Maruti Suzuki Equity Research

Date of Research – 19 January 2016

Price – Rs. 4,204.20

About the Company

Maruti Suzuki India Limited (“Maruti” or the “Company”) has been the leader of the Indian passenger car market. The Company has two manufacturing facilities located at Gurgaon and Manesar. The Company’s portfolio includes Maruti 800, Alto, Alto K10, A-star, Estilo, WagonR, Ritz, Swift, Swift DZire, SX4, and Ertiga.


Market Leader in Passenger Vehicle Segment

Maruti Suzuki commands 45% in the passenger vehicle (cars, sports utility vehicles (SUV) and vans) segment with Alto, Swift, Dzire and WagonR as the top 4 most selling passenger vehicle brand. The Company holds leadership position in passenger vehicle segment due to its continuous effort to build on its competitive value proposition by constantly upgrading models with latest technologies without a major increase in cost and penetrating deeper into the country to find new buyers.

New Product Launches

The Company is always focused on launching new vehicles to tap more number of buyers in the passenger vehicles segment. Maruti has been at the forefront of upgradation and new vehicle launches for over 2 decades.

Strong distribution network

The Company continues to hold dominant market share on the back of its vast distribution network (~1200dealerships in ~800 cities) and strong service network (~3000 workshops in ~1400 cities). The Company is also establishing a chain of retail outlets branded Nexa to exclusively cater to the sale of premium products starting with upcoming cross-over utility vehicle S-Cross.


Intense Competition

The automobile industry is highly competitive and competition is likely to further intensify in view of the continuing globalization and consolidation in the worldwide automotive industry. On the domestic front, Maruti Suzuki competes against Tata Motors, Mahindra & Mahindra, Hyundai Motors, and Honda. The competition within the industry is increasing further with new players entering the market and some smaller players catching up.

Production Capacity Constraint

The Company’s manufacturing capacity in Gurgaon and Manesar will be fully utilised till FY 2017. Delays in getting approvals for a new manufacturing plant in Gujarat could seriously affect the production target of Maruti Suzuki.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 44,304.25 44,450.58 50,801.31 58,612.00  77,316.40 
Expenses 39,976.44 39,246.72 43,957.32 49,493.20   66,958.30 
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 4,327.81 5,203.86 6,843.99 9,118.80   10,358.10 
Depreciation 1,889.77 2,115.98 2,515.26 2,867.00   2,603.90 
Finance Costs 197.84 184.56 217.81 93.70   89.40 
Other income 830.11 830.53 865.04 471.50   2,289.60 
PBT 3,070.31 3,733.85 4,975.96 6,629.60   9,954.40 
Tax 621.54 902.26 1,185.39 1,998.70   2,616.20 
PAT (before Minority Interest and share of Associates) 2,448.77 2,831.59 3,790.57 4,630.90   7,338.20 
Profit/ (loss) attributable to Minority Interest 1.34 1.60 1.15 1.00   – 
Share of profit / (loss) of Associates (21.86) (22.93) (18.02) (68.90)  (172.80) 
Consolidated Profit / (Loss) for the year 2,469.29 2,852.92 3,807.44 4,698.80   7,511.00 

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 9.77 11.71 13.47 15.56   13.40 
Net Profit Margin Ratio 5.53 6.37 7.46 7.90   9.49 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 144.50 151.00 151.00 151.00 151.00 
Reserves & Surplus 15,530.00 18,876.80 21,345.40 24,167.40 27,597.70 
Net worth (shareholders funds) 15,674.50 19,027.80 21,496.40 24,318.40 27,748.70 
Minority Interest 10.60 12.20 13.40 14.40 
Long term borrowings 169.80 704.90 627.40 278.30 147.10 
Current liabilities 6,677.00 6,971.90 8,230.90 8,982.40 11,460.10 
Other long term liabilities and provisions 271.10 338.00 448.30 401.70 424.50 
Deferred Tax Liabilities 306.90 417.60 596.20 484.40 475.10 
Total Liabilities 23,099.30 27,470.80 31,411.40 34,478.60 40,269.90 


Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 8,357.70 11,989.60 13,673.20 14,379.60 13,989.30 
Noncurrent Investments 1,790.90 2,146.00 1,521.20 9,991.80 17,511.70 
Current assets 11,242.00 11,154.10 14,553.60 8,696.40 7,404.30 
Long term advances and other noncurrent assets 1,708.70 2,181.10 1,663.40 1,410.80 1,364.60 
Total assets 23,099.30 27,470.80 31,411.40 34,478.60 40,269.90 

Efficiency Analysis

Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 15.94 21.92 23.51 27.81 32.67 
ROE / RONW 10.72 12.98 13.27 15.66 16.69

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 44,304.25 44,450.58 50,801.31 58,612.00 77,316.40 
Growth (%) 22.76 % 0.33 % 14.29 % 15.37 % 31.91 % 
PAT (Rs. Cr.) 2,448.77 2,831.59 3,790.57 4,630.90 7,338.20 
Growth (%) 49.90 % 15.63 % 33.87 % 22.17 % 58.46 % 
Earnings Per Share – Basic (Rs. ) 81.74 94.44 126.04 155.55 248.64 
Earning Per Share – Diluted (Rs. ) 81.74 94.44 126.04 155.55 248.64 
Price to Earnings 15.66 20.67 30.27 23.91 29.62 

Dividend History

The Company has maintained an average dividend yield of 0.61 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Maruti’s average current ratio over the last 5 financial years has been 1.70 times which indicates that that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Maruti’s average long term debt to equity ratio over the last 5 financial years has been 0.03 times which indicates that the Company operates with a low level of debt and is well placed to pay for its obligations.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Maruti’s average interest coverage ratio over the last 5 financial years has been 77.99 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Maruti reported a promoter holding of 56.21 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 36.48 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.