July 30, 2018 ACCUMULATE

India | Cars & Utility Vehicles | Initiating Coverage

on every dip

Maruti Suzuki India Ltd. (Maruti)

for private circulation only

Moat Factor(s) -
§ The Company is undisputed market leader of Indian Car market since 1983 when it launched iconic Maruti
800 or People’s Car. It enjoys more than 50% market share in Indian car market. Its robust market share
despite intense competition indicates the sales growth of the cars by competition is much slower than the
Company.
§ It knows the psychology of Indian consumers and makes cars according to their desires and affordability. No
auto maker so far has been able to match its network reach and maintenance cost. Auto parts of Maruti cars
are made available by auto parts dealers in almost every part of India (even if some models are phased out).
§ Maruti is the most loved and trusted auto brand of India. When an Indian decides to buy his / her first car, first
name which strikes him / her is “Maruti”. The Company has been No.1 in Customer Satisfaction in the JD
PowerAsia PacificAward survey for 16 years in a row.

THE COMPANY
HISTORY
E stablished in 1981 as Maruti Udyog Limited Stock Statistics
(MUL), the Company became a joint venture Bloomberg Code
between Government of India and Suzuki BSE Code
Motor Corporation, Japan in 1982. At first, MUL was NSE Code
mainly an importer of cars. In India's closed market,
MSIL:IN
532500
MARUTI

MUL received the right to import 40,000 fully built- CMP (INR) (Jul 27, 2018) 9310.40
up Suzukis in the first two years and even after that the Face Value (INR) 5
early goal was to use only 33% indigenous parts. BSE Sensex (Jul 27, 2018) 37336.85
Finally in 1983, Maruti 800 - India’s first affordable
car also known as People’s car, was released. This 796 Market Cap (Crore INR) 281174.08
cc hatchback was based on the SS80 Suzuki Alto from 52Wk High / Low (INR) 9996.40 / 7380.00
Suzuki Motor Corporation. Its local production Avg.Volume (July) 705037
commenced in December 1983. The success of the Source: Research Team, Accord Fintech

joint venture prompted Suzuki Motor Corporation, Shareholding Pattern Jun 2018
Japan to increase its equity from 26% to 40% in 1987,
to 50% in 1992 and further to 56.21% in 2013. In May Shareholders' Category %
2007, the Government of India, through Ministry of Promoters (Suzuki Motor Corporation, Japan) 56.21%
Disinvestment, sold its entire stake to Indian financial FIIs /FPIs 23.66%
DIIs / Financial Institutions 12.69%
institutions. Its name got changed from Maruti Udyog Public / Others 7.44%
Ltd to Maruti Suzuki India Ltd in Sep’07. Source:BSE

Maruti India Production Capacities No. of Vehicles

Gurgaon and Manesar, Haryana 1500000 pa
It is India’s largest passenger car company with more
BUSINESS than 50% market share and operating income
Hansalpur, Gujarat 250000 pa
Addition of capacities by 2020 500000 pa
PROFILE OF THE standing at Rs.79809.4 Crore in FY 18. It has strong Total production expected by 2020 2250000 pa
COMPANY portfolio of 16 models which are market leaders in
their respective segments. It has also entered in light Maruti India Production vs Sales
Mini Segment - commercial vehicle segment and is witnessing very Q1 FY 19 (Source: Company) Production
Alto / Wagon R strong growth for its LCV “ Super Carry”. It 200,000 184,608 Sales
Compact Segment witnessed overall growth of 14.5% in FY 18. The 180,000 163,367 172,986 172,512
Swift / Celerio / Dzire / Company’s sales to production ratio is quite high at 160,000 144981
Baleno / Ignis / Tour S 1.02x in Q1 FY19 (Please refer to the exhibit on right 140,000 132616

Mid Size - Ciaz side for more info). It had about 15% growth in the
120,000
100,000
Utility Vehicles rural sector with a penetration of about 36% in the 80,000
Gypsy / Ertiga / rural market. Rural demand is expected to witness 60,000
S-Cross / Vitara Brezza robust growth on account of a normal monsoon this 40,000
Vans year and the recent steep hike in minimum support 20,000
Omni and Eeco 0
prices for Kharif crops by the Central Government.
LCV - Super Carry April May June

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Maruti Suzuki India Ltd. July 30, 2018

FACTORS WE ARE INITIATING COVERAGE ON THE COMPANY WITH EARNING PER

ENCOURAGED TO SHARE ESTIMATE OF RS.346.82 FOR FY 19 & RS 409.74 FOR FY 20.
INITIATE We are initiating coverage on Maruti Suzuki India Ltd with earning per share estimate of Rs 346.82
COVERAGE in FY 19 and Rs 409.74 in FY 20 driven by strong demand of the Company’s passenger vehicles
with improved purchasing power and second consecutive year of normal monsoon. Normal
Ÿ Strong Brand image monsoon not only boosts purchasing power of rain dependent rural India but also boosts urban
of the Company
demand by keeping food inflation under control. Low inflation gives room to Reserve Bank of
Ÿ Double digit growth India to soften finance rates. Normal Monsoon has led turnaround ofAuto Sector in India.
of the Company vs
single digit growth of The Company is witnessing stronger growth than the
Industry (Please see the graphic on right side for details). Most Industry Growth vs. Maruti
the Industry
models of the Company car are witnessing waiting Growth
Ÿ Normal Monsoon to period of 2-4 weeks to multi months due to strong
FY 18

support Future growth demand despite increased supply from Gujarat plant Passenger Cars Market
12.65%

3.30%
Ÿ Favourable of Suzuki Motor Corporation. Its Swift proved to be
Maruti Industry
purchasing power India’s favourite hatchback by selling one lakh units
Ÿ Strong parentage only in 145 days, fastest for any car in India. Its SUV
Vitara Brezza which was launched in March 2016 Passenger Vehicles Market
17.58%
Ÿ Good track record of gained market share of 43% in its segment in FY 18 7.90%
stock price despite intense competition from Tata Motor’s
appreciation Nexon, Hyundai’s Creta, Ford’s EcoSport and 0.00% 5.00% 10.00% 15.00% 20.00%
Ÿ Increased dividend Honda’s WR-V.
payout ratio We expect Maruti India to continue its strong growth with its strong brand value, largest sales &
Ÿ Lowest debt among service network and increased support from the parent company after its increased focus on India
peers on the books through investment in Gujarat manufacturing facilities. Recent arrangement between Suzuki
Ÿ Strong reserves and Motor Corporation (Japan) and Toyoto Motor Corporation (Japan) will help Maruti India to use
Toyota India manufacturing facilities to meet its demand in the future.
Surplus
Ÿ High Valuations Its market leadership, consistent financial performance and consistently growing dividend payout
justified justify high valuations of the Company and have prompted us to start coverage on the Company.
How much returns Maruti Suzuki India's Stock has delivered over the years (As on July 27, 2018)
No of Price / Invested Dividend / Current Mkt No of Holding Return / Return / Investment
shares Share Value Share # Price Years value ^ share (Rs) Year* Year
100 125 12500 276 9310.4 15 958640 9461 34% IPO in 2003
100 617.75 61775 269 9310.4 10 957940 8962 32% June-08
100 1538 153800 243 9310.4 5 955290 8015 44% Jun-13
100 7217.9 721790 75 9310.4 1 938540 2168 30% Jun-17
# Accumulated dividend over years (Incl. FY18) , ^Holding Value = Dividend + Stock value (CM P x No of shares), * Compounded Annual Return

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Maruti Suzuki India Ltd. July 30, 2018

INDIAN The Indian auto market is one of the fastest growing industries globally and ranks fourth in terms
PASSENGER of Passenger Vehicle Sales. According to SIAM data for the period January 2018 to May 2018, the
VEHICLE OR CAR Indian market has registered positive growth in passenger vehicle sales and sold more cars than
MARKET the USA, UK between Jan-May 2018.

India is fourth largest Global Passenger Vehicles Sales in Lakh DOMESTIC AUTO MARKET
(Jan -May 2018) Source: SIAM
passenger vehicle 120.00 SHARE (FY 18) SOURCE: SIAM
Commerci
market and is 99.08 Passenger
al Vehicles
100.00 Vehicles
expected to be third 13%
3%
largest by 2020. 80.00 Three
Wheelers
60.00 3%

40.00
19.17
20.00 14.98 14.61 13.75 10.79 9.36 9.34
Two
0.00
Wheelers
China Japan Germany India USA UK France Brazil
81%
China tops the Global Passenger sales with total sale of whooping 99.08 lakh cars during the
period. Germany which is ahead of India and ranks third sold only around 37,000 units more than
India. The Indian passenger vehicle market grew at the rate of 9.62% (YoY) during Jan- May 2018
while the German PV market grew at the rate of 2.63% (YoY). If both the markets march ahead
with the same growth pattern, India should be able to clinch the third spot in passenger vehicle
sales by the end of 2019. Only Brazil is ahead of India in terms of growth rate, with the PV sales
there growing at the rate of 16.2%.

Indian Passenger Vehicle Market has two major categories: Passenger Cars and Passenger
CATEGORISATION Vehicles or Utility Vehicles. Segment of a car is defined by its length, price range or the shape of
OF SEGMENTS its body. Following is the categorisation of car segments and type:
Categorisation of Car Segments
Categorisation as per Length Categorisation as per Price Categorisation as per Body Type
Segment Length Segment Price Range Segment
A1 or Mini Upto 3400 mm A Hatchback <3.5 Lakh VAN / MPV
A2 or Compact 3401 - 4000 mm A1 Hatchback <6 Lakh Two Box or Hatchback
Different categories of A3 or Mid size 4001 - 4500 mm A2 between 6-7.5 Lakh Three Box or Sedan / Saloon / Notchback
Cars A4 or Executive 4501 - 4700 mm B1 Van Estate / Station Wagon
A5 or Premium 4701 - 5000 mm B2 MUV / MPV SUV
A6 or Luxury Above 5000 mm C1 Sedan <8 Lakh Semi Notchback
B1 or Van - C2 Sedan <9.5 Lakh
B2 or MUV or MPV - D1 Sedan <15 Lakh Box 1 - Engine area
SUV - D2 Sedan < 25 Lakh Box 2 - Passenger area
SUV No fixed price range Box 3 - Boot space

GROWTH OF Indian Passenger Vehicle production grew at a compounded annual growth rate (CAGR) of 4.42%
INDIAN during FY13-FY18 and a CAGR of 7.72% during FY 15 -18 whereas sales grew at a CAGR of
PASSENGER 4.29% during FY 13 - FY 18 and at a CAGR of 8.12% during FY 15 - FY 18.
VEHICLE
FY 18 Indian Car Market
MARKET INDIAN CAR MARKET
Growth Segment Wise
SEGMENTWISE SHARE 25.00% Source:SIAM website
Vans 21%
6% 20.00%

Utility 15.00%
Vehicles
27% 10.00% 7.90%
5.80%
5.00% 3.30%

0.00%
Passenger Passenger Passenger SUVs Vans
Cars Vehicles Cars Market
67% Market

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Maruti Suzuki India Ltd. July 30, 2018

INDUSTRY SUV Boom - The SUVs are seeing a boom in demand driven by affordable pricing, attractive body
TRENDS type and technically advanced features compared with compact cars. SUV market in India has
emerged as a strong sub-segment, accounting for around 28% of the total passenger vehicle sales
volumes in FY 18 compared to just 13% in FY11. In FY18, the segment recorded a robust growth
of 21% which was much higher compared to the overall passenger vehicles sales growth of 7.9%.
Non-SUV segment (compact cars and sedans) sales grew from 21 lakh units in 2016-17 to 21.7
lakh units in 2017-18 – a growth of 3.3%. Ind-Ra believes the momentum to continue in FY19 and
expect a sales volumes growth of around 15-18%. Earlier, SUVs, a highly aspirational product for
any consumer, were very expensive. With the entry of affordable options in the recent years, sales
of SUVs have been rising continuously. Models, such as Maruti’s Brezza, Tata’s Nexon and Ford’s
EcoSport priced under Rs 10 lakh have enabled many people to fulfil their dream to own a SUV.
Industry observers estimate that over 35 new UV models will be launched in next three years with
industry leaders (such as Maruti and Hyundai) and many newcomers (such as Kia Motors and MG
Rover) rolling out their SUV models in India. Over the years, there has been a gradual shift in the
customers’ inclination towards compact UVs compared to sedan. All major companies are
aggressively launching new models, facelifts and upgradation to woo young India.
Auto Companies are using their Indian manufacturing
EXPORTS Passenger Vehicles - Exports
facilities to meet not just the local demand but also to Source: SIAM 758727
cater to the overseas markets. Hyundai has been the 800000 747287
653053
largest exporter of passenger cars since inception. 700000 621341
559414
Hyundai Motor India has significantly contributed 600000 596142
40% of passenger vehicle exports from India with 500000
volume of 27 Lakh vehicles since the year 1999. 400000
Export Sales contributed only 7% in total vehicles 300000
sold by the market leader, Maruti Suzuki, in FY 18
200000
because its major focus is on domestic market where
100000
its products are consistently witnessing waiting
period of few weeks to months for delivery due to 0
FY13 FY 14 FY 15 FY 16 FY 17 FY 18
huge demand.

DIESEL Vs Diesel run vehicles are increasingly being looked upon as big polluter. PM (particulate matter)
PETROL emissions of diesel cars are comparatively higher than those of petrol counterparts. With price
PASSENGER differential narrowing between petrol and diesel (currently stands at approximately Rs. one lakh),
customer preferences on SUVs are shifting back to petrol. With BS VI emission norms to kick in
VEHICLES
by 2020, diesel-driven vehicles are expected to face the heat. The BS VI norms are likely to further
increase the price gap between a diesel and petrol variant, making the diesel variant less attractive.
According to the SIAM, the share of diesel variant in SUVs has come down from 97% in 2012-13
to 84% now.
MARUTI SUZUKI The Company is the largest car maker in India with Top 5 Car Companies in India
INDIA’S more than 50% market share. 7 out of 10 best selling 2000000 1779574
POSITION IN THE cars / passenger vehicles are produced by Maruti 18000001568603
1600000
INDIAN CAR Suzuki. The management doesn’t hesitate in phasing 1400000 FY 17
MARKET out non performing models. It understands the 1200000
psychology of Indian customers and launches 1000000 FY 18
Market leader with products according to their requirements, Alto for 800000 536241
509705
more than 50% lower middle class, Swift for middle class, Baleno and 600000 248859
210200 170026
market share SUVs for youthful spirits. Its line of utility vehicles 400000 236133
172504 157313
(in the form of the Vitara Brezza, S-Cross, Ertiga and 200000
0
The most trusted Gypsy) have been a major growth driver for the Maruti Hyundai Mahindra Tata Honda
brand, enjoys carmaker – with the Brezza leading the charge. Sales Suzuki
India
strongest brand of UVs, overall, stood at 2,53,759 units in FY 18 vs
association in the 1,95,741 in FY 17. The Company enjoys strong Tata Motors & Maruti Suzuki both
industry parentage of Suzuki Motor Corporation Japan which witnessed highest growth of 21.85%
keeps it updated with all the latest technology to and 13.45% respectively in sales in FY
Top 7 models of cars remain competitive .Suzuki Motor recently signed an 18.
/ SUVs in India are MoU with Toyota Japan which is a global leader in the number of patents held for hybrid and EV
from Maruti technology. This should further strengthen Maruti India’s position in the Indian Car Market.

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Maruti Suzuki India Ltd. July 30, 2018

GROWTH DRIVERS FOR PASSENGER VEHICLE SALES

FAVOURABLE India has become the world’s sixth-biggest economy, pushing France into seventh place,
ECONOMIC according to updated World Bank figures for 2017. Manufacturing and consumer spending are the
SCENARIO and main drivers of the Indian economy. Growth prospective of the Indian economy is positive due to
IMPROVING strong domestic consumption, its young population, increasing size of the middle class population
AFFORDABILITY and healthy saving. India’s gross national income (GNI) at current prices witnessed a rise of about
10% at Rs 165.87 lakh crore during 2017-18 as against Rs 150.77 lakh crore during 2016-17.The
Higher number of services sector is the key driver of India’s economic growth. The sector is estimated to contribute
working members around 54% of India’s Gross Value Added in 2017-18 and employed 28.6% of the total population.
means better India’s services sector GVA grew at a CAGR of 6.93% to USD 1266.1 billion in FY18E from USD
affordability 846.8 billion in FY 12. Favourable economic scenario has increased afforadability of Indians for
their own vehicles. Urbanisation, improving lifestyle due to increasing working members in the
Favourable family are boosting auto sector growth in India and same trend is likely to continue in the future as
Demographics well. The Government is also raising wages and allowances for Central Government employees
which is likely to boost demand for cars particularly Maruti which is first choice for any Indian
Increasing size of the who is first time buyer. India has favourable tail-winds that create demand and income growth.
middle class
population India hasn’t fully capitalised on its demographic advantage in the last 10 or 20 years due to weak
governance. Now, the governance framework is improving and it can get a higher benefit from
Urbanisation demographics. Mobility will no longer be a luxury but a necessity for Indians

Improving
Governance
Growth Rate of GVA at basic price at Constant (2011-12) prices
Framework (in %) Source: Office of Eco Advisor Report
12
9.8 9.8 9.6
10
8.3 8.1 7.9
7.7 7.5 7.1
8 7 7.2 6.8
6.1 6.3 6.5
5.4 5.6 5.5
6
3.8
4 3.3

2 1.5
0.6 0.4
0
FY 13 FY 14 -0.2 FY 15 FY 16 FY 17 FY 18 (Est)
-2

Agriculture Industry Services GVA at best price

NORMAL Normal monsoon in two consecutive years, FY17 and FY 18 helped agri based Indian economy to
MONSOON AND maintain its decent growth despite Demonetisation and Goods & Service Taxes which adversely
BETTER affected economic performance of India in FY 17 & FY 18. Normal monsoon keeps inflation
AGRICULTURAL under control which gives room to RBI to ease lending rates. Normal monsoon has played a major
GROWTH role in turnaround of auto sector in last two years. Normal monsoon in FY 19 and Government's
focus to revive agricultural sector in India and double farmers' income by 2022 may maintain good
demand from rural market in the future . The Government’s recent hike in minimum support prices
for Kharif crop is expected to boost rural income and spending. Maruti Suzuki is likely to maintain
or improve 15% growth rate witnessed in FY 18 for passenger vehicles in rural markets.

GROWTH DRIVERS FOR MARUTI SUZUKI

Maruti is the biggest, the most loved and the most trusted auto brand in India. It is the first choice of
STRONG BRAND most of the Indians buying their first car be it new or old. The Company is known for its low
IMAGE maintenance cost.

The Company aims to sell 2 million cars by 2020. It has strong support from parent Suzuki Motor
ARRANGEMENT Corporation, Japan. Suzuki Motor is taking care of further capacity additions required to meet
WITH THE Maruti India's sales target. This arrangement will help the Company to free up its resources and
PARENT COMPANY focus on other functions such as product development, R&D and sales infrastructure. Suzuki

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Maruti Suzuki India Ltd. July 30, 2018
SMG sells cars to Motor Gujarat (SMG) has started operations in Hansalpur, Gujarat and Baleno was the first
Maruti India on cost produced car sold through Nexa channel. SMG has also committed investment for an engine and
price which are sold transmission line in Hansalpur. The Gujarat Plant would be operating for the full year on double
through Nexa Channel, shift with full capacity in FY 19. So compared to 160,000 units produced in FY18, the Company is
its dealership format to expected to get 250,000 cars in FY 19. Second assembly plant in Hansalpur is expected to start in
sell premium cars January 2019. It plans to make 7.5 lakh more cars at its Gujarat plant by 2020, taking the total
production capacity on the three assembly lines to 22.5 lakh units a year.

REVISION IN The Company has revised Royalty Contract with parent Suzuki Motor on favourable terms for the
ROYALTY Company. For all new models after January,2017 started with IGNIS, the royalty will be in INR
CONTRACT instead of Japanese Yen and, of course, the expenditure which it will do in India on R&D, will be
reimbursed with some margin. And after some time, once a particular level of volume is achieved,
the royalty rate will come down.

STRONG SALES The Company has the strongest sales and service network in India with 3300 outlets currently.
AND SERVICE Repair of technical fault in Maruti is possible even in an isolated place in India. Its auto
NETWORK AND components are widely available in India. The Company's recently launched Premium Sales
HIGH FINANCE Channel – NEXA has been well received by customers. It has shown strong growth and
PENETRATION contributed 20% to the domestic sales of the Company in FY 18. The Company has now initiated
launch of new outlets as well as revamp of the existing sales channel under the brand,ARENA. The
Company is continuously expanding its network at fast pace. It added 315 sales outlets in FY 18
including 140 sales outlet of the commercial channel. In addition, 203 new service workshops
were set up in FY 18. The Company enjoys good synergy with its finance partners and finance
penetration stood its highest ever at 80.5% in FY 18.

STRONG The Company enjoys strong partnership with its key vendors. It has invested into equity stake of
PARTNERSHIP key suppliers and enjoys Joint Venture / Associate status. (Please refer to the details in graphics
WITH ITS KEY below). The Company has planned to set up 400 Dojo Centres or workshop to train workforce at its
SUPPLIERS 400 Tier -1 vendors by 2020.
Details of Maruti Investment in non listed suppliers Details of Maruti Investment in key listed suppliers
Equity-UnQuoted Value in Rs Cr Equity-Quoted Value in Rs Cr
Company No of shares Cost Company No of shares Cost Current Value FV
Caparo Maruti Ltd 2500000 35.7 Bharat Seats Ltd 4650000 9.2 77.54 2
Hanon Climate Systems India Pvt Ltd 518700 75.1 Jay Bharat Maruti Ltd 6340000 89.2 285.55 5
Krishna Maruti Ltd 670000 49.1 Machino Plastics Ltd 941700 9.7 19.87 10
SKH Metals Ltd 2645000 46.3 Asahi India Glass Ltd 26995200 585.7 885.85 1
Nippon Themostat India Ltd 125000 0.4 Sona Koyo Steering Systems Ltd 13800000 112.7 149.52 1
Mark Exhaust Systems Ltd 4437465 25.6 Total 806.5 1418.33
Bellsonica Auto Components India Pvt Ltd 3540000 28.9 Source: Capitaline, Current Value date - July 27, 2018
FMI Automotive Components Pvt Ltd 44100000 48.9
Manesar Steel Processing India Pvt Ltd 6840000 4.2 The equity stake in key suppliers has strengthened the
Maruti Insurance Broking Pvt Ltd 231275 258.7 Company’s relationship with them. The vendors are assured
Plastic Ominium Auto Inergy Manufacturing India pvt Ltd 6656000 18 of the confirmed business from the Company and the
Mangneti Marelli Powertrain India Ltd 8550000 101.7 Company is assured of timely supply of the orders given by it
Denso India Pvt Ltd 2862758 31.6
International Automotive Centre of Excellance 100000 0.1 to the respective vendor. The Company also has
Total 724.3 representation on the board of its suppliers. This is win win
Source: Capitaline Value unlocking potential when they are listed on stock exchanges. situation for both, the Company and the vendors.

ARRANGEMENT Suzuki Japan and Toyota Japan have entered into an agreement to create a partnership to deal with
BETWEEN SUZUKI issues of energy, security, environmental protection and safety. Toyota is the global leader in the
MOTORS, JAPAN number of patents held for hybrid and EV technology. Toyota's hybrid technology is already
AND TOYOTA, resulting in significant improvements in fuel efficiency and is acceptable to the customers.
JAPAN Whenever Toyota will require cars from Suzuki Motors in India, those cars will route through
Maruti India only.

Electric vehicles and hybrid Technology - The Company is preparing itself to introduce electric
ELECTRIC vehicles as soon as it feels that Indian customers are ready to buy them. As a starting point for
VEHICLES AND developing an ecosystem for electric mobility, Suzuki Motor Corporation, along with Toshiba and
HYBRID Denso is setting up a Lithium-ion battery plant in India. Maruti Suzuki India is planning to source
TECHNOLOGY these longer lasting lithium ion batteries for its premium cars such as Swift Hatchback from this

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Maruti Suzuki India Ltd. July 30, 2018
plant, starting FY 21. It will be more cost-effective than sourcing lead batteries and will also help
the Gujarat battery plant achieve economies of scale since Maruti sells 50% of the total cars in
India. Even if they manage to fit 1 million cars with lithium ion batteries, it will be huge in number.
Also, it will be cheaper than sourcing lead batteries from vendors and prices of lead are always on
the rise. A lead battery is available for Rs. 10000-12000 while a lithium ion battery cost around Rs
16000-17000. A lead battery has a life-cycle of just a year while a lithium-ion one will run as long
as five years.

EASY REACH OF 87% of its Local Tier 1 suppliers are located within 100 km radius of operating facilities and 100%
LOCAL TIER-1 suppliers have signed green procurement guidelines for meeting European Union's end of life
SUPPLIERS vehicle standards for auto parts and components.

Pre Owned car market is largely unorganized and represents a vast opportunity to serve millions
PRE OWNED CAR who do not own a car currently. Its revamped True Value network will help the Company to attract
MARKET these customers because of high quality of after sales service provided by Maruti.
SEGMENT
The Company has R&D Centre in Rohtak, Haryana with 1400 engineers and equipped with world
R & D CENTRE, class test and evaluation facilities. It has helped in launching new models and refresh existing ones
ROHTAK at a fast pace. R&D engineers have been systematically trained on new product development and
technology projects at SMC, Japan.The global research and development team at SMC and Maruti
Suzuki has developed a new 5th generation vehicle platform called Suzuki’s Total Effective
Control Technology. This has led to development of a portfolio such as Vitara Brezza and Ignis.
The Company is currently gearing up to meet BS-VI vehicle emission norms by the year 2020.

RISK FACTORS
The Company is dependent on its vendors for supply of key components and supply from two
SUPPLY vendors was disrupted due to fire incidents at their plants. This impacted the Company's delivery
DISRUPTION of several models to the customers.
FROM VENDORS
The Company pays Royalty Fee to the parent company Suzuki Motors for use of its technology
ROYALTY FEE AND and engineering support. Its Royalty payment in FY 18 stood at 5.4% of sales against 5.8% of sales
EXCHANGE RATE in FY 17. Adverse exchange rates may affect profitability of the Company due to higher Royalty
FLUCTUATIONS payment to the parent Company and higher fuel prices. The Company witnessed exchange
variation of Rs 100 crore in Royalty in Q4 of FY 18.

The higher commodities prices is a cause of concern for auto makers which are already facing
HIGHER intense competition. The Company first ties to absorb the hiked prices and when it becomes
COMMODITY
extremely necessary then only it goes in for a price increase. The Company had steep impact of
PRICES
commodity price hikes in FY 18 i.e. Rs. 700 Crore, which impacted operating margins and
profitability to an extent.

Vehicle pollution caused by the burning of fossil fuels has played a big role in global warming. The
BS VI NORMS
need to cut down the emission levels resulted in formation of such norms that limit vehicular
emissions across the globe. Europe’s Euro 1 and The Bharat emission norms came into force to
handle emission levels in vehicles. India introduced Euro I emission standards in 2000. India has
been slower to implement change primarily due to the costs involved and the quality of fuel
available in India. Vehicle manufacturers are investing in the technology to deliver according to
the new guidelines on BS VI norms because new engines mean new costs. The sulphur content in
BS VI fuel is substantially lower than that of non BS VI fuel (currently 50 parts per million (PPM)
in non BS VI fuel vs 10 PPM in BS VI fuel). BS VI fuel is expected to cost more which might
discourage car purchase decisions of first time buyers.

E-VEHICLES E-Vehicles drive is a challenge for the Company like Maruti India which makes economical cars
DRIVE for Indian Market because batteries for the e-vehicles are expensive and there is no public charging
infrastructure in India right now.
INFLATION RISK
AND HIGHER Urban demand is dependent on inflation and interest rates, banks have also tightened eligibility
FINANCE RATES limits for car loans to avoid potential defaults. Thus any negative sentiment in the economy or

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Maruti Suzuki India Ltd. July 30, 2018
stringent eligibility criterion will have negative impact on overall demand of cars. The recent hike
of 25 basis points is indicative of higher finance rates going forward.

SURGING FUEL Fuel prices are at record levels at this moment which
PRICES AND CAB may dampen customer sentiment going forward. The
AGGREGATORS Crude prices have surged almost 60% from lows do
far in FY 19. Surging fuel prices may prompt car
buyers to defer their purchase decision and shift to
cab aggregators such as Ola and Uber which
contribute less than 10% to the Company’s sales.
Drivers associated with cab aggregators use old cars
running on CNG which is more economical than
Petrol and Diesel. Rising acceptance of shared
mobility through these aggregators (due to easy
access through digital platforms / apps) and
improving Metro Train network in metro cities may
adversely affect the car demand in the future.
LABOUR LAW The Industry has been plagued by high incidence of strikes due to outdated labour laws. These
REFORMS were for long considered to be the flash point between automotive companies and their labour
force. The strike by labour union halts production and sales both and overshadows financial
performance of a Company.

MARK TO The Company has investment of Rs. 27365.8 Crore in various debt mutual fund schemes. Any
MARKET LOSS ON market to market notional loss on the investment may adversely affect financial performance for
INVESTMENTS the respective period. Fall in other income in Q1 FY 19 was on account of return on investments.

INVESTMENT RATIONALE
CONSISTENT The Company has witnessed better than industry growth between FY 14 - FY 18. Its operating
FINANCIAL income has grown at a four years CAGR of 16% and rose to Rs. 79809.40 Cr in FY 18 from Rs
PERFORMANCE 44450 Cr in FY 14. Its net profit (despite paying more than 5% of sales as Royalty Fee to the Parent
Company) has grown at a CAGR of 29% during the same period from Rs 2852.92 Cr in FY 14 to
The Company shifted Rs. 7880.70 Cr in FY 18. The Company’s operating profit margins range around 15% which are
its focus from small the best in the industry. Increasing contribution of Nexa range (Maruti Suzuki’s crossover S-
car manufacturing to Cross, its sedan Ciaz, the premium hatchback Baleno, and the youth-centric Ignis hatchback) into
the sedan, premium the Company’s sales has helped it to achieve higher margins which are likely to continue in the
hatchbacks and future as well from this segment.
utility vehicles which
resulted into The Company’s net worth has grown at 20% CAGR during FY 14 - FY 18. It has considerable
improved product brought down its debt from Rs 2004 Cr in FY 14 to Rs 110.8 Cr in FY 18. The Company enjoys
mix yielding better status of an almost debt free company.
margins for the Consolidated Financial Performance at a Glance (Fig in Rs Cr)
4 Yrs
Company. Particulars FY 20 E FY 19 E FY 18 FY 17 FY 16 FY 15 FY 14 CAGR
Sales 105516.01 90184.62 79809.40 68085.00 57589.00 50801.31 44450.58 15.76%
Operating Profit 15121.38 12778.15 12063.40 10358.10 8888.70 6843.99 5203.86 23.39%
Net Profit 12374.17 10473.93 7880.70 7511.00 5497.20 3807.44 2852.92 28.92%
OPM 14.33% 14.17% 15.12% 15.21% 15.43% 13.47% 11.71% 6.60%
NPM 11.73% 11.61% 9.87% 11.03% 9.55% 7.49% 6.42% 11.37%
Equity 151 151 151 151 151 151 151 0.00%
Reserves 67652.90 55278.73 44804.80 36924.10 30465.00 24167.40 21345.40 20.37%
Networth 67803.90 55429.73 44955.80 37075.10 30616.00 24318.40 21496.40 20.26%
Total Debt 302 201 110.8 483.6 230.9 666.2 2004.1 -51.51%
Debt / Equity (x) 0.00 0.00 0.00 0.01 0.01 0.03 0.09 -59.68%
Dividend (Rs / share) 126 106 80 75 35 25 12 60.69%
EPS (Rs. / Share) 409.74 346.82 260.95 248.71 182.03 126.07 94.47 28.92%
P/E (x) 22.86 27.01 35.89 37.66 51.46 74.30 99.15
Book Value (Rs. / Share) 2245.16 1835.42 1488.60 1227.65 1013.77 805.25 711.80 20.26%
P/BV (x) 4.17 5.10 6.29 7.63 9.24 11.63 13.16
RONW 18.25% 18.90% 17.53% 20.26% 17.96% 15.66% 13.27%
Source: M oneycontrol, Accord Fintech, NDA Research

NDA Securities Ltd Page 8

Maruti Suzuki India Ltd. July 30, 2018
STRONG SALES The Company is witnessing strong sales consistently over the years. Its domestic sales and export
GROWTH sales have grown at a four year CAGR of 12% and 6% respectively during FY 14 - FY 18.
Maruti - Vehicle Sales Growth
Category FY 14 FY 15 FY 16 FY 17 FY 18 4 Yr CAGR Q1 FY 19 Q1 FY 18 Change
Passenger Cars Sales 890455 973531 1067464 1095891 1234571 9% 348425 274522 26.92%
Passenger Vehicles Sales 163234 197171 237887 347750 408896 26% 110542 92864 19.04%
Light Commercial Vehicles Sales 0 900 10033 4873 1045 366.32%
Domestic Sales 1053689 1170702 1305351 1444541 1653500 12% 463840 368431 25.90%
Exports Sales 101352 121713 123897 124,062 126074 6% 26639 26140 1.91%
Total Sales 1155041 1292415 1429248 1568603 1779574 11% 490479 394571 24.31%

Financial Performance - Maruti Suzuki India is outperforming listed competitors Mahindra &
COMPARISON Mahindra (M&M) and Tata Motors in sales growth. Its sales grew at a four year CAGR of 15.76%
WITH PEERS compared with 5.62% sales growth of M&M and 6.31% of Tata Motors (Consolidated). The
Company has lowest debt on books compared with both of them and enjoys almost zero debt
status. M&M has 1.23x and 0.82x of Tata Motors. The Company enjoys highest margin compared
The Company’s
with both M&M and Tata Motors. (Please go through the table below for more details)
dividend payout has
grown at 4 yrs CAGR Stock performance - The stock of the Company has delivered excellent returns compared to Tata
of 60.69% between Motors and M&M in last five years (Please see the chart below).
FY 14 - 18.

Best Returns
delivered by the Stock
of the Company in
comparison with
listed peers

Particulars FY 18 Consolidated Fig in Rs Cr Maruti M&M Tata Motors

Net Income 79809.40 92093.95 294619.18
Operating Profit 12063.40 13857.13 -7691.91
The Company enjoys Net Profit 7880.70 7510.39 9091.36
highest margins
compared with peers Operating Profit Margins (%) 15.12% 15.05% -2.61%
Net Profit Margins (%) 9.87% 8% 3%
Equity 151 543.13 679.22
Reserves 44804.8 36,232.06 94,725.82
Networth 44955.8 36775.19 95405.04
Debt 110.8 45134.72 77994.35
Book Value (Rs /share) 1488.60 338.55 280.93
EPS (Rs /share) 260.95 69.14 26.77
CMP (INR) (Jul 27, 2018) 9310.40 909.85 268.15
FV (Rs / share) 5 5 2
M-Cap (Rs Cr) 281174.08 98833.37 91066.42
M-Cap / Sales (x) 3.52 1.07 0.31
PE (x) 35.68 13.16 10.02
P/BV (x) 6.25 2.69 0.95
Lowest Debt/Equity Debt / Equity Ratio (x) 0.00 1.23 0.82
ratio and high RONW RONW 17.53% 20.42% 9.53%
Dividend Yield 0.86% 0.82% 0.00%
Source: M oneycontrol.com, BSE, Results Press Release

NDA Securities
Securities Ltd
Ltd Page 9
Maruti Suzuki India Ltd. July 30, 2018

HOW COMPANY The Company delivered decent financial performance in first quarter of FY19 with Net Profit
PERFORMED IN growing at 5% QoQ and 27% YoY. It reported Net Profit of Rs 1975.3 Crore in Q1 FY 19 vs Rs.
Q1 FY 19 1882.1 Crore in Q4 FY 18 and Rs. 1556.4 Crore in Q1 FY 18. The Operational performance and
bottom-line faced challenges from increased raw material cost, other expenses (which includes
Royalty Fees payment to the Parent Company, funds outflow on account of forex adjustments etc)
and tax expenses. Tax expenses grew 20% QoQ and 22% YoY. The operating profit margins and
net profit margins improved YoY but fell QoQ. (Please see the graphic below for more details).

It reported sales of Rs 22459.4 Crore in Q1 FY 19 against Rs. 21165 Crore in Q4 FY 18 and

Rs.19777.4 Crore in Q1 FY18. Sales growth stood at 6% (QoQ) and 14% (YoY). However lower
other income impacted its gross revenues to an extent. Other income fell 54% QoQ and 60% YoY.

The Company is meeting demand of its vehicles through increased capacities at Gujarat plant and
witnessed fall in waiting period of its hot selling models. Despite intense competition, it is
outperforming industry growth and hopeful of same trend in the future as well.
QUARTERLY RESULTS Standalone Fig in Rs. Crore
Particulars Jun-18 Mar-18 Change (QoQ) Jun-17 Change (YoY)
Revenue 22459.4 21,165.60 6% 19777.4 14%
EBITDA 3622.90 3610.00 0% 3013.90 20%
Profit 1975.3 1882.1 5% 1556.4 27%
EBITDA Margins 16.13% 17.06% 15.24%
Profit Margins 8.79% 8.89% 7.87%
Components which impacted quarterly performance
Other Income 271.80 595.00 -54% 682.70 -60%
Raw Material Cost 12003.30 11929.80 1% 10498.30 14%
Other Expenses 2857.60 2962.10 -4% 2295.80 24%
Finance Cost 20.70 273.10 -92% 31.30 -34%
Tax Expenses 907.10 752.30 21% 742.30 22%
Other Expenses includes Royalty fee paid to the Parent Company

VALUATIONS The stock of the Company is trading at PE of 26.85x to FY 19 Estimated earnings and P/BV ratio
stands at 5.07x to FY 19 Estimated book value. Its market cap / to FY 18 sales is at 3.52x which is
higher than the peers M&M (1.07x) and Tata Motors (0.31x). Higher valuations of the Company
are justified by consistent improvement in financial performance in last five years.

CONCLUSION We believe that the Company has major competition from itself in the Indian Car market. Swift
Dzire, Swift and Baleno are competing with each other in compact car segments whereas S-Cross
and Vitara Brezza are competing with each other in utility vehicle segment. Its products are the top
selling models in their respective segments. It successfully survived two major bold steps i.e.
Demonetisation and Goods and Services Tax of the current Central Government led by Mr
Narendra Modi. We believe Gujarat plant and Toyota arrangement may help it to exploit surged
demand in the passenger vehicle market more efficiently. The Company is likely to be the key
beneficiary in the Automobile sector after implementation of hiked wages for the Government
employees who contribute near 20% in the Company's sales. However there may be some
negative impact on the margins of the Company on account of fluctuation in commodity prices,
fuel prices and exchange rate. The Company will have to absorb the impact of hiked commodity
prices to beat the competition and has to pay royalty fees for old models in foreign currency (YEN)
only. It also imports components like electrical, inner parts, ECUs, engine and transmission parts
from foreign vendors.

Considering its strong brand value, consistent financial and sales performance, strong parentage
from Suzuki Motor, Japan, very shareholder friendly dividend policy and benign prospects of
Indian car market, we are initiating a coverage on the Company and recommend “Accumulate on
every DIP” as a must have scrip in the model portfolio of every investor.

NDA Securities
Securities Ltd
Ltd Page 10
Maruti Suzuki India Ltd. July 30, 2018

Source of Info:
§ Company’s website
§ Company’s Annual reports,
§ Concall transcript
§ BSE / NSE website
§ SIAM Website
§ Autocar India
§ Articles on Internet

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