
2012E
2013E
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
13.5x
15.7x
5.8x
19.0x
7.6x
6.4x
9.0x
8.0x
7.4x
10.3x
15.1x
15.5x
6.0x
18.1x
9.3x
7.1x
6.6x
9.1x
8.3x
10.6x
11.0x
13.3x
5.4x
13.8x
7.9x
6.5x
6.4x
8.0x
8.8x
9.0x
9.5x
11.8x
5.0x
11.1x
7.2x
5.9x
5.8x
7.0x
7.8x
7.9x
2.0x
4.1x
2.3x
6.2x
1.7x
2.8x
1.8x
3.0x
3.0x
3.0x
1.7x
3.4x
2.0x
5.1x
1.5x
1.9x
1.3x
2.1x
2.8x
2.4x
1.5x
2.9x
1.5x
3.9x
1.3x
1.6x
1.1x
1.6x
2.4x
2.0x
1.3x
2.5x
1.2x
3.0x
2.8x
1.5x
0.9x
1.3x
2.1x
1.9x
6.2x
16.7x
4.9x
40.1x
4.0x
6.7x
5.6x
12.7x
6.9x
11.5x
12.7x
16.9x
4.6x
56.7x
3.7x
4.3x
5.5x
4.8x
6.3x
12.8x
9.2x
14.4x
4.1x
49.2x
2.9x
3.4x
4.9x
3.3x
7.0x
10.9x
7.9x
12.8x
3.6x
42.6x
2.5x
2.8x
3.9x
2.1x
5.6x
9.3x
___________ Revenue (USDm) _____________ ______ Revenue (in Million reporting currency) _______ ____________________EBITDA_____________________
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
2010
2011E
2012E
2013E
7,096
4,443
23,453
1,149
2,581
2,847
32,228
20,389
4,157
10,927
7,006
5,485
27,466
816
2,596
3,598
68,890
39,069
5,555
17,831
8,281
6,340
30,650
787
3,056
4,410
72,267
42,605
5,497
19,322
9,548
7,271
34,338
789
3,322
4,770
76,269
45,926
5,988
20,914
370,400
231,921
1,224,262
8,949
20,099
22,175
36,769,426
23,261,428
7,649
365,714
286,311
1,433,738
6,357
20,222
28,024
78,596,335
44,573,837
10,222
432,291
330,958
1,599,941
6,129
23,802
34,350
82,449,085
48,607,568
10,115
498,408
379,567
1,792,470
6,149
25,877
37,148
87,015,184
52,397,405
11,018
36,644
38,832
169,071
630
2,677
3,558
4,659,617
2,310,127
751
30,790
38,264
177,795
450
2,835
4,671
9,733,469
4,509,902
916
42,920
44,973
199,039
461
3,324
5,593
9,888,250
4,965,887
906
50,263
50,783
227,924
465
3,627
6,153
10,775,626
5,474,885
1,152
____________ Revenue (USD) ______________ _____________Revenue (Growth y-o-y) ______________ ________________ EBITDA Margins_________________
2010
2011E
2012E 2-Yr CAGR
2010
2011E
2012E 2-Yr CAGR
2010
2011E
2012E
2013E
-1.3%
23.5%
17.1%
-29.0%
0.6%
26.4%
113.8%
91.6%
33.6%
30.7%
18.2%
15.6%
11.6%
-3.6%
17.7%
22.6%
4.9%
9.0%
-1.0%
10.6%
15.3%
14.7%
12.0%
0.3%
8.7%
8.1%
5.5%
7.8%
8.9%
9.1%
16.7%
15.1%
11.8%
-1.7%
13.1%
15.1%
5.2%
8.4%
3.8%
9.8%
-1.3%
23.5%
17.1%
-29.0%
0.6%
26.4%
113.8%
91.6%
33.6%
30.7%
18.2%
15.6%
11.6%
-3.6%
17.7%
22.6%
4.9%
9.0%
-1.0%
10.6%
15.3%
14.7%
12.0%
0.3%
8.7%
8.1%
5.5%
7.8%
8.9%
9.1%
16.7%
15.1%
11.8%
-1.7%
13.1%
15.1%
5.2%
8.4%
3.8%
9.8%
9.9%
16.7%
13.8%
7.0%
13.3%
16.0%
12.7%
9.9%
9.8%
12.1%
Source: HSBC estimates for rated companies, Thomson Reuters Datastream. *Indian companies represent next FY. Repriced on 22 Nov 2011, **Indian companies are FY+1 (ex 2010 = FY11).
8.4%
13.4%
12.4%
7.1%
14.0%
16.7%
12.4%
10.1%
9.0%
11.5%
9.9%
13.6%
12.4%
7.5%
14.0%
16.3%
12.0%
10.2%
9.0%
11.7%
10.1%
13.4%
12.7%
7.6%
14.0%
16.6%
12.4%
10.4%
10.5%
12.0%
___________ EPS (reporting currency) _____________

2010
2011E
2012E
2013E
76.9
44.3
28.2
0.3
0.2
1.0
23,748.0
5,731.2
1.5
62.4
46.5
27.1
0.4
0.2
1.2
33,903.8
8,531.1
1.9
86.0
54.2
29.9
0.5
0.2
1.3
34,944.8
9,724.5
1.7
99.7
60.9
32.3
0.6
0.2
1.4
38,742.8
11,084.0
1.9
________________ EPS (growth) __________________

2010
2011E
2012E
2-Yr CAG
-18.9%
4.9%
-4.2%
40.0%
0.9%
19.0%
42.8%
48.9%
27.7%
17.9%
37.9%
16.6%
10.6%
31.0%
18.0%
10.1%
3.1%
14.0%
-10.8%
14.5%
15.9%
12.3%
8.0%
24.7%
9.6%
9.4%
10.9%
14.0%
12.8%
13.1%
26.4%
14.4%
9.3%
27.8%
13.7%
9.7%
6.9%
14.0%
0.3%
13.6%
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Autos
28 November 2011
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Autos
28 November 2011
Industry analysis
Empirical data from both developed and developing markets
suggest Indias car industry has years of strong growth ahead

While competitive intensity seems high in the near term, we expect
a moderation in FY13
Incumbents, such as Maruti, with a strong product pipeline should
be able to maintain market share
Passenger car industry outlook

The passenger car industry in India has attracted a
growing number of multinational companies in the
past few years. With a low car penetration rate and
a populous, high growth economy, we believe
India represents a promising opportunity for
passenger vehicle OEMS. Compared with Indias
15 cars per 1,000 people, the penetration rate in
other major Asian countries, like Japan and Korea,
is 20 to 30 times as high.
We believe the car industry in India has many
years of strong growth ahead. Our confidence
Chart 2.1: India is well behind other countries in terms of car

penetration
55%
Chart 2.2: Car sales in Japan and Korea accelerated during

their high economic growth phase when penetration
exceeded a certain level
500
46%
50%
We break down our analysis into three stages:

1) identifying historical evidence/trends from Japan
and Korea; 2) analyzing whether emerging countries
like China, Indonesia followed these trends; and
3) looking at what this analysis means for India?
46%
44%
400
40%
300
23%
30%
23%
200
14%
20%
100
10%
2%
1%
Japan
2009
2005
2001
1997
1993
1989
1985
1977
1981
1973
1969
India
China
Brazil
Malaysia
Korea
Japan
UK
USA
Germany
Source: World Bank, Industry Sources, HSBC estimates
1965
0%
1961
60%
stems from empirical data gathered from other

markets, both developed and developing. Most of
these markets show that once penetration exceeds
a level of around 20 cars per 1,000 people,
industry growth tends to accelerate. With India
close to this inflection point, we believe a
prolonged slowdown in car sales is unlikely.
Korea
Source: World Bank, HSBC
abc

Autos
28 November 2011
Chart 2.3: Car penetration per 1,000 people: China lags

Korea by 20 years and India lags China by 6 years
Chart 2.4: Car penetration per 1,000 people: China vs. India
vs. Indonesia India yet to take off
50
500
400
40
300
30
200
20
100
10
China
Source: KAMA,CAMA, CEIC, HSBC estimates
India
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
2009
2005
2001
1997
1993
Japan
China
1990
Indonesia
Korea
1989
1985
1981
1977
1973
1969
1965
1961
Indonesia
Source: World Bank, HSBC
Stage 1) Historical evidence from Japan and
Stage 2) Are emerging markets, like China and
Korea
Indonesia, following the same trend?
Japan saw strong growth in car sales from 1965 to

1973 (see Chart 2.3), averaging around 22%
annually. Consequently the penetration level
surged from 15 cars per 1,000 people in 1965 to
135 cars in 1973. This strong car sales growth was
accompanied by strong GDP growth of near 9.5%
during the same period.
China is lagging Korea by around 20 years in

terms of car penetration. Its penetration level hit
20 cars per 1,000 people in 2007-08 and has since
shown strong growth. Similarly, in Indonesia,
once the penetration level hit 20 cars in 2003-04,
industry growth accelerated (see Chart 2.4).
Outside of Asia, Mexicos car penetration
increased from 20 cars per 1,000 people to 70
during 1968-1980.
Similarly in Korea, with a lag of around 20 years,

car penetration levels reached around 15 cars per
1,000 people in 1986 before accelerating through
the next 10 years to 165. During this period, GDP
in Korea grew at a 7.3% CAGR.
Stage 3) What does this mean for India?
We believe India is at the cusp of strong industry

growth. Penetration in India has reached 15 cars
per 1,000 people and we expect it to increase to
65 by 2025, translating into CAGR of 9.8% in
Chart 2.5: Following empirical cues, we believe India is likely to see strong industry growth in the coming years.
60
Cars per 1,000

people
50
40
30
20
10
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
China
Source: CEIC, Datastream, HSBC estimates.
India
Indonesia
India-upside risk
abc

Autos
28 November 2011
sales during FY12-25. Based on the empirical

evidence we have drawn from other countries, we
believe the risks to our forecasts are to the upside
(see Chart 2.5).
Macro-trends favourable as well

Per-capita GDP is the key metric we have used to
capture the growth in potential for people to buy
passenger vehicles. GDP per capita (constant
2000 USD) in India came to USD837 in 2010,
around the level seen in China in 1998.
As discussed earlier, China began to show a
material improvement in its car penetration level
in 2007-08, as Korea did in the late 1980s
(lagging by 20 years) and Japan did in the late
1970s (lagging by 40 years).
However, comparing absolute GDP per capita,
China lags Korea by 40 years, although the car
penetration level lags by 20 years (half the
amount of time). Meanwhile, India lags China by
12 years in terms of per-capita GDP but just 6
years in terms of car penetration, with 14 cars per
1,000 people in 2010.
On the basis of these observations, and the fact
that passenger car sales growth in the past ten
years (c12% CAGR) in India has been twice that
of Indias GDP growth (CAGR c6%), we believe
car penetration will continue to grow faster than
GDP per capita.
Chart 2.6: Growth in rural income
What could drive this growth?

Favourable demographics and rising income
levels have essentially created a large number of
potential first-time car buyers. Consequently, the
Indian passenger car industry is currently
dominated by mini and compact cars, which
together command about 80% of total passenger
car sales. As income levels rise, the industry is
also seeing a shift from entry level cars to
premium hatchbacks.
Indeed, corporate wages (see Chart 2.7) are on the
rise. Wages in the IT and IT-enabled services
industries employing around 3m people directly
and 10m people indirectly are expected to grow
strongly by 18-20% in FY12. We expect around
15% growth in FY13 as well, with a positive bias.
We believe while wages may not go up to the
same extent seen in the past few years, buying
capacity is likely to continue rising. Indias
competitive strength as a low cost destination with
an abundant supply of talent is likely to continue
in coming years, making the country one of the
most attractive offshore destination.
We think the lack of an efficient public transport
system is another key growth driver for car sales.
There are compelling reasons for owners of twowheel vehicles to graduate to cars, including the
ability to safely travel in larger groups. Especially,
Chart 2.7: Growth in corporate wages

193
15.0%
20.0%
15%
13.0%
153
11.0%
143
10.0%
9.0%
115
7.0%
140
9%
Corporate Salary increase
100
2011
2008
2007
2006
2005
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
120
7%
5.0%
Low skill salaries
160
12%
2010
0.0%
13%
132
2009
5.0%
180
171
2x
15.0%
-5.0%
200
14%
y-o-y growth
Increase in farm income
Source: Business Standard, Labour Bureau of Shimla, HSBC
Source: Economic Times, Business Standard, Hewitt Salary increase surveys, HSBC.
Corporate salaries rebased to 100 for 2005
abc

Autos
28 November 2011
as the lack of proper public infrastructure (for

instance, metros, monorails and public buses)
adds to the risk of congestion in the various
modes of public transport and growing frustration
among commuters.
Trends in cost of ownership

Increasing interest rates and fuel prices have
sharply impacted the car industry in the past few
months. Petrol prices have increased by around
50% in the last two years and by around 30% in
the last one year. Interest rates have risen by
300bps in the past 13 months. Unsurprisingly, the
cost of ownership for a small car buyer has
increased by 25% in the past two years.
the Maruti Swift are around 88% of the total Swift

bookings as of 1 November 2011.
Considering the high subsidy burden on diesel
prices, it is likely that the government will devise
ways to cut down diesel subsidies on passenger
vehicles either by selectively removing the
diesel fuel subsidy on passenger vehicles or
equivalently charge a one-time tax on passenger
cars with diesel engines.
As of 4 November 2011, if subsidies are removed,
diesel prices would increase by INR8.5, thus
reducing the cost benefit from diesel to near
INR1.5 per kilometre.
Table 2.1: Savings per annum for diesel vs. petrol vehicle
Chart 2.8: Cost of ownership of an Alto per annum
Kms per month
170,000
price differential
diesel petrol
(INR/lt)
150,000
25
23
20
16.5
130,000
110,000
1000
1500
1800
11,828
11,196
10,249
9,143
23,655
22,392
20,497
18,287
35,483
33,588
30,746
27,430
42,579
40,305
36,895
32,916
90,000
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
Cost of ownership of an Alto (INR per annum)

Source: HSBC
Will the shift to diesel cars last?

An increasing number of Indian car buyers are
preferring diesel cars over petrol ones. As of 16th
November, the cost of diesel (INR41 per litre)
was about 38% lower than that of petrol (INR66.4
per litre) in New Delhi. Besides, diesel engines
have higher mileage per litre than petrol engines,
which adds up to a differential of about INR2 for
every kilometre (assuming on average a diesel car
runs 3km more per litre than a petrol version).
Consequently, diesel car sales have seen strong
growth in the past few quarters. A slew of new
diesel cars have been launched by global OEM
car makers, like VW Polo, VW Vento and Toyota
Etios. We note bookings of the diesel variant of
10
500
With diesel cars around INR80,000-120,000 more

expensive than petrol variants, it would take a
long time for diesel car owner to recoup the price
difference from fuel savings unless car usage is
extremely high.
Table 2.2: Years to recover the cost differential of the vehicle
Kms per month
price differential
diesel petrol
(INR/lt)
500
1000
1500
1800
25
23
20
16.5
8.5
8.9
9.8
10.9
4.2
4.5
4.9
5.5
2.8
3.0
3.3
3.6
2.3
2.5
2.7
3.0
Source: HSBC estimates.
abc

Autos
28 November 2011
Table 2.3: Analysis of Maruti DZire petrol and diesel versions

_______________Jun-09 _______________
Petrol car
Diesel car
Price of the car*
Amount financed
Interest rates
Loan tenure (years)
EMI
Fuel prices per litre
Average distance per month
Mileage (KMPL)
Fuel expense (per month)
Average maintenance cost per Annum
Total cost of ownership per month
Change in monthly Ownership Costs
Diesel Savings vs. Petrol
503,400
80%
8.5%
3
12,713
41
1000
12
3,417
8,000
16,796
592,000
80%
8.5%
3
14,950
31
1000
15
2,067
10,000
17,850
-6.3%
______________ Aug-11 _______________

Petrol car
Diesel car
547,228
80%
11.5%
3
14,436
70
1000
12
5,833
10,000
21,103
25.6%
636,630
80%
11.5%
3
16,795
41
1000
15
2,733
12,500
20,570
15.2%
2.5%
In Tables 2.1 to 2.2, we have assumed that diesel

cars offer 3km more per litre compared to petrol
cars and the price differential between the two
variants to be INR100,000. The number of years
to recover the payment does not include the added
cost of capital for the period of recovery.
As discussed, diesel engines are costlier to

maintain, which narrows the cost of ownership as
illustrated in Table 2.3. The table compares two
factors: 1) the change in monthly ownership cost
in the last two years for both petrol and diesel
variants of Maruti DZire; and 2) the difference in
cost of ownership of diesel versus petrol in the
respective periods.
11
abc

Autos
28 November 2011
Competitive threats
combined market share of smaller class cars i.e.

mini (A1 class), compact (A2 class) and super
compact (A3 class) cars has not changed
significantly at around 80% of total car sales,
individually the compact segment has been taking
market share away from the mini segment.
In the past few years, the growth potential of the

Indian car market has attracted many global OEM
car makers, who have launched models across a
broad range of product segments. In the early
large part of this decade, among all the global
OEMs, only Hyundai was focused on the compact
(hatchback) segment, while most of the others
New launches have expanded the market for

compact cars; each time there has been a new
launch, the segment has grown at a much faster
rate than the rest of the passenger car market.
Note that while the combined sales of small cars
(mini, compact and super-compact) grew 27.5%,
the compact segment excluding new launches
grew only 12% in the same period, indicating
there has been significant market share erosion of
existing models by new models.
(like Honda, Toyota and VW) were targeting the

sedan or premium car market. However, in recent
years, most OEMs have realised the importance of
the compact car segment and launched many
products to capture first-time buyers.
Among smaller cars, the compact segment has
seen the most launches in the past few quarters. A
total of 8 new compact models (excluding the
Maruti Ritz) have been introduced over the last
ten quarters, which have cumulatively gained a
market share of c34% in the compact segment.
Overall, the compact segment grew 54% during
the same period. Including sales of the Ritz, 42%
of the growth in the segment over last ten quarters
has come from new launches.
Make way for the new

The two major players in the passenger car market
in India are Maruti and Hyundai, with market
shares of 43% and 19%, respectively, in FY11.
Unsurprisingly, the emergence of other OEMs has
impacted these two incumbents the most.
The new market entrants have been aggressive in
launching new products to gain a foothold in the
The mini segment, on the other hand, has seen

only one launch (the Maruti A-Star) in the same
period. Chart 2.9 illustrates that although the
market. As shown in the Chart 2.10, Maruti,

Hyundai and Honda combined lost more than a
Chart 2.9: New model introductions have expanded growth for compact segment
100%
7.2%
8.4%
Ritz,
Punto,
Jazz
Figo, Polo
Micra
Liva
80%
69.4%
65.2%
54.6%
80%
60%
44.5%
60%
36.6%
35.2%
38.9%
44.1%
43.4%
15.2%
40%
20%
33.5%
25.0%
28.1%
33.6%
24.3%
20%
29.1%
7.3%
15.0%
5.1%
44.8%
40%
32.2%
-5.9%
0%
-20%
4Q09
1Q12
A1: Market share
Source: SIAM, HSBC
12
0%
-9.5%
1Q10
2Q10
A2: Market share
3Q10
4Q10
1Q11
A3: Super Compact
2Q11
3Q11
4Q11
A2: Compact (y-o-y)
1Q12
Total PC (y-o-y)
abc

Autos
28 November 2011
14% market share in the period from 1Q09 to

2Q12. Renault, Nissan and Peugeot as well have
recently announced their plans to launch a long
India-specific product pipeline.
Furthermore, to fortify its market share in the mini

segment, Maruti is also expected to launch
another sub-Alto model called Cervo in early
2012. In the super-compact segment, the company
is likely to launch a cheaper version of DZire.
Further, there are two new SUVs expected to be
launched in 2012 to build a wider product
portfolio. Maruti doesnt have much of a presence
in the SUV market, which currently accounts for
about 13% of the total passenger car market.
Marutis survival strategy

We believe competition is likely to moderate from
FY12 onwards. While in some product segments
(like minis) competition might increase, in others
(such as compacts) competition is likely to
moderate as the initial euphoria around new
launches subsides. Additionally, with labour
issues hopefully behind it, the company is likely
to see sales growth coming back for its key
products like DZire and Swift.
Overall, while Maruti is unlikely to regain its

entire past market share, we believe it should be
able to grow in line with the market in the
medium-to-long term even in a competitive
market. With a positive view of future market
growth (as discussed in the previous section) and
Aside from an expected moderation in overall

competition in the coming few quarters, we
less intense competition, we are positive on

Marutis growth prospects for FY13 and beyond.
believe the launch of new models in 2012 should

help Maruti regain some lost market share. Maruti
recently launched its new Swift, which is priced
slightly lower than the previous model.
Chart 2.10: Market share changes since 1Q09

450
150
206
437
181
22
432
(1)
(150)
(39)
99
(48)
(161)
(450)
(383)
(1,005)
(750)
(1,050)
Maruti Suzuki
Nissan
Volkswagen
Toyota
Skoda
Tata Motors
M&M
Hyundai
Honda
GM
Ford
Fiat
Source: Crisil, Overdrive, HSBC
13
abc

Autos
28 November 2011
Chart 2.11: Maruti product launches an increasing number of launches and refreshes (with another 18 models planned for next 5 years)
2008
A - Star
2009
2010
Ritz,
New Wagon R
launched,
Eeco ,
Alto K10,
K- series engine,
Green range
SX4,Estilo, Eeco ,
Alto
Minor
modifications in
SX4, Estilo
2011
2012e
New Swift,
New Dzire ,
Kizashi Sports
Sedan,
New small car (
Cervo )
Wagon R Diesel,
SX4 Diesel
variant,
Maruti Ertriga SUV

and a new version of
Gypsy
Source: Overdrive, Auto car, Company press releases, News articles in renowned newspapers, BS Motoring , HSBC
Chart 2.13: Maruti exports and market share estimates
Table 2.4: Comparison of spare parts and servicing costs of

recent models significantly higher than Maruti Alto
1,600,000
Source: HSBC.
42%
43%
1,200,000
41%
38%
1,000,000
38%
38%
37%
600,000
35%
Exports
Market share of Maruti in Exports
Source: SIAM, Crisil HSBC
Chart 2.14: New Launches by other OEMs

2008
Hyundai: i
- 20
2009
2010
Fiat : Punto
Nissan:
Micra
Fiat : Linea
Honda: Jazz
Toyota:
Etios
VW: Jetta
Chevrolet: Beat,
Cruze
VW: Vento
Ford:
Figo
VW: Polo
Ford: New Fiesta
2011
Totyota : Etios ,
Etios Liva Diesel
Hyundai: Eon
Honda: Brio, new
Jazz
Nissan: Sunny
Renalt : Fluence
Ford: New Fiesta
Hyundai: New
Verna
Renault: Pulse
Source: Overdrive, Auto car, Company press releases, News articles in renowned newspapers, BS Motoring , HSBC
14
39%
800,000
FY14e
800
1,000
1,500
1,500
2,750
3,250
4,250
3,250
n/a
1,400,000
43%
FY13e
1,000
1,600
2,000
1,200
1,200
2,330
2,330
2,330
n/a
45%
42%
FY12e
4,500
5,000
6,500
6,000
7,000
5,000
6,500
5,000
n/a
Servicing
cost
FY11
Maruti Suzuki Alto

Hyundai Santro
Swift Petrol
Ford Figo Petrol
Ford Figo Diesel
Etios Liva
Etios Liva Diesel
Etios
Volkswagen Polo
Brake pad
FY10
Clutch plate
FY09
INR
2012e
Hyundai: i30
Skoda: Rapid,
Citigo
VW: Up
Renault: Small car
Fiat: Bravo
abc

Autos
28 November 2011
Table 2.5: Maruti sales growth and market share forecasts by segment
A1 : Mini segment ( M800, A-Star, Alto, Wagon R)

Maruti
Market
Market Share
A2 : Compact segment ( Swift, Estilo, Ritz)
Maruti
Market
Market Share
A3: Super Compact segment ( DZire)
Maruti
Market
Market Share
A4: Mid-Size segment (SX4)
Maruti
Market
Market Share
Total passenger cars*
Maruti
Market
Market Share
Utility Vehicles (Grand Vitara, Gypsy)
Maruti
Market
Market Share
Vans ( Omni, Versa, Eeco)
Maruti
Market
Market Share
Total domestic sales
Maruti
Market
Market Share
Exports
Maruti
Market
Market Share
Total Sales
Maruti
Market
Market Share
FY11
FY12e
FY13e
CAGR FY12-14e
28.7%
20.4%
83.0%
-3.6%
1.2%
79.1%
11.5%
13.1%
77.9%
10.4%
12.6%
18.5%
35.5%
30.0%
-16.3%
1.0%
24.9%
23.5%
14.0%
26.9%
18.6%
13.5%
29.1%
39.0%
76.1%
-5.8%
20.9%
59.3%
19.9%
10.0%
64.6%
17.4%
10.5%
48.4%
15.4%
17.1%
1.9%
24.3%
14.0%
11.7%
12.0%
14.0%
11.9%
12.0%
26.2%
29.7%
48.8%
-7.1%
3.5%
43.8%
15.4%
12.9%
44.7%
13.3%
12.6%
43.9%
21.2%
1.7%
7.4%
6.4%
1.7%
20.0%
11.7%
1.9%
15.9%
11.7%
58.5%
41.4%
75.6%
4.7%
17.1%
67.6%
11.9%
16.5%
64.9%
11.9%
13.6%
30.1%
29.2%
44.9%
-5.4%
5.1%
40.4%
14.9%
13.1%
41.1%
13.1%
12.6%
-6.3%
0.0%
31.0%
-10.0%
1.5%
27.5%
8.8%
6.0%
28.2%
9.4%
6.0%
24.8%
23.3%
43.0%
-5.9%
5.0%
38.5%
14.2%
12.1%
39.3%
12.7%
11.7%
Source: Company data, HSBC estimates, *Includes Kizashi an executive segment car.
15
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Autos
28 November 2011
The dawn approaches

Strong market growth, normalising competition and robust product
pipeline point to a pick-up in sales in FY13e

Along with margins likely bottoming in FY12, we see EPS growing
at a strong CAGR of 27% for FY12-14

We initiate with an OW rating and a target price of INR1,200
Maruti will have a disappointing FY12 in our view,

with sales set to fall 6% and EBITDA margin down
150bps. Headwinds are likely to persist near term as
well, as margins remain under pressure and the sales
growth revival is gradual. However, we see margins
bottoming and competition peaking, with both set to
normalise in FY13/14.
As a result, Marutis earnings are expected to grow
at a CAGR of c27% in FY12-14. Aside from
robust industry growth and an improving EBITDA
margin, we see the company benefiting from
stronger go-to-market with the labour disputes
behind it and a slew of new models in the pipeline.
Chart 3.2: EBITDA margin and EPS growth rate
350
35%
27%
25%
22%
20%
19%
25%
14%
10%
15%
5%
1%
5%
-4%
250
200%
150%
200
100%
150
50%
100
0%
-50%
50
Net Sales
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
-5%
16
300
y-o-y growth (LHS)
300%
250%
270%
16%
12%
105%
57%
8%
32%
-30%
-11% 4%
0%
EBITDA Margin
Source: Company data , HSBC estimates
FY09
FY10
FY11
400
FY00
FY01
FY02
FY03
FY04
FY05
42%
45%
FY06
FY07
FY08
Chart 3.1: Revenue growth trend
We believe competition is likely to moderate after

the highs of FY12. While in some segments, (like
minis) competition might increase, in others (such
as compacts and super compacts) competition is
likely to moderate as the initial euphoria around
new launches subsides. Along with the launch of
new models in 2012, the company should regain
some lost market share. Maruti recently launched
its new Swift at a slightly lower price than the
previous model.
y -o-y grow th (LHS)
abc

Autos
28 November 2011
Mini (A1 class), compact (A2 class) and supercompact (A3 class) cars are the three largest
segments of the overall passenger car market
(accounting for around 84% in 2Q12). Maruti has
the dominant market share in all three segments. In
the past few quarters, competition has increased
significantly in compact and super compact cars, as
global OEMs have aggressively targeted the two
segments with new models. Consequently, Maruti
has lost market share in most of segments. We
discuss in this section if Maruti can regain some of
the lost ground or will continue to lose share.
We believe mini cars are particularly attractive to

first-time buyers in tier-two and tier-three towns and,
therefore, are highly influenced by Marutis broadbased distribution and servicing strength.
Chart 3.4: A1 segment trends
45%
A1
A2
A3
A4
Total passenger cars
Utility Vehicles
Vans
Exports
Total Sales
FY13e CAGR FY12-14e
-3.6%
-16.3%
-5.8%
1.9%
-7.1%
7.4%
4.7%
-5.4%
-10.0%
-5.9%
11.5%
23.5%
19.9%
11.7%
15.4%
20.0%
11.9%
14.9%
8.8%
14.2%
10.4%
18.6%
17.4%
11.9%
13.3%
15.9%
11.9%
13.1%
9.4%
12.7%
Mini segment
The mini segment includes small hatchbacks, such
as the M800, A-Star, Alto and Wagon R. Maruti has
the dominant position in this segment, with around
an 80% share, and has only a few competitors
primarily Santro from Hyundai and Spark from GM.
85%
85%
83%
35% 80%
78%
30%
81%
79%
20%
75%
% share of A1 in the total market

Mark et share of Maruti in A1 (RHS)
Source: Company data, HSBC
While we do not envisage any meaningful threat to

Marutis dominance in this segment in the near term,
we believe two key risks are worth highlighting:
The segment is shrinking, as car owners are
upgrading to bigger and more expensive cars.
The compact and super-compact segments are
increasing as a proportion of the overall market.
Competition in this segment is increasing.
Hyundai launched its 800cc Eon recently and its
distribution capabilities are as strong as
Marutis. The new Eon poses a particularly
significant threat to the market share of Maruti
Chart 3.6: Maruti passenger car profile
100%
100%
60%
80%
43%
46%
44%
20%
29%
27%
25%
58%
59%
62%
FY10
FY11
60%
40%
40%
38%
36%
33%
0%
80%
25%
Chart 3.5: Passenger car market
80%
90%
86%
40%
Chart 3.3: Maruti sales volume growth estimates by segment

FY12e
89%
50%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
Sales analysis
20%
0%
FY10
A1: Mini
A3: Super Compac t
A5: Ex ecutiv e
Source: Company data, SIAM, HSBC
FY11
2Q12
A2: Compac t
A4: Mid-Size
A6: Premium
A1: Mini
A3: Super Compac t
A5: Ex ecutiv e
2Q12
A2: Compact
A4: Mid-Size
A6: Premium
17
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Autos
28 November 2011
Table 3.1: Eon vs. other models

Eon vs. Models
Risk of Market
Share Erosion
Price
comparison
Specs comparison
Customer segment
Comments
M800
Low
Lower
Perceived as an outdated model
Alto
High
Comparable
Comparable. Lower power output
Wagon-R
High
Higher
A-Star
Spark
Medium
Medium
Higher
Higher
Santro
High
Higher
Power/weight ratio modestly higher but fuel

efficiency lower.
Larger engine.
Power/weight ratio modestly higher but fuel
efficiency lower.
Same platform/parts. Larger engine
Less overlap: Rural and loyal Low priced. Customer segment not
customers
entirely comparable.
High overlap
If priced competitively, Eon poses major
threat to Alto
High overlap
Medium Overlap
Medium Overlap
Low market share due to factors like

style, free maintenance contracts
New models perceived as improvements
on previous products
Medium Overlap
Source: Company data, HSBC.
Alto. Assuming Eon takes a 6% market share in

FY13 and market growth in the mini segment is
14%, Marutis overall growth in the segment
should be limited to 11%.
Eon vs. Alto
Based on the reviews and specifications, the Eon

outclasses the Alto. The Eon has an 815cc, 3cylinder engine similar to the Altos 796c, 3cylinders) engine, but with significantly more power
(56PS compared to that of 47PS). The fuel economy
for the Eon is claimed to be 21.1km per litre, which
is better than the Altos 19.7km per litre.
Pricing is very competitive as well with the base Eon
model (without AC and power windows) costing
INR269,000 ex-showroom in Delhi compared to
INR250,000 for the base Alto model. Including airconditioning, power windows and power steering,
the Alto LXi and Hyundai Eon Era are priced the
same. Recently launched models (like the A-Star)
have not been able to sustain their pricing after the
initial hype, partly owing to their high price tags
versus existing models in the segment. The Eon, on
the other hand, adopts some parts from Hyundais
Santro and i10 models in order to keep costs
contained and offer better value for money.
In Chart 3.7, we compare cars in the mini segment
and ranked them based on major specifications.
Subsequently, we compare Eon and Alto, based on a
18
web chart which suggests the Eon is more

competitive on many fronts.
Chart 3.7: Hyundai Eon
Maintenance
Pick up
Price*
8
7
6
5
4
3
2
1
0
Engine
Capacity
Power
Top Speed
Torque
Width
Mileage
Wheelbase
Eon
Alto
Source: Overdrive, BS Motoring, Autocar, major news paper articles, HSBC
Eon will also benefit from the extensive dealer

network and service centres established by Hyundai,
in our view. Hyundai planned to increase its network
of sales outlets in rural areas to 1,000 by the end of
September 2011 from the around 700 they had in
July. Maruti currently has a sales network of 933
outlets and 2,946 service centres as of 31 March
2011. Maruti enjoys significant goodwill in the mini
segment and its cars are perceived as low
maintenance compared to Hyundai.
A1:Mini - M800, A-Star, Alto, Wagon R

A2:Compact Swift, Estilo, Ritz
A3: Super Compact - DZire
A4: Mid - Size - SX4
A5: Executive - Kizashi
Vans
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
80.8%
32.5%
87.5%
14.2%
0.0%
46.4%
70.1%
83.0%
31.9%
85.8%
13.8%
0.0%
47.6%
75.3%
85.9%
30.7%
83.4%
15.4%
0.0%
48.2%
75.1%
86.8%
32.5%
87.2%
11.3%
0.0%
51.8%
77.0%
88.6%
26.6%
71.9%
23.5%
0.9%
47.5%
74.9%
82.7%
29.0%
54.5%
17.1%
1.0%
44.8%
70.9%
78.8%
23.5%
54.7%
8.8%
0.5%
41.1%
61.1%
16.0%
67.1%
21.5%
23.0%
37.9%
25.0%
32.9%
-3.7%
27.4%
36.8%
-20.3%
28.2%
27.3%
-26.4%
19.5%
3.2%
-23.7%
-0.6%
-20.0%
-16.3%
-19.6%

Autos
28 November 2011
Table 3.2: Maruti Suzuki market share by segment in the past few quarters
Y-o-y
Total passenger cars domestic
Exports
Total vehicles
Comments
Guided for flat exports in
FY11
Expansion in South Africa,
LATAM, Australia to offset
Europe weakness
A2 market share increased

due to the launch of Alto
K10
Higher realisation in ASPs improved near 3% Employee strikes adversely

domestics offset by lower in
q/q affected sales and capacity
exports
utilization
Exports fell sharply due to Discounts remain high but Discounts in 2Q increased
slowdown in Europe enquiries have improved to INR 13,500 per vehicle
compared to INR9,500 in
1Q
Footfalls and conversion Dealer enquires have gone
Demand outlook after
rate on a declining mode
up by near 10% festive season looks bleak
Discounts were up 1200
Rates hike and petrol
y/y, down q/q
prices have marred
demand
North is weak while west is
Swift, SX4and Dzire
the strongest
affected. the worst with
production losses of near
12,000/2,000/9,000
Europe is now only 33% of
exports from 80% y/y
abc
19
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Autos
28 November 2011
Chart 3.8: A1 - Maruti likely to see market-share erosion in

the mini segment due to introduction of new small cars.
83%
700, 000
50%
84%
79%
77%
78%
80%
77%
76%
30%
200, 000
72%
FY14e
FY13e
FY11
32%
31%
35%
29%
27%
24%
30%
25%
20%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
74%
FY12e
35%
300, 000
FY10
400, 000
FY09
34%
28%
40%
78%
76%
40%
36%
36%
45% 32%
82%
600, 000
500, 000
Chart 3.9: A2 segment trends

Market share of Maruti in A2 (RHS)
A1:Mini - M800, A-Star, Alto, Wagon R


As can be seen in the chart below, the compact

segment has seen a deluge of competition with
new launches like the Ford Figo, Hyundai i20,
VW Polo and Nissan Micra taking material
market share in the past two years. Established
models like Marutis Estillo, Tatas Indica and
Hyundais i10 have consequently lost market
share to the new challengers.
Compact segment
The compact segment is the largest segment in
passenger vehicle market with around a 45%
market share. Competitive intensity is highest in
this segment and not surprisingly Maruti has lost
the most market share in the past few quarters.
Side effects of a growing market is increased
competition
A spate of new launches has been scheduled in the

coming quarters, which will add to the pressure on
established models. However, we believe the
competitive pressure will recede in FY13 versus
FY12 for a number of reasons. Firstly, initial
euphoria over new launches should subside in
FY13. There will be fewer launches by brands
The compact segment has been the fastest

growing segment of the market as its proportion
to the total market has increased to 43.4% in
2Q12 from 35% in 4Q09, largely driven by
existing car owners upgrading from minis and
new aspiring first-time buyers.
Chart 3.10: Market Share changes (bps) of various models in the compact segment since 1QFY09
1,500
1093
936
815
1,000
476
76
Jazz
788
133
Punt o
500
433
227
-4
- 209
(500)
- 667
(1,000)
(1,500)
- 1014
- 1322
- 1132
Liva
Micra
Fabia
Polo
Palio
Aveo
Beat
i20
i10
Get z
Figo
Indigo
Indica
Estillo
Ritz
Swift
Source: SIAM, Crisil, HSBC estimates
20
- 177 - 121
- 339
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Autos
28 November 2011
other than Maruti in FY13 versus the previous

year and monthly sales of the new cars launched in
2011 are already moderating. Additionally, Maruti
itself is launching new products and hopefully will
not see a repeat of the production disruption caused
by labour disputes in the last few quarters.
It is noteworthy that car buyers in this segment are
highly cost conscious; the higher cost of servicing
is likely to impact the customer wins by FY13,
when the free servicing schedule is over.
Overall, we expect Marutis market share to recover
modestly in FY13 and remain stable thereafter.
Chart 3.11: Compact segment growth and market share
estimates
320,000
32%
34%
280,000
35%
30%
240,000
27%
200,000
160,000
27%
30%
25%
Super compact segment

The super compact segment is a critical growing
segment for Maruti; while it accounts for just 10% of
the market, it is growing faster than the overall
market. Super compact cars usually include entry
level sedans and, therefore, represent the first
upgrade for compact car owners. Mid-size cars
attract buyers who want the cabin space and storage
of a sedan but are cautious about cost of ownership.
With better fuel economy, diesel car sales are,
therefore, particularly picking up in this segment.
Maruti has a very strong product for this market.
DZire comes in both petrol and diesel versions
and has been a phenomenal success for the
company. In the past few months, Toyota Etios
has taken significant market share, helped by
disruption in the production of Dzire due to the
labour strikes.
25%
120,000
80,000
FY14e
FY13e
FY12e
FY11
FY10
FY09
20%
A2:Compact Swift, Estilo, Ritz

Source: Company data, SIAM, HSBC estimates
Chart 3.13: Market share shift since 1Q09
3,000
2,628
2,500
2,000
1,500
1,000
500
(500)
(252)
(406)
(1,000)
(849)
(1,500)
(1, 124)
Fusion
Etios
Ac cent
Logan
Dzire
21
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Autos
28 November 2011
Chart 3.12: Maruti share trends in the A3 segment
100%
90%
80%
6%
4%
54%55% 60%
70%
2%
0%
50%
40%
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Overall, we estimate DZire sales will grow 23%

in FY13, compared to market growth of 11%,
leading to a market share gain of around 450bps
for FY13.

Table 3.3: DZire Vs competing models in the segment
Model
Variants
Engine type
Engine
capacity
Power (HP)
Mileage
Wheel base
Comments
Etios
Accent
Logan
INR
499,000714,000
6
INR
496,000682,000
7
INR
524,000562,000
3
INR
550,000636,000
13
150,000
Petrol Petrol/Diesel
1500cc 1460-1600cc
60,000
Petrol/Diesel Petrol/Diesel
1248cc
1496cc
75-85
90
15.4 kmpl 14.5 kmpl
2390mm
2550mm
+ Built on Competitive
the hugely features and
successful
pricing.
Swift + Spacious
platform.
+ Better pick
+The quality
up and
of interiors is
power to
superior. weight ratio.
+ Features - Cheaper
like climate
looking
control are a
interiors
positive
94
65
9.5 kmpl
16 kmpl
2440mm
2630mm
- Low
+Fuel
mileage efficient and
spacious
car.
- Design and
interiors
reviews are
negative.
Source: HSBC, Overdrive
We believe Maruti will come back strongly in the

super compact market and DZire will remain one
of the primary earnings growth drivers for the
company for the following reasons:
Production of around 12,000 units or about
25% of the DZires total annual output was
disrupted in FY12. We expect that to reverse
adn the pent-up demand will be met in FY13.
The new DZire, scheduled for late 2011 or
early 2012, has been designed under 4 metres
long to qualify for lower excise duty. This
22
Chart 3.14: New Dzire to boost sales in this segment for

Maruti
Dzire
120,000
90,000
90%
82%
76%
80%
69%
64%
66%
70%
59%
30,000
60%
50%
FY14e
Price Range
Inherent demand for diesel engines is likely to

remain strong as the running cost of petrol
cars has been on the rise. Maruti plans to
increase its diesel capacity and also enter into
procurement deals with Fiat for diesel engines.
FY13e
72%
FY12e
87%
83%
FY11
89%
F Y10
87%
FY09
12%
10% 80%
8%
will reduce the price of the car and make it

more competitive.
A3: Super Compact - D'zire

Market s hare of Maruti in A3 (RHS)
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Autos
28 November 2011
Mid-size segment
The mid-size (A4 class) segment sales account for
about 6% of the total market. The segment is
highly volatile, both in terms of competition,
market share shifts and growth. The volatility in
this segment is illustrated by the VW Vento,
which was launched only four quarters ago and is
already the market leader with around a 25%
market share.
We believe as production is streamlined at the

Maruti plants, sales of SX4 will get back on track.
We expect SX4 to growth at a healthy rate in
FY13, in line with the overall market.
Chart 3.16: Mid-size segment growth and market share
estimates
13%
14%
14%
14%
13%
14%
25%
12%
12,000
10%
2%
0%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
F Y14e

10%
5%
FY13e
15%
9%
FY12e
10%
FY11
16%
15%
14%14%
11%
11%11%11%
20%
FY09
14%
17%
FY10
8,000
10% 18%
8%
6%
4%
16%
24,000
16,000
23%
12%
18%
28,000
20,000
Chart 3.15: Maruti share trends in the A4 segment
17%
32,000
C segment

Marutis SX4 lost market share in the past two

quarters, largely due to the production disruptions
caused by the strikes and the launch of competing
products by OEMs, such as Hyundai Verna and
VW Vento.
C segment has been the most resilient business

segment for Maruti. We have included both utility
vehicles and vans in the C segment for illustration
purposes. Maruti does not have much presence in
the utility vehicle market, but has a dominant
position in van and has strong product portfolio,
including Omni and Eeco. Both these vans are
extensively used in both tier-two cities for
personal purposes and cities for commercial
Chart 3.17: Change in market share since 1Q09
3,000
2, 467
2,500
2,000
1,500
1,000
500
(1,000)
(84)
(195)
(496)
Lancer/Cedia
370Z
Vento
SX4
(239)
City
Fiest a
Ikon
(782)
(217)
Verna
(261)
Aveo
(500)
Source: Crisil, HSBC estimates
23
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Autos
28 November 2011
purposes. Increasingly, Eeco has been used as city

taxis in tier-two cities. These vans have larger
space and can be used as shared cabs in smaller
towns. The expected launch of new SUVs in
4Q12 should help Maruti to gain some market
share in SUVs, which have largely been missing
from its portfolio.
Chart 3.18: Maruti remains the market leader
240,000
200,000
80%
76%
73%
75%
160,000
120,000
68%
67%
65%
80,000
66%
70%
65%
40,000
FY14e
FY13e
FY12e
FY09
FY11
60%
FY10
C: Omni, Versa. Eec o

Market share of Maruti in Vans (RHS)
Table 3.4: Maruti growth estimates and market share by segment
A1
Maruti
Market
Market Share
A2
Maruti
Market
Market Share
A3
Maruti
Market
Market Share
A4
Maruti
Market
Market Share
Maruti
Market
Market Share
Utility Vehicles
Maruti
Market
Market Share
Vans
Maruti
Market
Market Share
Maruti
Market
Market Share
Exports
Maruti
Market
Market Share
Total Sales
Maruti
Market
Market Share
Source: Company data, HSBC estimates.
24
FY11
FY12e
FY13e
CAGR FY12-14e
28.7%
20.4%
83.0%
-3.6%
1.2%
79.1%
11.5%
13.1%
77.9%
10.4%
12.6%
18.5%
35.5%
30.0%
-16.3%
1.0%
24.9%
23.5%
14.0%
26.9%
18.6%
13.5%
29.1%
39.0%
76.1%
-5.8%
20.9%
59.3%
19.9%
10.0%
64.6%
17.4%
10.5%
48.4%
15.4%
17.1%
1.9%
24.3%
14.0%
11.7%
12.0%
14.0%
11.9%
12.0%
26.2%
29.7%
48.8%
-7.1%
3.5%
43.8%
15.4%
12.9%
44.7%
13.3%
12.6%
43.9%
21.2%
1.7%
7.4%
6.4%
1.7%
20.0%
11.7%
1.9%
15.9%
11.7%
58.5%
41.4%
75.6%
4.7%
17.1%
67.6%
11.9%
16.5%
64.9%
11.9%
13.6%
30.1%
29.2%
44.9%
-5.4%
5.1%
40.4%
14.9%
13.1%
41.1%
13.1%
12.6%
-6.3%
0.0%
31.0%
-10.0%
1.5%
27.5%
8.8%
6.0%
28.2%
9.4%
6.0%
24.8%
23.3%
43.0%
-5.9%
5.0%
38.5%
14.2%
12.1%
39.3%
12.7%
11.7%
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Autos
28 November 2011
Charts 3.19: Marutis recent sales profile

A) Marutis market share and y-o-y growth in the Mini
segment
B) Marutis market share and y-o-y growth in the Compact

segment
60%
90%
150%
40%
40%
85%
100%
35%
80%
50%
30%
75%
0%
25%
70%
-50%
20%
20%
0%
-20%
-40%
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
y -o-y
y -o-y
C) Marutis market share and y-o-y growth in the Mid-Size

segment
D) Marutis market share and y-o-y growth in the Super

Compact segment
200%
25%
80%
90%
20%
60%
80%
150%
100%
15%
40%
70%
20%
60%
50%
10%
0%
5%
-20%
50%
-50%
0%
-40%
40%
0%
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
y -o-y
2Q09
1Q09
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Mark et s hare of Maruti in A4 (RHS)
y -o-y
E) Marutis market share and y-o-y growth in the total

domestic passenger cars segment
F) Marutis market share and y-o-y growth in the Vans and

SUV segment
55%
40%
30%
20%
10%
0%
-10%
-20%
-30%
50%
45%
40%
75%
60%
70%
40%
65%
20%
60%
0%
55%
-20%
50%
2Q11
1Q11
Market share of Maruti in Vans
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
80%
80%
1Q09
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Market share of Maruti in Total passanger cars

y -o-y
100%
y -o-y
25
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Autos
28 November 2011
Profitability outlook
Chart 4.1: Increase in prices of primary raw materials since

3QFY10
Maruti has seen its EBITDA margin fall by about

900bps since 3QFY10 (see Chart 4.2). The
decline in profitability could be attributed to
multiple reasons: 1) Japanese yen depreciation as
the company has imports 22-25% of its costs in
yen (including royalty payments); 2) a decline in
export realisation due to euro fluctuations; 3) raw
70%
60%
50%
40%
30%
20%
10%
0%
52%
39%
34%
27%
23%
9%
Rubber
Cast I ron
Copper
Aluminium
Galvanised
CR s teel
HR Steel
material price increases; 4) an increase in royalty

rates to parent Suzuki; and last but not least 5) a
fall in production/sales of higher-margin products.
We discuss each of these margin drivers in detail.
58%
Raw material costs
Slower growth in higher-margin products
An increase in raw material prices has materially

impacted margins in the past few quarters. As seen
in Chart 4.2, the cost of most of the key raw
materials has gone up 10-60% since 3QFY10.
Assuming raw material costs remain constant at the
current levels, margins should remain stable or
improve sequentially. However, on a full-year basis,
FY12 margins would still fall 150bps versus FY11.
In FY13, however, assuming commodity prices
remain at the current levels, EBITDA margins
should increase 50bps, in our view.
Labour issues at the Manesar plant and the

planned pull-out before the launch of the new
DZire impacted sales of one of the highest margin
Swift models, impacting profitability. The Swift
range (including the DZire sedan) accounts for
25% of the companys total unit sales, about 30%
of revenues and we estimate even more in terms
of profits. Additionally, around 80% of Swift unit
sales are now diesel models, which have a higher
selling price. We believe improving sales of Swift
in the coming months should contribute positively
to the companys margins.
Chart 4.2: Profitability trend

20%
16.4% 16.1%
15.5%
15.0%
15%
13.5%
12.5% 13.0%
12.1% 12.1%
10.7%
10.7% 10.7%
9.2%
10%
9.7% 10.2% 9.8%
6.6%
6.6%
5%
0%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10 2Q10
EBITDA margin
26
3Q10
4Q10 1Q11
2Q11
3Q11 4Q11
1Q12
2Q12
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Autos
28 November 2011
Table 4.1: EBITDA margins in the past few quarters
EBITDA margins
EBITDA margins change
yen q-o-q
Comments
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
10.7%
-284 bps
50.2
10.7%
09 bps
54.5
9.7%
-102 bps
55.0
10.2%
52 bps
55.0
9.8%
-45 bps
55.1
6.6%
-323 bps
62.5
Margins expansion ASPs improved near

due to change in 3% q/q due to higher
accounting policy proportion of diesel
car sales in the
quarter
Cost cutting helped
maintain EBITDA
margins
Commodity prices
kept high
Despite increase in
raw material costs
Utilization declined
owing to labour
issues
Steep margin fall due Price hikes in august

Annual staff cost
to 1) inc in royalty;
resulted in 40bps payout of INR522m
decline in raw came in this quarter
material cost
2) higher raw Discounts down 18% ASPs fell 1.5% due
y/y to EUR depreciation
material costs and
and adverse mix
lower exports revs
due to a weakening
EUR
Royalty payments Lower proportion of
approval increased A3 in 2Q resulted in
from 5% to 8%
lower domestic
realisations
Realisation of
exports declined due
to EUR
Royalty costs
increased due to
currency
depreciation
Chart 4.3: Contribution of Swift + DZire to total sales
Chart 4.4: EUR vs. INR

75
35%
30%
69 69
29%
30%
25%
26%
25%
24%
28%
70
26%
25%
24%
23%
22%
66
66
64 65
66
63
65
61
60
58
60
20%
65 66 66
64
55
15%
3Q12e
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
Source: Thomson One, HSBC estimates
Chart 4.5: Contribution of exports to the total sales

20%
15%
10%
9% 8%
13%
11%
15%15% 15% 14%

12%
11%
11%
9% 9%
6%
5%
0%
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
quarters, partly due to the economic slowdown in

Europe and partly because the company has made a
2Q10
The company was highly dependent on Europe for

exports. Europe used to contribute around 80% of
exports at the start of FY11. EUR/INR currency
fluctuations, therefore, significantly impact export
realisation. However, the companys exposure on
Europe has come down materially in the past few
1Q10
Export growth and realisation
4Q09
3Q09
% of total domestic sales
2Q09
1Q09
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
50
Exports as % of total sales
concerted effort to grow outside of Europe.

27
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Autos
28 November 2011
Table 4.2: EUR tailwinds
Exports in EUR
Exports in USD
Imports in USD
EUR/INR rate
y-o-y
Net impact on the top line
Impact on EBITDA margins
FY12e
FY13e
FY14e
4.0%
6.0%
6.0%
65.6
8.6%
0.3%
34 bp
4.0%
6.0%
6.0%
66.0
0.5%
0.0%
02 bp
4.0%
6.0%
6.0%
66.0
0.0%
0.0%
00 bp
As seen in the table above, EUR weakness should

contribute about 30bps to margins in FY12.
However, the full benefit may not flow through
as the company has hedged its EUR exposure for
FY12.
Yen exposure
The company has high yen exposure of about 22%

of sales. This includes direct exposure of near 7%
(including the royalty payments) and indirect
exposure of near 14-15%. The appreciation in the
yen impacted profitability in the past few quarters.
The company reported material marked-to-market
losses of INR760m in the recent 2Q12, including the
1Q royalty marked-to-market losses of INR500m
and the INR260m losses on commodity hedges.
While the yen appreciation should help reverse some
losses in 3Q, the 2Q payment to suppliers for
indirect imports is likely to nullify the benefit.
Chart 4.6: YEN to INR rate
64
65
60
60
54 55 55 55
53 53
55
51
52 52
50 50
50
45
40
42
40
EBITDA by 2%. With margins declining, the

impact rises to 2-4% of EBITDA.
Table 4.3: Yen sensitivity analysis
Proportion of revenues (%)
Yen denominated costs
Others in INR
EBITDA margin
22.0
66.0
12.0
Appreciation in YEN
Yen denominated costs
Others in INR
EBITDA margin
5.0%
23.1
66.0
10.9
Every 1% yen appreciation impacts EBITDA margin by

Every 1% yen appreciation impacts EBITDA by
22 bp
-1.8%
The company is targeting to reduce its indirect yen

exposure by 2-3% every year by increasing the
localisation of components. While that is positive,
the steep appreciation in the yen in the recent months
poses a significant headwind for the company.
Assuming the yen remains flat at the current levels,
the headwinds could persist in FY13. However, the
net impact is marginal for FY13 and we expect
profitability to improve in FY14.
Table 4.4: Impact of yen appreciation and localisation on EBITDA
INR per 100 yen
FY12e
FY13e
FY14e
Average YEN rate

y-o-y depreciation/(appreciation)
Yen denominated costs (volumes)
Impact on EBITDA margins
Due to YEN appreciation
Due to localisation
Net Impact on EBITDA margin
Net impact on EBITDA
60.6
12.8%
22%
63.6
5.0%
20%
63.6
0.0%
18%
-283 bp
00 bp
-283 bp
-24.6%
-109 bp
50 bp
-59 bp
-5.1%
00 bp
50 bp
50 bp
4.4%
3Q12e
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
The above analysis has not assumed hedging of the

yen by the company. As per the last reported quarter,
the company has hedged its direct exposure and is
looking to hedge its indirect exposure when the rate
is favourable.
Royalties to parent Suzuki
Source: Company data, HSBC estimates, DataStream
In our view, every 1% change in the JPY/INR rate

impacts Marutis EBITDA margins by 20bps and
28
Royalties to parent Suzuki increased in 1Q11 from

an effective 3.5% rate to 5% (4-7% range depending
on the model). Royalties on exports are charged 1pt
higher than on domestic sales. The increase in
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Autos
28 November 2011
royalties was largely attributed to the new K-series

engine (which has better fuel efficiency and power).
expand capacity from 750K to 1m units. This

capex, however, is likely to be spread out over the
Chart 4.7: Royalty as percentage of sales
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
5.2%
5.0%
4.7%
4.2%
3.3%
The third plant (after the Gurgaon and Manesar

plants) is likely to incur a capex of INR60bn to
next 3-4 years and thus should not stress return

ratios. Our FY13 capex estimate assumes no y-o-y
increase in capex.
3.5%
Chart 4.9: Capex (INRm)
40,000
FY09
FY10
FY11
FY12e FY13e FY14e
70%
60%
50%
40%
30%
20%
10%
0%
30,000
20,000
Roy alty
10,000
Depreciation costs likely to rise in FY13
Capex (LHS)
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY05
We believe royalty costs (in constant currency

terms, excluding the impact of the yen) should
continue to go down, as the company increases
localisation of components and its internal R&D
investments start to generate meaningful results. The
risk here is the introduction of a new engine/power
train by Suzuki, which would positively impact sales
but increase the royalty costs.
Capex as % of av erage net bloc k
While capex should stabilise after FY13,

depreciation costs are likely to go up in FY13 and
FY14. Already in 2Q12, depreciation cost went up
as the Manesar II plant was commissioned.
The company is on track to add capacity to its

Manesar plant. We believe it will have sufficient
capacity to achieve our FY13 estimates.
Chart 4.8: Utilisation
150%
100%
50%
0%
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
Utilisation
29
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Autos
28 November 2011
Table 4.5: Overall margin levers

FY12e
FY13e
y-o-y
Raw Material cost
Headwind on an y-o-y basis
50 bp
Royalty
Product mix
yen
Exports realisation
Pricing
Localisation
Others
Overall margin benefit in FY13e
Marginally lower
Improve as labour issues subside
Strong appreciation in yen negative
EUR depreciation
Unlikely to see material increase
22% exposure to yen
Duty drawback, operating leverage
Go down as percentage of sales assuming

commodity prices remain flat
Marginally lower due to localisation
50 bp
00 bp
-100 bp
02 bp
00 bp
50 bp
50 bp
102 bp
Assume flat at the current levels

EUR depreciation
Unlikely to see material increase
Down by 200bps
Duty drawback, operating leverage
Outlook for margins positive in FY13
Chart 4.10: EBITDA margin trends
Overall, the margin drivers are looking positive.

We expect FY12 to mark the bottom for the
EBITDA margin.
16%
30
14%
14%
12%
10% 10%
10%
10%
9%
9%
EBITDA Margin
F Y14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
8%
FY05
We see positive upside to our raw material cost

assumptions, the yen rate and operating leverage.
Downside risks are 1) an increase in royalties; 2)
slow progress in localisation; 3) product mix and
pricing not providing much support for margins as
competition in the compact and mini segment could
restrict Maruti to increase prices; and 4) higher diesel
car sales should lead to lower margins, due to higher
cost of procured diesel engines.
15% 16% 16% 15%
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Autos
28 November 2011
Charts 4.11: Cost trends

Raw materials as a % of sales
82%
82%
81%
81%
81%
80%
79%
Employee costs as a % of sales
80%
80%
80%
79%
79%
78%
78%
2.5%
77%
3%
2%
3%
2% 2%
2.3%
2%
2% 2%
2%
2.1%
78%
77%
78%
2.9%
2.7%
80%
2% 2%
1.9%
76%
2%
2%
2%
1.7%
76%
1.5%
Other expenses as % of sales
EBITDA margin
14%
13%
12%
13%
11%
12%
11%
11%
10%
10%
11%
10%
10%
1
0%
10%
10%
9%
10%
9%
9%
8%
7%
6%
20%
15%
13% 13%
15% 12%
11% 11%
9%
10%
7%
5%
0%
16% 15% 15%

15%
14%
14%
13%
4%
4%
3%
4%
11%
10% 10%10%
3%
3%
3% 3%
11%
2Q12
1Q12
4Q11
Depreciation as % of sales
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
Excise duty as % of net revenues
12%
12%
12%
10% 10%10%
7%
Source: Company data
12% 12%
13%
11%
12%
11%
10%
9%
8%
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
3%
3%
10%
3%
3% 3%
3%
3%
3%
2%
3%
2%
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
31
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28 November 2011
Valuation
Our valuation for Maruti is DCF-based to reflect long-term growth
and is validated by relative PE

The stock trades at 11x FY13e PE, close to a 25% discount to its
historical average
Initiate with OW rating and TP of INR1,200, implying a 14x FY13e
PE; EPS forecast to grow at FY12-14 CAGR of 27%
We expect cash flows to stabilize after FY13 and

grow at a CAGR of 17% during FY14-20, while
revenue should rise at a 10% CAGR in the same
period. Our positive view on cash flow growth
relative to sales is based on the expectation that
32
Chart 5.1: Capex requirements as per the net block is high

due to highly depreciated assets
40,000
70%
60%
50%
40%
30%
20%
10%
0%
30,000
20,000
10,000
Capex (LHS)
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
Marutis cash conversion has been fairly stable in

the past five years, with 83-100% of EBITDA
translating to operational cash flow. Its capex
requirements, however, have shot up to an
average of 7.7% of revenues in those five years
during FY07-11, compared to an average of 2.2%
in the prior five years prior during FY02-06.
Through this spending, Maruti doubled its
capacity from 700,000 to 1,400,000 vehicles per
annum from in FY07 to FY11, and is likely to
continue to expand capacity. Therefore, we
estimate Marutis capital requirements to remain
high at 8% of revenues in FY12-13, which in turn
should impact free cash flow in the short term.
capex will decline as a percentage of sales to 4%

by FY20.
FY05
We are positive on the overall outlook for car

demand in India and expect Maruti to grow in line
with or marginally slower than the market. We
believe Maruti will have a market share of 44.5%
as of the end of FY13.
Source: Company data, HSBC estimates.
Maruti has also been efficient in managing its

cash conversion days, which has been less than
zero in the past four years. We believe Maruti can
continue to operate on the working capital of its
suppliers by virtue of their investments in building
a cost-effective ecosystem of suppliers around
their manufacturing plants and significant
purchasing power.
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Autos
28 November 2011
Valuation methodology
Initiate coverage with OW rating
Our valuation is based on DCF analysis and

validated by both PE and EV/EBITDA multiples.
While PE is the most followed valuation
methodology, we believe the long-term growth
trend can only be captured via the DCF analysis.
In addition, we also focus on EV/EBITDA due to
the capital intensive nature of its operations.
DCF-based target price of INR1,200
The assumptions of our DCF model are in Table

5.1. We use WACC of 10.3% based on a risk-free
rate of 3.5% and cost of equity of 11%. This
values the company at INR1,405.
Table 5.1: Historic valuation range and DCF summary for Maruti
Under our research model, for stocks without a

volatility indicator, the Neutral band is 5ppts above
and below the hurdle rate for Indian stocks of 11%.
As the potential return is above the Neutral band, we
initiate coverage on the stock with Overweight
rating. Potential return equals the percentage
difference between the current share price and the
target price, including the forecast dividend yield
when indicated.
Validated by PE and EV/EBITDA
The stock is currently trading at 11x our FY13e

EPS. At our target price, the stock trades at an
implied 14x FY13e EPS. This is in line with the
10-year historical average 12-month forward PE.
DCF Target Price

Value per share
Implied PE on FY13e EPS
5-year max PE
5-year Min PE
Currently trading on FY13e EPS
1,405
16.2x
1,200
13.8x
13.7x
14.0x
20.2x
4.9x
11.0x
Chart 5.2: PEG ratio for Maruti Suzuki based on two yr EPS
growth - 12 month forward
1.5x
1.0x
Source: Company data, HSBC estimate, DataStream. Repriced on 23rd Nov 2011]
0.5x
MARUTI SUZUKI INDIA
2011
2010
2009
2008
2007
2006
0.0x
2005
We apply a discount of around 15% to this DCF

valuation to reflect near-term concerns over
growth and margins; near-term margins are likely
to be impacted by yen appreciation and the slow
ramp-up in production in light of the recent labour
strikes. This leaves us with a target price of
INR1,200, which implies a potential return of
26.6%, inclusive of a dividend yield of 0.8%.
Av g - 10 yrs
Source: Datastream, HSBC. (EPS growth of two year CAGR used)
We believe the stock will recover its past earnings

growth momentum after FY12 and in that context
should post an EPS CAGR of 27% for FY12-14.
Table 5.2: DCF assumptions

FY12e
FY13e
CAGR FY13-18e
CAGR FY18-25e
Total domestic PV market sales growth (Cars + UVs+ Vans)

Total domestic Car sales growth
Total domestic UV + Vans market growth
5.6%
3.7%
12.5%
13.4%
13.4%
13.7%
13.1%
13.6%
11.4%
7.0%
7.3%
5.8%
Market share of Maruti in Domestic Cars

Total Sales (Domestic + Exports) Growth rates of Maruti
EBITDA margins
43.7%
-6.0%
8.4%
44.5%
14.2%
9.9%
10.8%
6.2%
Terminal growth assumed

Total PV
Value per share
4%
405,796
1,405
33
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Autos
28 November 2011
Chart 5.2 illustrates the dip in PEG ratio well

below 1 and as well as its own average of the last
five years, which includes the previous
recessionary cycle. We believe Marutis 14x PE
valuation implied by our target price is justified
even after discounting the streets concerns over
market share losses.
Furthermore, its EV/EBITDA stands at just 4.7x
on FY13e estimates, well below the 10-year
average 12-month forward EV/EBITDA of 7x.
Our target price of INR,1200 implies an
EV/EBITDA multiple of 6.4x, which still
represents a discount of around 10% to the
historical average.
Table 5.3: Past cycle and corresponding valuations
CAGR Revenue
CAGR earnings
Max PE
Min PE
Average PE
FY05-10
FY10-12
13.2%
7.4%
22.8x
7.9x
14.3x
11.1%
-15.0%
17.4x
11.2x
13.5x
FY12-14
CAGR Revenue
CAGR earnings
Current EV/EBITDA on FY13e EBITDA
16.7%
26.9%
15.3x
11.0x
4.7x
Source: Company data, HSBC estimate, DataStream. Repriced on 23rd Nov 2011
34
Risks
An increase in competition from global OEMs
could put further pressure on market share. The
potential success of new rival launch always
remains a threat.
Car buyers in India are upgrading to bigger models
in the A3 and A4 segments, which is not Marutis
core strength. In the long term, we believe this
remains the key structural risk for the company.
The recurrence of industrial relations disputes
with workers is a risk to our production forecasts.
Japanese yen appreciation could severely impact
profitability. Maruti imports 23-25% of its raw
materials costs in yen (including royalties). Maruti
has partially hedged its exposure in yen, but the
impact on earnings from yen appreciation could
still be meaningful (see section on margins for
detailed sensitivity analysis).
A further increase in commodity prices is also risk
to margins.
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28 November 2011
Charts 5.3: Financial ratios at a glance

Net assets to gross assets
We expect cash conversion for Maruti to remain robust
50%
105%
45%
95%
40%
85%
35%
30%
75%
25%
65%
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
N et Assets to gros s as sets
Operating cash flow s to EBITDA
Return on average capital employed
Return on assets
30%
19%
17%
15%
13%
11%
9%
7%
5%
25%
20%
15%
10%
5%
0%
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY05
ROACE (excl. cash)
ROA
Asset turnover ratio
Capex as a % of sales expected to increase due to capacity

expansion plans
2.0x
40,000
1.8x
30,000
1.6x
20,000
1.4x
10,000
1.2x
Capex (LHS)
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY14e
FY13e
FY12e
FY11
FY10
FY09
FY08
FY07
FY06
FY05
Ass et turnov er
70%
60%
50%
40%
30%
20%
10%
0%
35
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28 November 2011
Charts 5.4: Valuation trends

Maruti EPS revision chart
Maruti - PE Band
120
2500
110
2000
100
1500
90
89.04
1000
2012
Source: Factset, HSBC
Source: Datastream
Maruti 12-month forward PE
Maruti vs. sector
2011
2010
2010
2009
2009
MS
PE - 20
2011
24
2008
2008
Oct 11
Jul 11
Apr 11
Jan 11
Oct 10
Jul 10
Apr 10
Jan 10
Oct 09
Jul 09
Apr 09
2013
500
2007
68.38
60
2007
70
2006
80
PE - 10
PE - 30
250.00
21
200.00
18
150.00
15
100.00
12
50.00
Source: Datastream
36
Av g - 10 y rs
CNX Autos (4W)

Source: DataStream, HSBC
MSCI Auto
Nov-11
May-11
Nov-10
May -10
Nov-09
May-09
Nov-08
May -08
Nov-07
May-07
200 3
200 4
200 4
200 5
2005
2006
2006
2007
2007
2008
2008
2009
2009
201 0
201 0
201 1
Maruti Suz uki

Av g - 5 yrs
Nov-06
0.00
Maruti
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28 November 2011
Table 5.4: Maruti Suzuki Limited : Summary of Financials

All figures in INRm unless otherwise stated
FY11
FY12e
FY13e
FY14e
361,282
7,403
370,400
333,756
36,644
10,135
4,823
244
31,088
8,101
22,886
22,235
79.2
76.9
289
8
356,328
9,386
365,714
334,925
30,790
11,703
5,573
155
24,505
6,475
18,030
18,030
62.4
62.4
289
8.0
422,985
9,306
432,291
389,114
43,177
14,698
5,435
155
33,759
8,711
25,049
25,049
86.7
86.7
289
10.0
487,679
10,729
498,408
447,888
50,520
17,195
5,962
155
39,132
10,108
29,025
29,025
100.4
100.4
289
10.0
138,675
3,093
143,412
154,000
3,093
158,737
175,667
3,093
180,404
201,311
3,093
206,048
69,580
51,067
25,085
14,150
8,933
63,563
35,540
35,540
22,765
143,412
88,165
51,067
23,709
13,764
8,786
61,654
36,704
36,704
19,505
158,737
107,306
51,067
28,979
15,991
10,430
70,795
42,643
42,643
22,031
180,404
119,372
51,067
44,988
18,406
12,025
90,814
49,084
49,084
35,609
206,048
31,088
10,135
36,405
25,592
24,103
982
25,085
24,505
11,703
31,617
30,288
(1,376)
25,085
23,709
33,759
14,698
42,491
33,839
5,271
23,709
28,979
39,132
17,195
48,650
29,261
16,008
28,979
44,988
Profit & Loss

Net Sales
Operational other income
Total operational income
Total Costs
EBITDA
Depreciation
Non-Operational Other Income
Interest Expense (Total)
PBT
Tax
Adjusted profit
Net Profit
Adjusted EPS (INR)
EPS (INR )
Shares Outstanding
Dividend (INR/share)
Balance Sheet
Total Equity
Loan Funds
Total Funds Employed
APPLICATION OF FUNDS
Net Fixed Assets
Total investments
Cash, Bank Bal & Deposits
Inventory
Sundry Debtors
Current Assets
Sundry Creditors
Current Liabilities
Net Current Assets
Total Net Assets
Cashflow Statement
Profit Before Tax (adjusted)
Depreciation
Operational Cash Flow
Fixed Assets Purchase
Net Cash flow
Beginning Cash Balance
Ending Cash Balance
37
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28 November 2011
Table 5.5: Maruti Key ratios and drivers

FY11
FY12e
FY13e
FY14e
9.9%
7.2%
6.0%
79.8%
1.9%
2.8%
2.7%
5.2%
26%
298,551
8.4%
5.2%
4.9%
80.7%
2.1%
3.1%
2.9%
5.2%
28%
307,271
10.0%
6.6%
5.8%
79.9%
1.8%
2.9%
2.5%
4.9%
28%
316,740
10.1%
6.7%
5.8%
79.9%
1.8%
2.9%
2.4%
4.8%
28%
323,539
15
39
9
17.3%
16.0%
12.8%
2.0x
2.2%
6.9%
99.3%
40.8%
15.0
40.0
9.0
12.3%
10.8%
9.4%
1.8x
2.0%
8.5%
102.7%
7.0%
15.0
40.0
9.0
15.2%
14.3%
11.6%
1.9x
1.8%
8.0%
98.4%
30.4%
15.0
40.0
9.0
15.4%
15.4%
11.8%
1.9x
1.5%
6.0%
96.3%
58.2%
25.0%
1.8%
24.8%
-7.3%
-8.4%
-11.0%
-6.0%
2.9%
-1.4%
-16.0%
-21.2%
-18.9%
14.2%
3.1%
18.7%
40.2%
38.9%
38.9%
12.2%
2.1%
15.3%
17.0%
15.9%
15.9%
Ratios
EBITDA margin
EBIT Margin
Net Margin
Raw Material Cost
Employee Cost
Manufacturing., Administrative and other Expenses (Incl repairs)
Selling and Adv Expenses
Royalties
Tax rate
Realisation (blended)
No. of Days of Inventory
No. of Days of Creditors
No. of Days of Debtors
ROAE
ROACE (excl. cash)
ROA
Asset turnover
Debt/Equity
Capex as % of sales
Operating cash flows to EBITDA
FCF to EBIT
Growth rate (y-o-y)
Sales Volume
Realisation (blended)
Net Sales
EBITDA
Adjusted net profit
EPS growth
38
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28 November 2011
Annexure
Company Details
Maruti Suzuki India Limited is the largest car
manufacturer in India with more than 41% of
domestic car sales in 2Q12. Formerly known as
Maruti Udyog Limited, the company is now a
subsidiary of Suzuki Moto Corp (SMC) of Japan,
which holds a 54.2% share in the company.
The company is especially strong in the small car
segment with flagship models like the Maruti
800, Alto and Swift. The company boasts of 15
brands and over 150 variants catering to various
needs of an emerging India. We believe Maruti
has transformed its product portfolio from the
basic model like Maruti 800 into a deluge of
models with superior technology and features,
keeping itself in sync with the pulse of the market
demand. Please refer to Chart 6.1.
Maruti sold more than 1.27 million vehicles in
FY11. The company has two manufacturing
facilities located at Gurgaon and Manesar, with a
combined capacity of 1.2 million vehicles
annually. It plans to expand capacity to 1.75
million by end of 2013.
Table 6.1: Shareholding pattern
S.No
Holder Name
1
2
3
4
5
6
7
8
9
10
Suzuki Motor Corp

Life Insurance Corp
HSBC Global Inv
Reliance capital asset management
Bajaj Allianz
ICICI Prudential Life
Master Trust Bank
Vanguard Group
JF Asset Management
SBI Funds Management
% Outstanding
54.2%
10.0%
5.2%
1.9%
1.7%
1.4%
1.1%
0.9%
0.3%
0.3%
The company has been a regular payer of

dividends with an average payout ratio of 9.7%.
The strength of the company lies in its wide sales
and service network. Maruti has more than 933
sales outlets and 1,845 service outlets covering
1,395 cities and towns across India. It has also
expanded its sales beyond domestic markets to
key emerging geographies like Latin America,
Africa, South East Asia and Eastern Europe. To
serve this initiative, Maruti has been bringing out
new models labelled as World Cars fitting
diverse contemporary demands.
Table 6.2: Board of Directors
Name
Current Position
R. Bhargava
Shinzo Nakanishi
Non-Executive Chairman of the Board

Chief Executive Officer, Managing Director,
Executive Director
Company Secretary, Chief Legal Officer
Managing Executive Officer - Marketing and
Sales, Executive Director
Managing Executive Officer - Engineering,
Executive Director
Managing Executive Officer - Production,
Executive Director
Executive Officer
Managing Executive Officer
Non-Executive Director
Non-Executive Director
Independent Director
S. Ravi Aiyar
Shuji Oishi
Keiichi Asai
Tsuneo Ohashi
Kazuhiko Ayabe
Sudam Maitra
Mayank Pareek
I. Rao
S. Siddiqui
M. Singh
Kenichi Ayukawa
Osamu Suzuki
Manvinder Banga
Davinder Brar
Amal Ganguli
Pallavi Shroff
Source: Bloomberg
39
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Autos
28 November 2011
Chart 6.1: Maruti 2Q12 Sales breakdown
MUV
C: Omni, Versa. Eeco
44.7%
11.9%
Exports
Expor ts
Vans
A1
Dom estic
Pass enger
Cars
72.3%
A2
14.9%
A4 A3
0.9%
Source: Company data.
40
17.8%
A1:Mini - M800, A-Star,

Alto, Wagon R
A2:Compact Sw if t,
Estilo, Ritz
A3: Super Compact D'zire
1.7%
8.0%
A5: Executive - Kizashi

Autos
28 November 2011
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Notes
41

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28 November 2011
Notes
42
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28 November 2011
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Notes
43

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28 November 2011
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Yogesh Aggarwal
Important disclosures
Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which
depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations.
Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities
based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon;
and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative,
technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating.
HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when
HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at
www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this
website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating
systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research
report. In addition, because research reports contain more complete information concerning the analysts' views, investors
should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not
be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities

Stock ratings
HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stocks domestic or, as appropriate,
regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock
to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the
potential return, which equals the percentage difference between the current share price and the target price, including the
forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months
(or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be
expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points
for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility
status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review,
expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily
triggering a rating change.
44
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Autos
28 November 2011
*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12
months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,
stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past
month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities

As of 25 November 2011, the distribution of all ratings published is as follows:
Overweight (Buy)
55%
(26% of these provided with Investment Banking Services)
Neutral (Hold)
34%
Underweight (Sell)
11%
Share price and rating changes for long-term investment opportunities

Maruti Suzuki India Ltd (MRTI.BO) Share Price performance INR Vs HSBC
Recommendation & price target history
rating history
From
Underweight (V)
Neutral (V)
Overweight (V)
Overweight
Target Price
1394
894
Nov-11
May-11
Nov-10
May-10
Nov-09
May-09
Nov-08
May-08
Nov-07
May-07
Nov-06
394
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
To
Date
Neutral (V)
Overweight (V)
Overweight
N/A
Value
24 July 2009
24 September 2009
31 January 2011
21 June 2011
Date
468.00
682.00
1343.00
1880.00
1660.00
1450.00
1425.00
N/A
29 January 2009
17 April 2009
24 July 2009
24 September 2009
26 April 2010
29 July 2010
31 January 2011
21 June 2011
Source: HSBC
Source: HSBC
45
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28 November 2011
HSBC & Analyst disclosures

Disclosure checklist
Company
MARUTI SUZUKI INDIA LTD
Ticker
Recent price
Price Date
Disclosure
MRTI.NS
988.95
24-Nov-2011
Source: HSBC
1
2
3
4
5
6
7
8
9
10
11
HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months.
HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months.
At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
As of 31 October 2011 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
As of 30 September 2011, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of investment banking services.
of and/or paid compensation to HSBC in respect of non-investment banking-securities related services.
of and/or paid compensation to HSBC in respect of non-securities services.
A covering analyst/s has received compensation from this company in the past 12 months.
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.
* HSBC Legal Entities are listed in the Disclaimer below.
Additional disclosures
1
2
3
4
5
46
This report is dated as at 28 November 2011.

All market data included in this report are dated as at close 23 November 2011, unless otherwise indicated in the report.
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
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price sensitive information is handled in an appropriate manner.
As of 31 October 2011, HSBC beneficially owned 5% or more of a class of common equity securities of the following
company(ies) : MARUTI SUZUKI INDIA LTD
As of 31 October 2011, HSBC and/or its affiliates (including the funds, portfolios and investment clubs in securities
managed by such entities) either, directly or indirectly, own or are involved in the acquisition, sale or intermediation of,
1% or more of the total capital of the subject companies securities in the market for the following Company(ies) :
MARUTI SUZUKI INDIA LTD

Autos
28 November 2011
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Disclaimer
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is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial
Services Commission and the Financial Supervisory Service of Korea.
Copyright. HSBC Securities and Capital Markets (India) Private Limited 2011, ALL RIGHTS RESERVED. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior
written permission of HSBC Securities and Capital Markets (India) Private Limited. MICA (P) 208/04/2011 and MICA (P) 040/04/2011
47
abc
Global Industrials Research Team

Industrials
Colin Gibson
Global Sector Head, Industrials
+44 20 7991 6592
colin.gibson@hsbcib.com
Construction & Engineering

Neel Sinha
Head of Equity Research, South East Asia
+65 6239 0658
neelsinha@hsbc.com.sg
Mark Webb
Analyst
+852 2996 6574
Tarun Bhatnagar
Analyst
+65 6239 0607
markwebb@hsbc.com.hk
tarunbhatnagar@hsbc.com.sg
Brian Cho
Head of Research, Korea
+822 3706 8750
briancho@kr.hsbc.com
John Fraser-Andrews
Analyst
+44 20 7991 6732
john.fraser-andrews@hsbcib.com
Jinil Yoon
Analyst
+822 3706 8763
jinilyoon@kr.hsbc.com
Jeffrey Davis
Analyst
+44 207 991 6837
jeffrey1.davis@hsbcib.com
paulchoi@kr.hsbc.com
Francisco Suarez
Analyst
+52 55 5721 2173
francisco.suarez@hsbc.com.mx
jinkyu.ryu@kr.hsbc.com
Ramon Obeso
Associate
+52 55 2721 5623
ramon.obeso@hsbc.com.mx
Thilan Wickramasinghe
Analyst
+65 6239 0653
thilanw@hsbc.com.sg
Anderson Chow
Analyst
+852 2996 6669
andersonchow@hsbc.com.hk
Rahul Garg
Analyst
+91 22 2268 1245
Elaine Lam
Analyst
+852 2822 4398
elainehlam@hsbc.com.hk
Raj Sinha
Analyst
+ 971 4423 6932
raj.sinha@hsbc.com
Paul Choi
Analyst
+822 3706 8758
Jinkyu Ryu
Associate
+822 3706 8783
rahul1garg@hsbc.co.in
Autos
Niels Fehre
Analyst
+49 211 910 3426
niels.fehre@hsbc.de
Horst Schneider
Analyst
+49 211 910 3285
Levent Bayar
Analyst
+90 212 376 46 17
leventbayar@hsbc.com.tr
horst.schneider@hsbc.de
Carson Ng
Analyst
+852 2822 4397
Ashutosh Narkar
Analyst
+91 22 2268 1474
ashutoshnarkar@hsbc.co.in
carsonksng@hsbc.com.hk
Yogesh Aggarwal
Analyst
+9122 2268 1246
yogeshaggarwal@hsbc.co.in
Specialist Sales
Capital Goods (incl Aerospace & Defence)

Harry Nourse
Analyst
+44 20 7992 3494
harry.nourse@hsbcib.com
Alok Katre, CFA
Analyst
+91 80 3001 3725
alokkatre@hsbc.co.in
Transportation
Robin Byde
Global Sector Head, Transport
+44 20 7991 6816
robin.byde@hsbcib.com
Joe Thomas
Analyst
+44 20 7992 3618
joe.thomas@hsbcib.com
Stephen Wan
Analyst
+852 2996 6566
stephenwan@hsbc.com.hk
Luciano T Campos
+55 11 3371 8192
luciano.t.campos@hsbc.com.br
Shishir Singh
+852 2822 4292
shishirkumarsingh@hsbc.com.hk
Rod Turnbull
+44 20 7991 5363
rod.turnbull@hsbcib.com

MSIL Analyst Report

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Company report

Maruti Suzuki India (MSIL)

FY12 should see competition peak and margins bottom;

Note: (V) = volatile (please see disclosure appendix)

We expect strong structural growth in Indias car industry;

HSBC Securities and

Enterprise value (INRm)

Maruti Suzuki India (MSIL)

Financials & valuation

Profit & loss summary (INRm)

Cash flow summary (INRm)

Note: * = Based on HSBC EPS (fully diluted)

Balance sheet summary (INRm)

Intangible fixed assets

Ratio, growth and per share analysis

Maruti Suzuki India Ltd

Note: price at close of 23 Nov 2011

Rel to BOMBAY SE SENSITIVE INDEX

Maruti Suzuki India (MSIL)

view, competition should peak and margins should bottom in FY12,

product pipeline and inexpensive valuations support its prospects

grow at 27% CAGR in FY12-14

Maruti will have a disappointing FY12 in our

We believe the car industry in India has years of

Competition should moderate in FY13

We believe it is unlikely that Maruti will see a rise

Maruti Suzuki India (MSIL)

Table1.1: Maruti - key concerns and our view

Our view for FY13

High competition from global

Slower car demand in India

Source: Company data, HSBC estimates

Along with the moderation of overall competition,

Initiate on Maruti with OW rating and DCF-based

While PE is the most followed valuation method, we

Table1.2: DCF assumptions

Total domestic PV market sales growth (Cars + UVs+ Vans)

Market share of Maruti in Domestic Cars

Terminal growth assumed

Maruti Suzuki India (MSIL)

HSBC estimates vs. consensus

slower ramp-up in production in light of recent

Our earnings estimates are broadly in line with

Source: Company data, HSBC estimate, DataStream. Repriced on 23 Nov 2011

Table 1.3: Past cycle and corresponding valuations

Source: Company data, HSBC estimate, DataStream. Repriced on 23 Nov 2011

Table1.5: HSBC vs. consensus estimates

____ HSBC estimates _____ __ Consensus estimates __

Source: HSBC estimates, Datastream, Bloomberg

Maruti Suzuki India Ltd

Upside/) ______ 52 Week Range_____

________________P/E (x)__________________ ___________________ P/BV (x)_____________________ _________________ EV/EBITDA (x)__________________

___________ EPS (reporting currency) _____________

________________ EPS (growth) __________________

Maruti Suzuki India Ltd

Maruti Suzuki India (MSIL)

Maruti Suzuki India (MSIL)

suggest Indias car industry has years of strong growth ahead

be able to maintain market share

Passenger car industry outlook

Chart 2.1: India is well behind other countries in terms of car

Chart 2.2: Car sales in Japan and Korea accelerated during

We break down our analysis into three stages:

Source: World Bank, Industry Sources, HSBC estimates

__ HSBC estimates _ Consensus estimates __

Upside/) __ 52 Week Range_

______P/E (x) _ P/BV (x)___ _ EV/EBITDA (x)__________

_ EPS (reporting currency) ___

EPS (growth) __

Aug-11 _