MARUTI SUZUKI

Introduction

Maruti Suzuki India Limited, formerly known as Maruti Udyog Limited, is an automobile
manufacturer in India. It is a 56.21% owned subsidiary of the Japanese car and motorcycle
manufacturer Suzuki Motor Corporation. As of July 2018, it had a market share of 53% of the
Indian passenger car market. Maruti Suzuki manufactures and sells popular cars such as the
Ciaz, Ertiga, Wagon R, Alto K10 and Alto 800, Swift, Celerio, Swift Dzire, Baleno, Omni,
Eeco, Ignis, S-Cross, Vitara Brezza and newly launched S-Presso small SUV. The company
is headquartered at New Delhi. In May 2015, the company produced its fifteen millionth
vehicle in India, a Swift Dzire.

As of today, Maruti Suzuki has recorded sale of 2.1 Crore vehicles sold across 3.5K
showrooms. They have 04 manufacturing plants in India out of which 03 are located in
Gurgaon and 01 in Gujarat

Background

In 1982, a license and joint venture agreement (JVA) was signed between Maruti Udyog Ltd,
and Suzuki of Japan. At first, Maruti Suzuki was mainly an importer of cars. In India's closed
market, Maruti received the right to import 40,000 fully built-up Suzuki in the first two years,
and even after that the early goal was to use only 33% indigenous parts.

In 1989, the Maruti 1000 was introduced and the 970 cc, three-box was India's first
contemporary sedan. By 1991, 65 per cent of the components, for all vehicles produced, were
indigenized. After liberalization of the Indian economy in 1991, Suzuki increased its stake in
Maruti to 50 per cent, making the company a 50-50 Joint Venture with the Government of
India the other stake holder.

In 2006 Suzuki and Maruti set up another joint venture, "Maruti Suzuki Automobiles India",
to build two new manufacturing plants, one for vehicles and one for engines. Cleaner cars
were also introduced, with several new models meeting the new "Bharat Stage III" standards.

In 2007, government exited Maruti by selling their 10% (approx.) share for 2,360 crores INR.
Sales and Profit Trendline

The following graph captures the growth in terms of sales (by volume) for Maruti Suzuki in
last 07 years:

Units Sold (Domestic Market)

2000000
1800000

1753700
1600000

1653500
1400000

1444541
1200000

1305351
1170702
1000000 1053689
1051046
1006316

800000
600000
400000
200000
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Units Sold Linear (Units Sold)

It is evident that the company has mostly recorded higher growth numbers year after year in
last 07 years. However, even though the current fiscal year is not over, but the sales have hit a
slump and this year’s consolidated figures stand at 12,76,128 for this calendar year up till
October 2019. Hence it is expected that the year will end with sales of approximately 15 lac
vehicles; i.e., a dip of 2.3 lac units.

The following graph captures the growth in terms of profitability:

Profit After Tax

2014-15

2015-16

2016-17

2017-18

2018-19

0.00 1,000.00 2,000.00 3,000.00 4,000.00 5,000.00 6,000.00 7,000.00 8,000.00 9,000.00

Profit After Tax Linear (Profit After Tax)

We can see that Maruti Suzuki has more than doubled the profits in last 05 years.
Product line & Market Share

The following chart illustrates the different kind of car models sold by Maruti Suzuki in India
along with the contribution made by each car model to the total units of cars sold by Maruti
Suzuki in this calendar year:

Units Sold
2.07% 1.24%
4.07% 13.00%
6.42%
7.55% 12.39%

7.95%

11.77%
10.23%
11.55% 11.77%

Swift Dzire Swift Alto K10 Alto 800 Baleno WagonR

Brezza Eeco Ertiga Celerio Ciaz S-Cross

The following charts capture the market share for Maruti Suzuki in last two financial years:

2018 2017

In these two years, the market share has remained consistent for all the major players with
minute deviations as increments or reductions.
Global Supply Chain

Maruti Suzuki India MD and CEO, Kenichi Ayukawa has claimed that 90% of MSI (Maruti
Suzuki India) are manufactured in India itself in terms, component-wise. But there are certain
areas in terms of electronics and other key parts which are required to be imported. Details of
those parts (Data for which was gathered through extensive primary research) are as follows:

Volume (Intermodal
Parts Country of Origin
Containers)
Daytime running lamp for Dzire China 275
Shock Absorber for Swift China 12
Shock Absorber for Baleno China 20
Daytime running lamp for Ciaz China 30
Nuts Japan 300
Senso Deluxe Car Perfume Gel Poland 14
Safety Glass for WagonR China 104
Brake Pads China 80
Spare Tire Kit Belgium 8
Front Bumper with Fog Belgium 19
Disc Brake Philippines 9
Front Fog Lamp Philippines 1
Input Shaft Australia 1
Crank Thrust Oman 2
Ventilator Belgium 2
Rear Wheels Venezuela 4
Hinges Venezuela 2
Front Door Outer Layer Indonesia 1
Maruti Suzuki also exports certain components which are manufactured in India, to other part
of the world. Following are the details of the components exported by Maruti Suzuki:

Volume (Intermodal
Parts Country of Destination
Containers)
Automated Manual Transmission South Korea 2
Manual Transmitter South Korea 55
Automatic Regulator USA 270

In terms of full-fledged export of vehicles and not the spare parts, Maruti exports to countries
like Chile, Indonesia, Bangladesh, South Africa, Uruguay and Nepal along with developed
nations like Australia, Netherlands, UK, Germany, France, and Italy. The top cars exported
are Alto K10, Celerio, Baleno, Ignis and Dzire among 14 other models. In the month of
September, Maruti exported car number 18,00,000 which was an Oxford Blue coloured
Dzire, which left for Chile. Even Japan, which is the country of origin for Suzuki, will import
20,000 – 30,000 Baleno cars from India.

On occasions, in order to meet rapid needs, Maruti tend to import even though they have
capability to produce in the domestic market itself. As commencing production for
production of a small number of parts is more expensive than flying or shipping the units
from APAC region.

Government Policies

1. Technological freedom: Maruti Suzuki CEO Ayukawa has explained that government
needs to create policy framework around supporting in-house R&D capability which
is a very long drawn process and the results come slowly.
2. If anybody can make electronic components and some key parts in India with quality
and reliability, it will not only help MSI, but the entire Indian automobile industry
3. The fiscal measures, tax reliefs and reforms brought by the government on a regular
basis since the liberalization policy of 1991 in equity regulations and foreign
exchange has led to significant growth in the automobile sector.
4. The government has recently proposed for an infrastructure that will provide one stop
clearance for any kind of proposal for foreign direct investment in the automotive
sector.
 5. The Indian government is also urging the state governments to ensure continuous
power supply to the automotive manufacturing units as well as granting them with the
preferred plots of land. This will include the local clearance system also for the same
purpose.
6. There are also plans for imposing a 100 % tax deduction on export profits before the
end of the current NDA government’s regime, 2024
7. The auto emission rules issued by the government in recent years ensured that the
vehicles manufactured in India, catered to international standards.
8. With the introduction of the more stringent Bharat Stage VI (BS-VI) emission norms
from 2020 and new safety norms from 2019, the standards of vehicles produced in
India are likely to be on par with those in developed markets.
9. Mr. Gadkari also said that his Ministry would award 68 road projects worth about ₹5
lakh crore in the next three months, which, in turn, would help generate demand for
commercial vehicles.

Last financial year witnessed automobile exports jump from 24% year-on-year in the first
half of this financial year to nearly 2.42 million units. Currently India exports 8% of
automobile to Africa which does not denote complete utilization of opportunity.

Overall, India is also becoming the ultimate outsourcing destination for global automobile
companies like Ford, Mitsubishi, Toyota, Hyundai etc.
HERO MOTOCORP

Introduction

Hero MotoCorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter
manufacturer based in New Delhi, India. The company is the largest two-wheeler
manufacturer in the world, and also in India, where it has a market share of about 36% in the
two-wheeler category. The 2006 Forbes list of the 200 World's Most Respected Companies
has Hero Honda Motors ranked at #108. On 31 March 2013, the market capitalization of the
company was ₹308 billion (US$4.5 billion). Hero MotoCorp has sold over 90 million two
wheelers till date.

With innovation at the core of its philosophy, the New Delhi (India) headquartered Hero
MotoCorp has been at the forefront of designing and developing technologically advanced
motorcycles and scooters for customers around the world.

Background

"Hero" is the brand name used by the Munjal brothers for their flagship company, Hero
Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was
established in 1984 as the Hero Honda Motors Limited at Dharuhera, India. Munjal family
and Honda group both owned 26% stake in the Company.

During the 1980s, the company introduced motorcycles that were popular in India for their
fuel economy and low cost. In 2001, the company became the second largest two-wheeler
manufacturing company in India and globally. It maintains global industry leadership to date.

In 2010, when Honda decided to move out of the joint venture, Hero Group bought the shares
held by Honda, and focused on its entirely owned subsidiary, Honda Motorcycle and Scooter
India (HMSI). In June 2012, Hero MotoCorp approved a proposal to merge the investment
arm of its parent Hero Investment Pvt. Ltd. with the automaker. This decision came 18
months after its split from Hero Honda.

Under the joint venture Hero Group could not export to international markets (except Nepal,
Bangladesh and Sri Lanka) and the termination would mean that Hero Group could now
export. From the beginning, the Hero Group relied on their Japanese partner Honda for the
technology in their bikes. Hero MotoCorp can now export to Latin America, Africa and West
Asia.
Sales and Profit Trendline

The following graph captures the growth in terms of sales (by volume) for Hero MotoCorp in
last 05 years:

Units Sold (Domestic)

9000000
8000000
7000000
6000000
5000000

7820000
7590000
4000000

6640000
6630000
6430000

3000000
2000000
1000000
0
2014-15 2015-16 2016-17 2017-18 2018-19

Units Sold Linear (Units Sold)

The graph depicts that over the years, Hero MotoCorp has witnessed consistent growth of
5.5% year after year. However, this year the company has not witnessed similar trends. In
September 2019, Hero MotoCorp sales went down 20.40% at 612,204 compared to 769,138
units in September 2018.

Following graph captures the trends in terms of profitability in last 05 years:

Profit After Tax

2014-15

2015-16

2016-17

2017-18

2018-19

0 500 1000 1500 2000 2500 3000 3500 4000

Profit After Tax Linear (Profit After Tax)

In terms of Profits, results have been mixed. While growth has been significant and overall
trend has been upwards, profit fell in the last fiscal year.
Product Line and Market Share

1. Karizma ZMR: Since relaunch, only 76 units were sold in 11 months with 0 units
being sold in the last month of FY19
2. XPulse 200 and 200T: Hero launched the two variants on 02 May 2019 and the bikes
have been selling well with more than 10K units being sold by October 2019
3. Xtreme 200R and 200S: The two variants were launched in May 2019 but only 3.5K
units could be sold by October 2019
4. Hero Achiever: This model got discontinued in this financial year after sales fell
considerably from 2017 to 2018
5. Hero Glamour: Technical snags have been reported continuously leading to fall in
number of units sold by 77K from Q3FY18 to Q3 FY19
6. Hero Splendor: Hailed as one of the most successful bikes in India, company
registered sales of more than 2 lacs consistently in each month during FY19
7. Hero Maestro: Third largest seller of scooters with approximately 5 lacs units sold in
FY19
8. Pleasure: Eighth largest seller with 1,83,039 units sold in the last fiscal year, recorded
YoY growth of 25 percent

The following charts capture the Market Share for Hero MotoCorp for two consecutive years:

2018 2017

The Market Share of Hero MotoCorp is constant around 36% while TVS MotoCorp has
gained at the expense of Honda Motors.
Global Supply Chain

In 2018, Credit Suisse assessed that raw material index for two-wheelers and four-wheelers
have reached the highest level since 2011. The impact of higher raw material was visible
from the compression in the gross margins of most of the auto manufacturers.

Typically, raw material cost accounts for 60-74 per cent of the total revenue of the auto
companies. Steel, copper, rubber and plastic components are the major raw materials for the
sector which are estimated to increase the overall raw material cost by 15%

The findings are likely to increase the volume of imports of following components and parts
currently traded by Hero MotoCorp:

Volume (Intermodal
Parts Country of Destination
Containers)
Handles and Knobs Indonesia 30
Aluminium Wheels (Unfinished) China 550
Alloy Wheels China 342
Rubber for Wheels China 300
Small Alloy Wheels China 220
Aluminium Wheels (Finished) China 202
Steel Gasket Japan 55
Carburetor Japan 20

Hero MotoCorp has also imported 12 Motorized Cycles which are pedal assisted along with
battery from Sri Lanka in recent times.

Following are the countries to which Hero exports finished products from India:

Sri Lanka Kenya Brazil

SOUTH AMERICA
ASIA

AFRICA

Bangladesh Mozambique Argentina

Nepal Tanzania Columbia
Bhutan Uganda Guatemala
Myanmar Ivory Coast Honduras
UAE Burkina Faso El Salvador
Iran Congo Nicaragua
Turkey Angola
Egypt Ethiopia
Challenges:

1. Hero faces tough competition in the popular premium scooter segment with Honda’s
trump card — the Activa, for the first-time buyer — played out and earned it
leadership position and 55% market share in scooters.
2. As scooterisation rode the crest, the share of mass market motorcycles narrowed the
volume gap between scooters and entry-level motorcycles to a mere 4%.
3. Hero’s market share has come down from 46% to 36-37% while Honda’s share has
increased from mere 13% to 28% since the two giants parted ways
4. The launches of this year like he Xtreme 200R and Xpulse 200 will test HMCL’s
market competency going ahead, in the premium market segment.
5. Hero had to strengthen its R&D since the split which led to huge investments of $120
million due to pressure to deliver products
6. Hero has been ramping up manufacturing facilities, gearing up to take installed
capacity to 11 million units of motorcycles and scooters per annum
7. With the world going EV and competitors launching products in the similar lines
(Bajaj launched Electric Chetak) Hero MotoCorp will have to deliver a product ready
for the streets soon
8. With New Chief Technology Officer Vikram Kasbekar, internal dynamics will have
to be established and strengthened at the earliest.
Analysing the Indian Automobile Sector

The automobile industry in India is world’s fourth largest, with the country currently being
the world's 4th largest manufacturer of cars and 7th largest manufacturer of commercial
vehicles in 2018. Indian automotive industry (including component manufacturing) is
expected to reach Rupees 16-18 trillion (US$ 251.4-282.8 billion) by 2026. The mood of
India’s Rupees 4.8 lakh crore automobile industry, the sector that employs 37 million people
(direct and indirect), contributes 7.5% to the country’s GDP and 49% to the manufacturing
GDP, is staring at a multi-layered crisis because of sub-optimal use of factories and shedding
workers.

Contribution to International Trade

Automobile exports have reached 4.63 million vehicles in FY19, which means a CAGR of
8.11 percent from FY13 to FY19. In FY19 itself, automobile exports have grown 14.5
percent and is expected to grow at CAGR 3.05 percent during FY16 to FY26. Indian
automobile industry has received Foreign Direct Investment (FDI) worth Rupees 1, 49,424
crore (US$ 21.38 billion) between April 2000 and March 2019. India’s government expects
automobile sector to attract US $ 8-10 billion in local and foreign investments by 2023.

The Following graph captures the how the exports have grown over the last 07 years:

CAGR 8.11%
Current Challenges

Fuel price volatility affects the sector from growing not only in India but elsewhere too. Same
goes for environmental issues and compliance that has to do with the use of material that
pollute and the management of scrap (not understating fuel emissions). Growing competition
and changing consumer preference coupled with infrastructure constraints and most
importantly human resource challenges are currently there whereas the minimum import
price on steel and incidence of levies where present previously. Also, the comparatively low
Research and Development orientation relative to global standards poses a challenge to the
automotive sector. Multiple shocks starting with demonetisation, many decisions like GST
roll-out and multi-year insurance have heavy on consumers. Tech-led disruptions like shared
mobility from firms such as Ola and Uber have dented demand in urban market. Election
pause and policy resets, meddling by multiple ministries and policy flip-flops like
leapfrogging from BS-IV to BS-VI, sudden diesel ban and EV thrust to name a few have hurt
sales.

Opportunities

India is fast emerging as a global Research and Development hub with foreign firms
increasing their footprints since there is a strong education base and a large skilled English-
speaking manpower providing comparative advantage in terms of cost. Opportunities for
creating sizeable market segments through innovations are seen across the country and as the
small-car manufacturing hub, passenger vehicle market is expected to touch 10 million units
by 2020. By 2030, it is foreseen that the country would be a forerunner in shared mobility,
providing opportunities for electric and autonomous vehicles. Sales of electric two-wheelers
takes off quickly unlike electric cars which takes some time to be sold en masse.

Government Initiatives

The Automotive Mission Plan 2016 – 2026 contemplates the possibility of India being one of
the top manufacturing centres in the world by 2026. Foreign Direct Investments (FDIs) are
one hundred percent allowed by India’s Government for the sector dealing with automobiles.
The objective for the Indian government is to promote the growth of India as a Research and
Development centre as well as a manufacturing hub, globally. NATRiP, short form for
National Automotive Testing and Research and development Infrastructure Project, would
position India as highly visible, in the global context through joint efforts. Under (NATRIP),
five testing and research centres have been established in the country since 2015. FAME
(Faster Adoption and Manufacturing of [Hybrid] and Electric Vehicles in India) scheme has
introduced electric vehicles in 11 cities. Number of vehicles supported under FAME scheme
has increased to 192,451 units in March 2018 from 5,197 units in June 2015.

Strategy

Research and Development on alternate energy sources and hybrid vehicles through FAME
scheme (The first phase of the scheme had been extended to March 2019 while In February
2019, the Government of India approved the FAME-II scheme with a fund requirement of
Rupees 10,000 crore (US$ 1.39 billion) for FY20-22) and environmental compliances such as
Barat Stage VI emission standards along with infrastructure and human resource
development by encompassing better roads with battery recharge stations for the former and
the major thrust by Automotive Mission Plan for the latter. Funding electric two-wheeler
start-ups that are costlier than ones that run on conventional fuels, but with almost negligible
operating cost, are a part of investments in electrification of two-wheeler models that have
been running over two decades and would be taking full form in the immediate future.
References

Secondary Research:

Goyal, M. (2019, April 28). With India's economy growing at about 7%, why the auto industry is
hurting so badly? Retrieved from
https://economictimes.indiatimes.com/industry/auto/auto-news/when-indias-economy-is-growing-at-
about-7-then-how-could-auto-industry-be-hurting-so-badly/articleshow/69075048.cms.

India Brand Equity Foundation. (2019, November 1). Indian Automobile Industry: Market Size,
Investment Opportunity & Government Initiatives. Retrieved from
https://www.ibef.org/industry/india-automobiles.aspx.

Primary Research:

Varun Kawatra Kushagra Kohli

Assistant Manager Manager operations
Maruti Suzuki Hero MotoCorp