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Project Report

Equity Research Maruti Suzuki

Submitted To:
Professor Monika Chopra

Submitted By:
Hemant Tejwani

Indian Automobile Industry
With a scintillating 2.3 million units produced in 2008 the Indian automobile industry bagged the
position of being the ninth largest in the world. Following economic liberalization, Indian domestic
automobile companies like Tata Motors Maruti Suzuki and Mahindra and Mahindra expanded their
production and export operations in and across the country and since then the industry has only
shown signs of growth. The automobile industry comprises of heavy vehicles (trucks, buses, tempos,
tractors), passenger cars, and two-wheelers.

The Indian automobile industry came a long way since the first car that was manufactured in Mumbai
in 1898. The automobile sector today is one of the key sectors of the country contributing majorly to
the economy of India. It directly and indirectly provides employment to over 10 million people in the
country. The Indian automobile industry has a well-established name globally being the second
largest two wheeler market in the world, fourth largest commercial vehicle market in the world, and
eleventh largest passenger car market in the world and expected to become the third largest
automobile market in the world only behind USA and China.

The growth of the Indian middleclass along with the growth of the economy over the last few years
has resulted in a host of global auto giants setting their foot inside the Indian Territory. Moreover
India also provides trained manpower at competitive costs making the country a manufacturing hub
for many foreign automobile companies. India proves to be a potential market as compared to most
of the other countries which are witnessing stagnation as far as automobile industry growth is
concerned. A recent research conducted by the global consultancy firm Deloitte says that at least one
Indian automobile company will feature among the top six automobile companies that will dominate
the car market by 2020.

The Indian automobile industry proved to be in good shape last year even after the economic
downturn. This was majorly due to the fact of renewed interest shown by global automobile players
like Nissan Motors which consider India to be a potential market.
As far as authorized dealer networks and service stations are concerned Maruti Suzuki is the most
widespread. The other automobile companies are also showing rapid progression in this field.

Indian Automobile Export market

India is a very favourable market for small cars be it production, sales or export. Since the Indian
automobile industry is the largest manufacturer of small cars companies like Hyundai and Nissan
Motors export about 2,40,000 & 2,50,000 annually. India emerged as Asia's fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand. The Indian automobile exports registered a
22.30 percent growth in the year 2009. The growth trend was as follows: Two Wheelers- 32.31
percent, Commercial Vehicle-19.10 percent and Passenger Cars grew by 19.10%.

Maruti Suzuki India Limited
Maruti Suzuki India Limited i i Maruti and formerly
known as Maruti Udyog Limited, is an automobile manufacturer in India. It is a subsidiary of
Japanese automobile and motorcycle manufacturer Suzuki. As of November 2012, it had a market
share of 37% of the Indian passenger car market. Maruti Suzuki manufactures and sells a complete
range of cars from the entry level Alto, to the hatchback Ritz, Celerio,A-Star, Swift, Wagon
R, Zen and sedans DZire, Kizashi and SX4, in the 'C' segment Eeco, Omni, Multi-Purpose vehicle
Suzuki Ertiga and Sports Utility vehicle Grand Vitara.
The company's headquarters are at No 1, Nelson Mandela Road, New Delhi. In February 2012, the
company sold its ten millionth vehicle in India.

Maruti Udyog Limited was established in February 1981, though the actual production commenced
only in 1983. It started with Maruti 800, based on the Suzuki Alto kei car which at the time was the
only modern car available in India. Its only competitors were Hindustan Ambassador and Premier
Padmini. Originally, 74% of the company was owned by the Indian government, and 26% by Suzuki
of Japan.
As of May 2007, the government of India sold its complete share to Indian financial
institutions and no longer has any stake in Maruti Udyog.

Maruti Suzuki India limited is a secondary company of Japanese automobile and motorcycle
manufacturer Suzuki. The company manufactures complete range of cars and bikes like in starting
Maruti offers Maruti 800, Alto, Ritz, A-Star, swift, Wagon-R, Estillo and Sports Utility vehicle
Grand Vitara etc. Maruti Udyog Limited Company establish in 1981. The headquarters of Maruti
udyog Limited is in New Delhi in India. Shinzo Nakanishi is the Managing Director and CEO of
Maruti Udyog Limited. It was the first company to sell millions cars and mass production in India.

Vision & Core Values
Th i h Ii Abi I Cig C Digh hh Wh Pi
Creativity and Innovation
Good Networking and partnership
Openness & learning
Fast, Flexible & First Mover
Objective & Goals
Good Customers relations
Provide Good quality product and services
Become a global leader in automobile

Maruti Suzuki SWOT Analysis

PESTLE Analysis
Political Environment
The policies & objectives laid down by the Indian Government regarding the automobile sector are:
Exalt the sector as a lever of industrial growth and employment and to achieve a high degree
of value addition in the country
Promote a globally competitive automotive industry and emerge as a global source for auto
Establish an international hub for manufacturing small, affordable passenger cars and a key
center for manufacturing Tractors and Two-wheelers in the world
1. Maruti is the largest passenger car company in
India, accounting for around 45% market share
2. Over 6,000 people are employed with Maruti
3. Good advertising, product portfolio, self-
competing brands
4. Largest distribution network of dealers and after
sales service centres
5. Strong brand value and strong presence in the
second hand car market
6. Having different revenue streams like Maruti
finance, Maruti Insurance and Maruti driving schools
7. Over 700,000 units sold in India annually including
50,000 exports

1.Inability to penetrate into the international
2.Employee management, strikes, worker
wage problems

1. Developing hybrid cars and fuel efficient
cars for the future
2.Tapping emerging markets across the
world and building a global brand
3.Fast growing automobile market and
increased purchasing power

1. Government policies for the automobile
sector across the world
2. Ever increasing fuel prices
3. Intense competition from global
automobile brands and cheaper brands
4. Substitute modes of public transport like
buses, metro trains etc

Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local

Economic Environment
Sales of Passenger car has been increased to 8.45% per year.
Maruti now plans to tap the rural market, 60 per cent of which runs on cash .
Maruti has appointed 2,000 sales executives to target customers in the rural areas.
The manufacturing sector has grown at 8 10 per cent per annum in the last few years.
More than 70 per cent of the VEHICLES purchase is on credit.
Finance availability to CV buyers has grown in scope during the last few years.

Welfare Camps
Medical support & welfare
Education to underprivileged
Road Safety
Maruti Driving Schools
Greening of Supply Chain
Adopting energy saving technologies
Reducing water wastage
Green Growth

Technological Environment
Launched CNG kit for Alto, its highest selling small car.
Th p piv v i i i h
i vhi ELV.
The company is involved with the development of small and fuel-efficient car engines.
In future, the company has high plans to increase the engine development work in India along
with other R&D operations
The company uses next generation KB series Engine in its new Hatchback car A-star.
The company added Virtual Design Review to its R&D activity to enable virtual validation to
reduce cycle time and development cost.
In the field of alternate fuel technology, the company developed LPG/CNG/HYBRID system
for MPI engine.
Ecological Environment
Practicing 3 R
3R- reduce, reuse, and recycle.
Continuous process of promoting 100% recyclable and reusable car parts.
Targets reducing fresh water consumption and implement rain water harvesting.
Physical infra-structure such as roads and bridges affect the use of automobiles. If there is
good availability of roads or the roads are smooth With the development or evolution of
alternate fuels, hybrid cars have made entry into the market.

Legal Environment
Follows highest standards of Corporate Governance
Customer can contact the Secretarial & Legal Department for any questions/clarifications.
Legal compliance reporting
The board periodically reviews reports of compliance with all laws applicable to the Company,
as well as steps taken by the Company to rectify instances of non-compliances.
The Company has developed comprehensive legal compliance scheduling and management
software by which specific compliance tasks are assigned to each individual. The software
enables in planning and monitoring all compliance activities across the Company.

Porters 5 forces model

Threat from the new players: Increasing
Most of the major global players are present in the Indian market; few more are expected to
Financial strength assumes importance as high are required for building capacity and
maintaining adequacy of working capital.

Rivalry within the industry: High
There is keen competition in select segments. (compact and mid-size segments).
New multinational players may enter the market.

Market strength of suppliers: Low
A large number of automotive components suppliers
Automotive players are rationalizing their vendor base to achieve consistency in quality

Market strength of consumers: Increasing
Increased awareness among consumers has increased expectations. Thus the ability to
innovate is critical
Product differentiation via new features, improved performance and after-sales support is
Increased competitive intensity has limited the pricing power of manufacturers

Threat from substitutes : Low to medium
Consumer preference is changing (Mini cars are being replaced by compact or mid-sized cars)
Setting up integrated manufacturing facilities may require higher capital investments than
establishing assembly facilities
India is also likely to increasingly serve as the sourcing base for global automotive
companies, and automotive exports are likely to gain increasing importance over the medium
competition is likely to intensify in the SUV segment in India following the launch of new
models at competitive prices

Financial Performance

Balance Sheet Standalone

Profit & Loss Account Standalone

The purpose of Valuation is to determine a fair value range of an investment (or capital asset) using
one or more of several available techniques in order to assist buy/sell decisions for the purpose of
Financial or Strategic Investment. The worth of an investment is determined by whether it is meant
for long term use to generate returns i.e. strategic investment or for resale when the right price or fair
value is achieved.

Price/Earnings Approach (Fundamental Analysis)

P/E multiple (the price per share divided by the earnings per share) or the P/CF multiple (price per
share divided by cash flow per share, which is the earnings per share plus the dividends per oshare) to
value stocks. For example, we can use the average of P/E ratio of a sample of comparable firms and
call it a P/E multiple. By multiplying this average P/E ratio by the expected earnings of the company
we can get the estimate of its stock price. P/E is one of the most important ratio in valuation. We first
calculated the average EPS growth over the past five years. Then we found the projected EPS by
multiplying the average EPS growth with the current EPS. Industry P/E was readily available. By
multiplying the industry P/E with the projected EPS, we calculated the projected price of the stock.
Since the industry has been very turbulent because of the recent norms and technological
development, the earnings were very variable.

Ten Year Data to calculate Projected EPS
Date Price Absolute Change % Change P/E EPS(TTM)
04-09-2014 2901.35 1623.6 127 31.492 92.13
04-09-2013 1277.75 105.1 9 16.135 79.19
04-09-2012 1172.65 91.6 8 20.72 56.6
04-09-2011 1081.05 -191 -15 13.648 79.21
04-09-2010 1272.05 -274.35 -18 14.714 86.45
04-09-2009 1546.4 862.5 126 36.66 42.18
04-09-2008 683.9 -210.05 -23 11.415 59.91
04-09-2007 893.95 -9.45 -1 16.533 54.07
04-09-2006 903.4 392.45 77 21.948 41.16
17.29 29.55
111 620.45
Average 32.25 62.045
(Avg EPS grw*Avg EPS) Projected EPS 66.698375
Given Industry P/E 11.42
Projected Price 761.6954425
Actual Price 2901.35
Discount -74

This is clear from the above calculations that stocks are overpriced and when calculated on the basis
of industry P/E. Actual current market price of the stock is Rs 2901.35, whereas projected price of
the stock is Rs 761.69. Hence, stocks are overpriced by approximately 74% giving a SELL signal.

FCFE Valuation Method:

The free cash flow to equity model does not represent a radical departure from the traditional
dividend discount model. In fact, one way to describe a free cash flow to equity model is that it
represents a model where we discount potential dividends rather than actual dividends. Consequently,
the three versions of the FCFE valuation model presented in this section are simple variants on the
dividend discount model, with one significant changefree cash flows to equity replace dividends in
the models.

Underlying Principle

When we replace the dividends with FCFE to value equity, we are doing more than substituting one
cash flow for another. We are implicitly assuming that the FCFE will be paid out to stockholders.
There are two consequences:

1. There will be no future cash build up in the firm, since the cash that is available after debt
payments and reinvestment needs is assumed to be paid out to stockholders each period.

2. The expected growth in FCFE will include growth in income from operating assets and not
growth in income from increases in marketable securities. This follows directly from the last

How does discounting free cash flows to equity compare with the augmented dividend discount
model, where stock buybacks are added back to dividends and discounted? You can consider stock
buybacks to be the return of excess cash accumulated largely as a consequence of not paying out their
FCFE as dividends. Thus, FCFE represents a smoothed-out measure of what companies can return to
their stockholders over time in the form of dividends and stock buybacks.

Estimating Growth in FCFE

Free cash flows to equity, like dividends, are cash flows to equity investors and you could use the
same approach that you used to estimate the fundamental growth rate in dividends per share:

Expected growth rate = Retention ratio Return on equity

The use of the retention ratio in this equation implies that whatever is not paid out as dividends is
reinvested back into the firm. There is a strong argument to be made, though, that this is not
consistent with the assumption that free cash flows to equity are paid out to stockholders, which
underlies FCFE models. It is far more consistent to replace the retention ratio with the equity
reinvestment rate, which measures the percent of net income that is invested back into the firm.

When discounting FCFE, it is safest to separate the existing cash balance from the operating
assets of the firm, to value the equity in the operating assets and then add on the existing cash
balance. Consequently, the return on equity can also have to be modified to reflect the fact that the
conventional measure of the return includes interest income from cash and marketable securities
in the numerator and the book value of equity also includes the value of the cash and marketable
securities. In the FCFE model, there is no excess cash left in the firm and the return on equity
should measure the return on noncash investments. You could construct a modified version of the
return on equity that measures this:

The product of the equity reinvestment rate and the modified ROE will yield the expected growth
rate in FCFE:

Expected growth in FCFE = Equity reinvestment rate Noncash ROE

Valuation :

Beta Calculations

Year Sensex
change Maruti Suzuki %change
2006 11,699.05 903.4
2007 15,318.60 0.309388 893.95 -0.01046
2008 14,564.53 -0.04923 683.9 -0.23497
2009 15,666.64 0.075671 1546.4 1.261149
2010 17,971.12 0.147095 1272.05 -0.17741
2011 16,676.75 -0.07203 1081.05 -0.15015
2012 17,380.75 0.042214 1172.65 0.084732
2013 18,619.72 0.071284 1277.75 0.089626
2014 26,638.11 0.43064 2901.35 1.270671

Beta= 1.870791

Exide Stock values
Bse sensex

First we have calculate the Beta of Maruti Suzuki by taking the 9 year Sensex and Maruti Suzuki
Share price. By calculating the slope of the change we can calculate the Beta which comes out to
be 1.87.

Cost of Equity Calculations

Growth Rate Claculations
Risk free Rate(Rf)

Year Sales Growth


Risk Premium =


Cost of capital= 0.240276









Avg Growth Rate= 17%

Cost of Debt has been calculated by using the value of Rm and Rf which are given in the above table.
Avg Growth is been figured out by averaging out the growth in sales for last 10 years which comes
out to be 17%.

Various figures has been calculated in above figure like capex,WC,NI.. as a percentage of sales so to
calculate what average % of share it constitute for last 11 years. This will help in to project same for

Growth Rate after terminal value 0.06
FCFE Calculations

Year 2014 2015 2016 2017 2018 2019 TV
Sales 43,700.60 51205.0022 59998.08 70301.14 82373.47 96518.9
NI 2,783.00 3744.550456 4387.576 5141.024 6023.857 7058.292
(Net W.C) -2,015.00 199.494576 233.7524 273.8931 320.9269 376.0374
2,084.40 1765.126666 2068.24 2423.404 2839.559 3327.176
(CAPEX) 2,801.10 3180.371248 3726.514 4366.443 5116.262 5994.842
Net Borrowings 295.90 251.1550642 294.2842 344.8196 404.0331 473.4149

FCFE 4,377.20 2,380.97 2,789.83 3,268.91 3,830.26 4,488.00 26388.94
PV(FCFE) 1919.707369 1813.601 1713.36 1618.659 10520.66
Total Value 17585.99

Outstanding 30

Value of share 586.1997

This is the projected figures of next 5 years we have calculated all the figures as a percentage of sales
which have been calculated in above table. Terminal value of the firm is calculated by considering
the growth to be 6%.Bringing all FCFE to present by discounting them by cost of debt as calculated
earlier and gives the total Value as Rs 17585.99 Cr and total share outstanding are 30 Cr, so projected
value of share from FCFE method is Rs 586.1997

As the value is less than the current market price i.e. Rs 2901.35 so the stock is overvalued. it gives a
signal of SELL to investors.

So doing the valuation gives us that Maruti Suzuki is overvalued and it gives a SELL signal to

Valuation Technique Projected Price(Buy/Sell Signal)

P/E Ratio Method Rs 761.69(Sell)

FCFE Method Rs 586.1997(Sell)