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7/26/2019 MSIL Analyst Report
1/48
abcGlobal Research
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 FY13from the peak seen in FY12. Along with thelaunch 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 spare-
part 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% discountto 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 competitionfrom global OEMs
Besides likely moderation in competition, Maruti's new launches should improve its competitivestrength. Also Marutis lower maintenance cost and spare parts should be able to positively influenceword 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 possibleintroduction 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
Overweight
Targetprice (INR) 1,200.00Share price (INR) 953.60Forecast dividend yield (%) 0.8
Potential return (%) 26.6
Note: Potential return equals the percentagedifference between the current share price andthe target price, plus the forecast dividend yield
Mar 2011 a 2012 e 2013 eHSBC EPS 79.19 62.39 86.67HSBC PE 12.0 15.3 11.0
Performance 1M 3M 12M
Absolute (%) -12.9 -17.7 -33.8Relative^ (%) -6.9 -13.5 -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
Vivek Gedda*
Associate
Bangalore
View HSBC Global Research at:http://www.research.hsbc.com
*Employed by a non-US affiliate ofHSBC Securities (USA) Inc, and is notregistered/qualified pursuant to FINRAregulations
ssuer of report: HSBC Securities andCapital Markets(India) Private Limited
Disclaimer &Disclosures
This report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it
Industrials
Autos
Equity India
Company report
Enterprise value (INRm) 203822Free float (%) 100Market cap (USDm) 5,270Market cap (INRm) 275,505
Source: HSBC
Maruti Suzuki India (MSIL)
Initiate OW: The dawn approaches
We expect strong structural growth in Indias car industry;Maruti is likely to be a key beneficiary
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 growat 27% CAGR in FY12-14e
Index^ BOMBAY SE IDXIndex level 15,700RIC MRTI.BOBloomberg MSIL IN
Source: HSBC
http://www.research.hsbc.com/http://www.research.hsbc.com/http://www.research.hsbc.com/http://www.research.hsbc.com/ -
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Maruti Suzuki India (MSIL)
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Financials & valuationFinancial statements
Year to 03/2011a 03/2012e 03/2013e 03/2014e
Profit & loss summary (INRm)
Revenue 370,400 365,714 432,291 498,408EBITDA 36,644 30,790 43,177 50,520Depreciation & amortisation -10,135 -11,703 -14,698 -17,195Operating profit/EBIT 26,509 19,087 28,479 33,325Net interest 1,839 2,354 2,216 2,743PBT 30,437 24,505 33,759 39,132HSBC PBT 31,088 24,505 33,759 39,132Taxation -8,202 -6,475 -8,711 -10,108Net profit 22,235 18,030 25,049 29,025HSBC net profit 22,886 18,030 25,049 29,025
Cash flow summary (INRm)
Cash flow from operations 36,405 31,617 42,491 48,650Capex -25,592 -30,288 -33,839 -29,261Cash flow from investment -4,893 -30,288 -33,839 -29,261Dividends -2,528 -2,705 -3,381 -3,381Change in net debt -29,224 1,376 -5,271 -16,008FCF equity 1,271 -11,361 776 11,465
Balance sheet summary (INRm)
Intangible fixed assets 0 0 0 0Tangible fixed assets 69,580 88,165 107,306 119,372Current assets 63,563 61,654 70,795 90,814Cash & others 25,085 23,709 28,979 44,988
Total assets 184,210 200,886 229,168 261,253Operating liabilities 37,184 38,348 44,287 50,728Gross debt 3,093 3,093 3,093 3,093Net debt -21,992 -20,616 -25,886 -41,895Shareholders funds 138,675 154,000 175,667 201,311Invested capital 70,874 87,762 104,835 114,470
Ratio, growth and per share analysis
Year to 03/2011a 03/2012e 03/2013e 03/2014e
Y-o-y % change
Revenue 25.0 -1.3 18.2 15.3EBITDA -7.3 -16.0 40.2 17.0Operating profit -15.3 -28.0 49.2 17.0
PBT -15.3 -19.5 37.8 15.9HSBC EPS -8.4 -21.2 38.9 15.9
Ratios (%)
Revenue/IC (x) 5.7 4.6 4.5 4.5ROIC 29.6 17.7 21.9 22.5ROE 17.8 12.3 15.2 15.4ROA 12.9 9.4 11.7 11.9EBITDA margin 9.9 8.4 10.0 10.1Operating profit margin 7.2 5.2 6.6 6.7EBITDA/net interest (x)Net debt/equity -15.9 -13.4 -14.7 -20.8Net debt/EBITDA (x) -0.6 -0.7 -0.6 -0.8CF from operations/net debt
Per share data (INR)
EPS reported (fully diluted) 76.94 62.39 86.67 100.43HSBC EPS (fully diluted) 79.19 62.39 86.67 100.43DPS 7.50 8.00 10.00 10.00Book value 479.84 532.87 607.85 696.58
Valuation data
Year to 03/2011a 03/2012e 03/2013e 03/2014e
EV/sales 0.5 0.6 0.5 0.4EV/EBITDA 5.5 6.6 4.6 3.6EV/IC 2.9 2.3 1.9 1.6PE* 12.0 15.3 11.0 9.5P/Book value 2.0 1.8 1.6 1.4FCF yield (%) 0.6 -5.1 0.3 5.1Dividend yield (%) 0.8 0.8 1.0 1.0
Note: * = B ased on HSBC EPS (fully diluted)
Price relative
366
566
766
966
1166
1366
1566
1766
2009 2010 2011 2012
366
566
766
966
1166
1366
1566
1766
Maruti Suzuki India Ltd Rel to BOMBAY SE SENSITIVE INDEX
Source: HSBC
Note: price at close of 23 Nov 2011
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Maruti Suzuki India (MSIL)
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Maruti will have a disappointing FY12 in our
view, with sales set to fall 6% and EBITDA
margin down 150bps. Headwinds are likely topersist 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 modelsin 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. Whilecompetition 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
Hyundai18%
Honda4%
Others8%
Tata
11%
VW4%
Ford4% GM
5%
Maruti41%
Toyota
5%Hyundai
18%
Honda4%
Others8%
Tata
11%
VW4%
Ford4% GM
5%
Maruti41%
Toyota
5%Hyundai
18%
Honda4%
Others8%
Tata
11%
VW4%
Ford4% GM
5%
Maruti41%
Toyota
5%
Source: SIAM, Crisil, HSBC
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
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Maruti Suzuki India (MSIL)
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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 super-
compact segment, the company is likely to launcha 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 long-
term 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
Table1.1: Maruti - key concerns and our view
Key concerns Our view for FY13
High competition from globalOEMs
Competition is likely to moderate going forward, as Maruti's new launches improve its competitive strength inFY13Maruti's lower maintenance cost and spare parts should also influence word of mouth in favour of Maruti in 2012and beyond for new cars
YEN appreciation Yen appreciation has impacted profitability in the past. We have not assumed any change in currency. Pleasefind the detailed analysis on yen sensitivity and Marutis exposure in the report
Dieselisation Maruti has also been impacted by a steep price increase in petrol vs. diesel, which created higher demand fordiesel cars. We believe as labour issues settle for Maruti and diesel variants pick up (along with the possibleintroduction of Wagon R diesel), Maruti should be able to leverage the India dieselisation trend.
Slower car demand in India Car demand in India should remain good in the long term. Our analysis of developed and developing countriessuggests that industry growth accelerates once penetration exceeds 20 cars per 1,000 people. India is close tothis level.
Source: Company data, HSBC estimates
Table1.2: DCF assumptions
FY12e FY13e CAGR FY13-18e CAGR FY18-25e
Total domestic PV market sales growth (Cars + UVs+ Vans) 5.6% 13.4% 13.1% 7.0%Total domestic Car sales growth 3.7% 13.4% 13.6% 7.3%Total domestic UV + Vans market growth 12.5% 13.7% 11.4% 5.8%
Market share of Maruti in Domestic Cars 43.7% 44.5%Total Sales (Domestic + Exports) Growth rates of Maruti -6.0% 14.2% 10.8% 6.2%EBITDA margins 8.4% 9.9%
Terminal growth assumed 4%Total PV 405,796Value per share 1,405
Source: HSBC estimates
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Maruti Suzuki India (MSIL)
Autos
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abc
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 returnequals 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.
Table 1.3: Past cycle and corresponding valuations
FY05-10 FY10-12
CAGR Revenue 13.2% 11.1%CAGR earnings 7.4% -15.0%Max PE 22.8x 17.4xMin PE 7.9x 11.2xAverage PE 14.3x 13.5x
FY12-14
CAGR Revenue 16.7%CAGR earnings 26.9%Current PE on FY12e EPS 15.3xCurrent PE on FY13e EPS 11.0xCurrent EV/EBITDA on FY13eEBITDA
4.7x
Source: Company data, HSBC estimate, DataStream. Repriced on 23 Nov 2011
HSBC estimates vs. consensusOur 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 1,405 1,200Implied PE on FY13e EPS 16.2x 13.8x5-year historic average PE*2-year historic average PE*5-year max PE5-year Min PECurrently trading on FY13e EPS
13.7x14.0x20.2x4.9x
11.0x
Source: Company data, HSBC estimate, DataStream. Repriced on 23 Nov 2011
Table1.5: HSBC vs. consensus estimates
(in INR m) ____ HSBC estimates _____ __ Consensus estimates __ _______Variance________ FY11 FY12e FY13e FY12e FY13e FY12e FY13e
Revenue 370,400 365,714 432,291 365,727 439,935 0.0% -1.7%
EBITDA 36,644 30,790 42,920 30,022 40,020 2.6% 7.2%EBITDA Margin 9.9% 8.4% 9.9% 8.2% 9.1% 21bps 83bpsNet Profit 22,235 18,030 24,859 19,698 25,570 -8.5% -2.8%EPS (INR) 76.9 62.4 86.0 65.5 86.7 -4.7% -0.8%
Source: HSBC estimates, Datastream, Bloomberg
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Maruti Suzuki India (MSIL)
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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
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.
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?
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
Chart 2.1: India is well behind other countries in terms of carpenetration
Chart 2.2: Car sales in Japan and Korea accelerated duringtheir high economic growth phase when penetrationexceeded a certain level
55%
46% 46% 44%
23% 23%
14%
2% 1%
0%
10%
20%
30%
40%
50%
60%
Germany
USA
UK
Japan
Korea
Malaysia
Brazil
China
India
55%
46% 46% 44%
23% 23%
14%
2% 1%
0%
10%
20%
30%
40%
50%
60%
Germany
USA
UK
Japan
Korea
Malaysia
Brazil
China
India
-
100
200
300
400
500
19
61
19
65
19
69
19
73
19
77
19
81
19
85
19
89
19
93
19
97
20
01
20
05
20
09
Japan Korea
-
100
200
300
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500
19
61
19
65
19
69
19
73
19
77
19
81
19
85
19
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93
19
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20
01
20
05
20
09
Japan Korea
Source: World Bank, Industr y Sources, HSBC estimates Source: World Bank, HSBC
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Stage 1) Historical evidence from Japan and
Korea
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.
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 2) Are emerging markets, like China and
Indonesia, following the same trend?
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.
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.
-
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Cars per 1,000
people
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Cars per 1,000
people
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China India Indonesia India-upside risk
Cars per 1,000
people
Source: CEIC, Datastream, HSBC estimates.
Chart 2.3: Car penetration per 1,000 people: China lagsKorea by 20 years and India lags China by 6 years
Chart 2.4: Car penetration per 1,000 people: China vs. Indiavs. Indonesia India yet to take off
-
100
200
300
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500
1961
1965
1969
1973
1977
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1989
1993
1997
2001
2005
2009
Indonesia JapanKorea China
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50
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2010
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2010
China India Indonesia
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China India Indonesia
Source: KAMA,CAMA, CEIC, HSBC estimates Source: World Bank, HSBC
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Maruti Suzuki India (MSIL)
Autos
28 November 2011
abc
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.
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 withan 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 two-
wheel vehicles to graduate to cars, including the
ability to safely travel in larger groups. Especially,
Chart 2.6: Growth in rural income Chart 2.7: Growth in corporate wages
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
20
01-02
20
02-03
20
03-04
20
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20
05-06
20
06-07
20
07-08
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08-09
20
09-10
Low skill salaries Increase in farm income
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
20
01-02
20
02-03
20
03-04
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20
05-06
20
06-07
20
07-08
20
08-09
20
09-10
Low skill salaries Increase in farm income
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
20
01-02
20
02-03
20
03-04
20
04-05
20
05-06
20
06-07
20
07-08
20
08-09
20
09-10
Low skill salaries Increase in farm income
115
132
143
153
171
193
15%
9%
7%
12%
13%
14%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
2005
2006
2007
2008
2009
2010
2011
100
120
140
160
180
200
Corporate Salary increase y-o-y growth
2x
115
132
143
153
171
193
15%
9%
7%
12%
13%
14%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
2005
2006
2007
2008
2009
2010
2011
100
120
140
160
180
200
Corporate Salary increase y-o-y growth
2x
115
132
143
153
171
193
15%
9%
7%
12%
13%
14%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
2005
2006
2007
2008
2009
2010
2011
100
120
140
160
180
200
Corporate Salary increase y-o-y growth
2x
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
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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.
Chart 2.8: Cost of ownership of an Alto per annum
90,000
110,000
130,000
150,000
170,000
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
Cost of ownership of an Alto (INR per annum)
90,000
110,000
130,000
150,000
170,000
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
Cost of ownership of an Alto (INR per annum)
90,000
110,000
130,000
150,000
170,000
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
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 16thNovember, 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 OEMcar makers, like VW Polo, VW Vento and Toyota
Etios. We note bookings of the diesel variant of
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
Kms per month
price differentialdiesel petrol(INR/lt)
500 1000 1500 1800
25 11,828 23,655 35,483 42,57923 11,196 22,392 33,588 40,305
20 10,249 20,497 30,746 36,89516.5 9,143 18,287 27,430 32,916
Source: HSBC estimates
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 differentialdiesel petrol(INR/lt)
500 1000 1500 1800
25 8.5 4.2 2.8 2.323 8.9 4.5 3.0 2.520 9.8 4.9 3.3 2.716.5 10.9 5.5 3.6 3.0
Source: HSBC estimates.
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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.
Table 2.3: Analysis of Maruti DZire petrol and diesel versions
_______________Jun-09 _______________ ______________ Aug-11_______________ Petrol car Diesel car Petrol car Diesel car
Price of the car* 503,400 592,000 547,228 636,630Amount financed 80% 80% 80% 80%Interest rates 8.5% 8.5% 11.5% 11.5%Loan tenure (years) 3 3 3 3EMI 12,713 14,950 14,436 16,795Fuel prices per litre 41 31 70 41Average distance per month 1000 1000 1000 1000Mileage (KMPL) 12 15 12 15Fuel expense (per month) 3,417 2,067 5,833 2,733Average maintenance cost per Annum 8,000 10,000 10,000 12,500Total cost of ownership per month 16,796 17,850 21,103 20,570Change in monthly Ownership Costs 25.6% 15.2%Diesel Savings vs. Petrol -6.3% 2.5%
Source: HSBC estimates.
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Competitive threatsIn 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
(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.
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
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.
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.
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
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
44.8%32.2%
35.2%
43.4%
7.2% 8.4%
5.1%
25.0%
44.1%
7.3%
-9.5%-5.9%
15.0%
38.9%44.5%
54.6%
69.4%65.2%
36.6%
15.2%24.3%
29.1%33.6%33.5%
28.1%
0%
20%
40%
60%
80%
100%
4Q09 1Q12 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
-20%
0%
20%
40%
60%
80%
A1: Market share A2: Market share A3: Super Compact A2: Compact (y-o-y) Total PC (y-o-y)
Ritz,
Punto,
Jazz
Figo, Polo Micra Liva
44.8%32.2%
35.2%
43.4%
7.2% 8.4%
5.1%
25.0%
44.1%
7.3%
-9.5%-5.9%
15.0%
38.9%44.5%
54.6%
69.4%65.2%
36.6%
15.2%24.3%
29.1%33.6%33.5%
28.1%
0%
20%
40%
60%
80%
100%
4Q09 1Q12 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
-20%
0%
20%
40%
60%
80%
A1: Market share A2: Market share A3: Super Compact A2: Compact (y-o-y) Total PC (y-o-y)
Ritz,
Punto,
Jazz
Figo, Polo Micra Liva
44.8%32.2%
35.2%
43.4%
7.2% 8.4%
5.1%
25.0%
44.1%
7.3%
-9.5%-5.9%
15.0%
38.9%44.5%
54.6%
69.4%65.2%
36.6%
15.2%24.3%
29.1%33.6%33.5%
28.1%
0%
20%
40%
60%
80%
100%
4Q09 1Q12 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
-20%
0%
20%
40%
60%
80%
A1: Market share A2: Market share A3: Super Compact A2: Compact (y-o-y) Total PC (y-o-y)
Ritz,
Punto,
Jazz
Figo, Polo Micra Liva
Source: SIAM, HSBC
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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.
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 newlaunches 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.
Aside from an expected moderation in overall
competition in the coming few quarters, we
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.
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.
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
less intense competition, we are positive on
Marutis growth prospects for FY13 and beyond.
Chart 2.10: Market share changes since 1Q09
22
206 181
(1)
(383)
(39)
(161)(48)
437
99
(1,005)
432
(1,050)
(750)
(450)
(150)
150
450
Fiat
Ford
GM
Hon
da
Hyundai
M&M
Tata
Motors
Skoda
Toyota
Volk
swagen
Niss
an
MarutiSuzuki
22
206 181
(1)
(383)
(39)
(161)(48)
437
99
(1,005)
432
(1,050)
(750)
(450)
(150)
150
450
Fiat
Ford
GM
Hon
da
Hyundai
M&M
Tata
Motors
Skoda
Toyota
Volk
swagen
Niss
an
MarutiSuzuki
22
206 181
(1)
(383)
(39)
(161)(48)
437
99
(1,005)
432
(1,050)
(750)
(450)
(150)
150
450
Fiat
Ford
GM
Hon
da
Hyundai
M&M
Tata
Motors
Skoda
Toyota
Volk
swagen
Niss
an
MarutiSuzuki
Source: Crisil, Overdrive, HSBC
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Table 2.4: Comparison of spare parts and servicing costs ofrecent models significantly higher than Maruti Alto
INR Clutch plate Brake pad Servicingcost
Maruti Suzuki Alto 4,500 1,000 800Hyundai Santro 5,000 1,600 1,000Swift Petrol 6,500 2,000 1,500Ford Figo Petrol 6,000 1,200 1,500Ford Figo Diesel 7,000 1,200 2,750Etios Liva 5,000 2,330 3,250Etios Liva Diesel 6,500 2,330 4,250Etios 5,000 2,330 3,250Volkswagen Polo n/a n/a n/a
Source: HSBC.
Chart 2.13: Maruti exports and market share estimates
42%42%
43%
38% 38% 38%
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
35%
37%
39%
41%
43%
45%
Exports Market share of Maruti i n Exports
42%42%
43%
38% 38% 38%
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
35%
37%
39%
41%
43%
45%
Exports Market share of Maruti i n Exports
Source: SIAM, Crisil HSBC
Chart 2.11: Maruti product launches an increasing number of launches and refreshes (with another 18 models planned for next 5 years)
2008 2009 2010 2011 2012e
A-Star Ritz,
Eeco ,
K-series engine,
Minor
modifications in
SX4, Estilo
New Swift,
K izashi Sports
Sedan,
SX4 Diesel
variant,
New Wagon R
launched,
Alto K10,
Green range
SX4,Estilo, Eeco ,
Alto
New Dz ire ,
New small car ( Cervo )
Wagon R Diesel,
Maruti Ertriga SUV
and a new version of
Gypsy
2008 2009 2010 2011 2012e
A-Star Ritz,
Eeco ,
K-series engine,
Minor
modifications in
SX4, Estilo
New Swift,
K izashi Sports
Sedan,
SX4 Diesel
variant,
New Wagon R
launched,
Alto K10,
Green range
SX4,Estilo, Eeco ,
Alto
New Dz ire ,
New small car ( )
Wagon R Diesel,
Maruti Ertriga SUV
and a new version of
Gypsy
2008 2009 2010 2011 2012e
A-Star Ritz,
Eeco ,
K-series engine,
Minor
modifications in
SX4, Estilo
New Swift,
K izashi Sports
Sedan,
SX4 Diesel
variant,
New Wagon R
launched,
Alto K10,
Green range
SX4,Estilo, Eeco ,
Alto
New Dz ire ,
New small car ( Cervo )
Wagon R Diesel,
Maruti Ertriga SUV
and a new version of
Gypsy
2008 2009 2010 2011 2012e
A-Star Ritz,
Eeco ,
K-series engine,
Minor
modifications in
SX4, Estilo
New Swift,
K izashi Sports
Sedan,
SX4 Diesel
variant,
New Wagon R
launched,
Alto K10,
Green range
SX4,Estilo, Eeco ,
Alto
New Dz ire ,
New small car ( )
Wagon R Diesel,
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 2.14: New Launches by other OEMs2008 2009 2010 2011 2012e
Hyundai: i - 20
Fiat : Linea
VW: Jetta
Fiat : Punto
Honda: Jazz
Chevrolet: Beat,
Cruze
Ford: Figo
VW: Polo
Totyota : Etios ,
Et ios Liva Dies el
Hyundai: Eon
Honda: Brio, new
Jazz
Nissan: Sunny
Renalt : F luence
Ford: New Fiesta
Hyundai: New
Verna
Renault: Pulse
Nissan: Micra
Toyota: Etios
VW: Vento
Ford: New Fiesta
Hyundai: i30
Skoda: Rapid, Citigo
VW: Up
Renault: Small car
Fiat: Bravo
2008 2009 2010 2011 2012e
Hyundai: i - 20
Fiat : Linea
VW: Jetta
Fiat : Punto
Honda: Jazz
Chevrolet: Beat,
Cruze
Ford: Figo
VW: Polo
Totyota : Etios ,
Et ios Liva Dies el
Hyundai: Eon
Honda: Brio, new
Jazz
Nissan: Sunny
Renalt : F luence
Ford: New Fiesta
Hyundai: New
Verna
Renault: Pulse
Nissan: Micra
Toyota: Etios
VW: Vento
Ford: New Fiesta
Hyundai: i30
Skoda: Rapid, Citigo
VW: Up
Renault: Small car
Fiat: Bravo
2008 2009 2010 2011 2012e
Hyundai: i - 20
Fiat : Linea
VW: Jetta
Fiat : Punto
Honda: Jazz
Chevrolet: Beat,
Cruze
Ford: Figo
VW: Polo
Totyota : Etios ,
Et ios Liva Dies el
Hyundai: Eon
Honda: Brio, new
Jazz
Nissan: Sunny
Renalt : F luence
Ford: New Fiesta
Hyundai: New
Verna
Renault: Pulse
Nissan: Micra
Toyota: Etios
VW: Vento
Ford: New Fiesta
Hyundai: i30
Skoda: Rapid, Citigo
VW: Up
Renault: Small car
Fiat: Bravo
2008 2009 2010 2011 2012e
Hyundai: i - 20
Fiat : Linea
VW: Jetta
Fiat : Punto
Honda: Jazz
Chevrolet: Beat,
Cruze
Ford: Figo
VW: Polo
Totyota : Etios ,
Et ios Liva Dies el
Hyundai: Eon
Honda: Brio, new
Jazz
Nissan: Sunny
Renalt : F luence
Ford: New Fiesta
Hyundai: New
Verna
Renault: Pulse
Nissan: Micra
Toyota: Etios
VW: Vento
Ford: New Fiesta
Hyundai: i30
Skoda: Rapid, Citigo
VW: Up
Renault: Small car
Fiat: Bravo
Source: Overdrive, Auto car, Company press releases, News articles in renowned newspapers, BS Motoring , HSBC
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Table 2.5: Maruti sales growth and market share forecasts by segment
FY11 FY12e FY13e CAGR FY12-14e
A1 : Mini segment (M800, A-Star, Alto, Wagon R)Maruti 28.7% -3.6% 11.5% 10.4%Market 20.4% 1.2% 13.1% 12.6%Market Share 83.0% 79.1% 77.9%A2 : Compact segment (Swift, Estilo, Ritz)Maruti 18.5% -16.3% 23.5% 18.6%Market 35.5% 1.0% 14.0% 13.5%Market Share 30.0% 24.9% 26.9%A3: Super Compact segment (DZire)Maruti 29.1% -5.8% 19.9% 17.4%Market 39.0% 20.9% 10.0% 10.5%Market Share 76.1% 59.3% 64.6%A4: Mid-Size segment (SX4)Maruti 48.4% 1.9% 11.7% 11.9%Market 15.4% 24.3% 12.0% 12.0%Market Share 17.1% 14.0% 14.0%Total passenger cars*Maruti 26.2% -7.1% 15.4% 13.3%Market 29.7% 3.5% 12.9% 12.6%Market Share 48.8% 43.8% 44.7%Utility Vehicles (Grand Vitara, Gypsy)Maruti 43.9% 7.4% 20.0% 15.9%Market 21.2% 6.4% 11.7% 11.7%Market Share 1.7% 1.7% 1.9%Vans (Omni, Versa, Eeco)Maruti 58.5% 4.7% 11.9% 11.9%Market 41.4% 17.1% 16.5% 13.6%Market Share 75.6% 67.6% 64.9%Total domestic sales
Maruti 30.1% -5.4% 14.9% 13.1%Market 29.2% 5.1% 13.1% 12.6%Market Share 44.9% 40.4% 41.1%ExportsMaruti -6.3% -10.0% 8.8% 9.4%Market 0.0% 1.5% 6.0% 6.0%Market Share 31.0% 27.5% 28.2%Total SalesMaruti 24.8% -5.9% 14.2% 12.7%Market 23.3% 5.0% 12.1% 11.7%Market Share 43.0% 38.5% 39.3%
Source: Company data, HSBC estimates, *Includes Kizashi an executive segment car.
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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 tonormalise 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.
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 ofnew 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.
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
Chart 3.1: Revenue growth trend Chart 3.2: EBITDA margin and EPS growth rate
19%
-4%
5%1%
27%
20%
10%
22%
14%
42%
25%
-5%
5%
15%
25%
35%
45%
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
50
100
150
200
250
300
350
400
Net Sales y-o-y growth (LHS)
19%
-4%
5%1%
27%
20%
10%
22%
14%
42%
25%
-5%
5%
15%
25%
35%
45%
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
50
100
150
200
250
300
350
400
Net Sales y-o-y growth (LHS)
270%
57%32%
-30%
105%
-11%
-50%
0%
50%
100%
150%
200%
250%
300%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
0%
4%
8%
12%
16%
EBITDA Margin y -o-y grow th (LHS)
Source: Company data, HSBC estimates Source: Company data , HSBC estimates
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Sales analysisMini (A1 class), compact (A2 class) and super-
compact (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.
Chart 3.3: Maruti sales volume growth estimates by segment
FY12e FY13e CAGR FY12-14e
A1 -3.6% 11.5% 10.4%A2 -16.3% 23.5% 18.6%A3 -5.8% 19.9% 17.4%A4 1.9% 11.7% 11.9%Total passenger cars -7.1% 15.4% 13.3%Utility Vehicles 7.4% 20.0% 15.9%
Vans 4.7% 11.9% 11.9%Total domestic sales -5.4% 14.9% 13.1%Exports -10.0% 8.8% 9.4%Total Sales -5.9% 14.2% 12.7%
Source: HSBC estimates.
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.
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 broad-
based distribution and servicing strength.
Chart 3.4: A1 segment trends
80%78%
85%
83%
81%
86%
89%
79%
20%
25%
30%
35%
40%
45%
50%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
75%
80%
85%
90%
% share of A1 in the total marketMarket 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 3.5: Passenger car market Chart 3.6: Maruti passenger car profile
38% 36% 33%
43% 46% 44%
0%
20%
40%
60%
80%
100%
FY10 FY11 2Q12
A1: Mini A2: CompactA3: Super Compac t A4: Mid-Size
A5: Ex ecutive A6: Premium
58% 59% 62%
29% 27% 25%
0%
20%
40%
60%
80%
100%
FY10 FY11 2Q12
A1: Mini A2: CompactA3: Super Com pac t A4: Mid-Size
A5: Ex ecutive A6: Premium
Source: Company data, SIAM, HSBC Source: Company data, SIAM, HSBC
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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, 3-
cylinder engine similar to the Altos 796c, 3-
cylinders) 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 air-
conditioning, 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
web chart which suggests the Eon is more
competitive on many fronts.
Chart 3.7: Hyundai Eon
0
12345678
Price*
EngineCapacity
Power
Torque
Mileage
Wheelbase
Width
Top Speed
Pick up
Maintenance
Eon Alto
0
12345678
Price*
EngineCapacity
Power
Torque
Mileage
Wheelbase
Width
Top Speed
Pick up
Maintenance
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.
Table 3.1: Eon vs. other models
Eon vs. Models Risk of MarketShare Erosion
Pricecomparison
Specs comparison Customer segment Comments
M800 Low Lower Perceived as an outdated model Less overlap: Rural and loyalcustomers
Low priced. Customer segment notentirely comparable.
Alto High Comparable Comparable. Lower power output High overlap If priced competitively, Eon poses majorthreat to Alto
Wagon-R High Higher Power/weight ratio modestly higher but fuelefficiency lower.
High overlap
A-Star Medium Higher Larger engine. Medium OverlapSpark Medium Higher Power/weight ratio modestly higher but fuel
efficiency lower.Medium Overlap Low market share due to factors like
style, free maintenance contractsSantro High Higher Same platform/parts. Larger engine Medium Overlap New models perceived as improvements
on previous products
Source: Company data, HSBC.
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Table 3.2: Maruti Suzuki market share by segment in the past few quarters
4Q10 1Q11 2Q11 3Q11 4Q1
A1:Mini - M800, A-Star, Alto, Wagon R 80.8% 83.0% 85.9% 86.8% 88.6%A2:Compact Swift, Estilo, Ritz 32.5% 31.9% 30.7% 32.5% 26.6%A3: Super Compact - DZire 87.5% 85.8% 83.4% 87.2% 71.9%A4: Mid - Size - SX4 14.2% 13.8% 15.4% 11.3% 23.5%A5: Executive - Kizashi 0.0% 0.0% 0.0% 0.0% 0.9%Total passenger cars 46.4% 47.6% 48.2% 51.8% 47.5%Vans 70.1% 75.3% 75.1% 77.0% 74.9%
Y-o-y
Total passenger cars domestic 16.0% 23.0% 32.9% 36.8% 27.3%Exports 67.1% 37.9% -3.7% -20.3% -26.4%Total vehicles 21.5% 25.0% 27.4% 28.2% 19.5%
CommentsGuided for flat exports in
FY11A2 market share increased
due to the launch of AltoK10
Higher realisation domestics offset by lower
exporExpansion in South Africa,LATAM, Australia to offset
Europe weakness
Exports fell sharply due tslowdown in Europ
Footfalls and conversiorate on a declining mod
Source: Company data, HSBC
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Chart 3.8: A1 - Maruti likely to see market-share erosion inthe mini segment due to introduction of new small cars.
77% 78%
83%
79%
77%76%
200,000
300,000
400,000
500,000
600,000
700,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
72%
74%
76%
78%
80%
82%
84%
A1:Mini - M800, A-Star, Alto, Wagon R
Market share of Maruti in A1 (RHS)
Source: Company data, SIAM, HSBC
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 increasedcompetition
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 3.9: A2 segment trends
32%
36%
28%
34%36%
31%32%
27%
29%
24%
30%
35%
40%
45%
50%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
20%
25%
30%
35%
40%
% share of A2 in the total market
Market share of Maruti in A2 (RHS)
Source: Company data, SIAM, HSBC
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.
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
Chart 3.10: Market Share changes (bps) of various models in the compact segment since 1QFY09
1093
- 667
- 1014
- 209
815
- 339
- 1132
936
- 177 - 121
133 76
476
- 4227
433
- 1322
788
(1,500)
(1,000)
(500)
-
500
1,000
1,500
Swift
Ritz
Estillo
Indica
Indigo
Figo
Getz
i10
i20
Beat
Aveo
Palio
Punto
Jazz
Polo
Fabia
Micra
Liva
Source: SIAM, Crisil, HSBC estimates
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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 shareestimates
32%34%
30%
25%
27% 27%
80,000120,000
160,000
200,000
240,000
280,000
320,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
20%
25%
30%
35%
A2:Compact Swift, Estilo, RitzMarket share of Maruti in A2 (RHS)
Source: Company data, SIAM, HSBC estimates
Super compact segmentThe 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.
Chart 3.13: Market share shift since 1Q09
(252)
(1,124)
(849)
2,628
(406)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000
Dzire
Logan
Accent
Etios
Fusion
Source: Company data, SIAM, HSBC estimates
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Chart 3.12: Maruti share trends in the A3 segment
80%
87% 89%83%
87%
72%
55%54%
0%
2%
4%
6%
8%
10%
12%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
40%
50%
60%
70%
80%
90%
100%
% share of A3 in the total market
Market share of Maruti in A3 (RHS)
Source: Company data, SIAM, HSBC estimates
Table 3.3: DZire Vs competing models in the segment
Dzire Etios Accent Logan
Price Range INR499,000-714,000
INR496,000-682,000
INR524,000-562,000
INR550,000-636,000
ModelVariants
6 7 3 13
Engine type Petrol/Diesel Petrol/Diesel Petrol Petrol/DieselEnginecapacity
1248cc 1496cc 1500cc 1460-1600cc
Power (HP) 75-85 90 94 65
Mileage 15.4 kmpl 14.5 kmpl 9.5 kmpl 16 kmplWheel base 2390mm 2550mm 2440mm 2630mmComments + Built on
the hugelysuccessful
Swiftplatform.
+The qualityof interiors is
superior.
+ Featureslike climate
control are apositive
Competitivefeatures and
pricing.
+ Spacious
+ Better pickup and
power toweight ratio.
- Cheaperlooking
interiors
- Lowmileage
+Fuelefficient and
spaciouscar.
- Design andinteriors
reviews arenegative.
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
will reduce the price of the car and make it
more competitive.
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.
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.
Chart 3.14: New Dzire to boost sales in this segment forMaruti
69%
82%
76%
59%
64%66%
-
30,000
60,000
90,000
120,000
150,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
50%
60%
70%
80%
90%
A3: Super Compact - D'zireMarket share of Maruti in A3 (RHS)
Source: Company data, SIAM, HSBC estimates
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Mid-size segmentThe 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.
Chart 3.15: Maruti share trends in the A4 segment
18%
14%
10%11%11%11%
16%14%14%
15%
11%
23%
17%
9%
0%
2%
4%
6%
8%
10%
12%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
5%
10%
15%
20%
25%
% share of A4 in the total market
Market share of Maruti in A4 (RHS)
Source: Company data, SIAM, HSBC estimates
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.
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 shareestimates
13% 13%
17%
14% 14% 14%
8,000
12,000
16,000
20,000
24,000
28,000
32,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
10%
12%
14%
16%
18%
A4: Mid - Size - SX4Market share of Maruti in A4 (RHS)
Source: Company data, SIAM, HSBC estimates
C segment
C segment has been the most resilient business
segment for Maruti. We have included both utilityvehicles 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
(261)
(782)
(217) (239)(496)
(84)
2,467
1
(195)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000
Ikon
Fiesta
Ave
o
Ver
na
City
SX4
Ven
to
370
Z
Lan
cer/Cedia
Source: Crisil, HSBC estimates
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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
73%
67%
76%
68%
65%66%
0
40,000
80,000
120,000
160,000
200,000
240,000
FY09
FY10
FY11
FY12e
FY13e
FY14e
60%
65%
70%
75%
80%
C: Omni, Versa. EecoMarket share of Maruti in Vans (RHS)
Source: Company data, SIAM, HSBC estimates
Table 3.4: Maruti growth estimates and market share by segment
FY11 FY12e FY13e CAGR FY12-14e
A1Maruti 28.7% -3.6% 11.5% 10.4%Market 20.4% 1.2% 13.1% 12.6%Market Share 83.0% 79.1% 77.9%
A2Maruti 18.5% -16.3% 23.5% 18.6%Market 35.5% 1.0% 14.0% 13.5%Market Share 30.0% 24.9% 26.9%A3Maruti 29.1% -5.8% 19.9% 17.4%Market 39.0% 20.9% 10.0% 10.5%Market Share 76.1% 59.3% 64.6%A4Maruti 48.4% 1.9% 11.7% 11.9%Market 15.4% 24.3% 12.0% 12.0%Market Share 17.1% 14.0% 14.0%Total passenger carsMaruti 26.2% -7.1% 15.4% 13.3%Market 29.7% 3.5% 12.9% 12.6%Market Share 48.8% 43.8% 44.7%
Utility VehiclesMaruti 43.9% 7.4% 20.0% 15.9%Market 21.2% 6.4% 11.7% 11.7%Market Share 1.7% 1.7% 1.9%VansMaruti 58.5% 4.7% 11.9% 11.9%Market 41.4% 17.1% 16.5% 13.6%Market Share 75.6% 67.6% 64.9%Total domestic salesMaruti 30.1% -5.4% 14.9% 13.1%Market 29.2% 5.1% 13.1% 12.6%Market Share 44.9% 40.4% 41.1%ExportsMaruti -6.3% -10.0% 8.8% 9.4%Market 0.0% 1.5% 6.0% 6.0%Market Share 31.0% 27.5% 28.2%
Total SalesMaruti 24.8% -5.9% 14.2% 12.7%Market 23.3% 5.0% 12.1% 11.7%Market Share 43.0% 38.5% 39.3%
Source: Company data, HSBC estimates.
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Charts 3.19: Marutis recent sales profileA) Marutis market share and y-o-y growth in the Minisegment
B) Marutis market share and y-o-y growth in the Compactsegment
-40%
-20%
0%
20%
40%
60%
1
Q09
2
Q09
3
Q09
4
Q09
1
Q10
2
Q10
3
Q10
4
Q10
1
Q11
2
Q11
70%
75%
80%
85%
90%
Mark et s hare of Maru ti in A1 (RHS) y -o-y
-50%
0%
50%
100%
150%
1
Q09
2
Q09
3
Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2
Q11
20%
25%
30%
35%
40%
Mark et s hare of Maru ti in A2 (RHS) y -o-y
Source: Company data, SIAM, HSBC Source: Company data, SIAM, HSBC
C) Marutis market share and y-o-y growth in the Mid-Sizesegment
D) Marutis market share and y-o-y growth in the SuperCompact segment
-50%
0%
50%
100%
150%
200%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
0%
5%
10%
15%
20%
25%
Mark et s hare of Maru ti in A4 (RHS) y -o-y
-40%
-20%
0%20%
40%
60%
80%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
40%
50%
60%
70%
80%
90%
Mark et s hare of Maru ti in A3 (RHS) y -o-y
Source: Company data, SIAM, HSBC Source: Company data, SIAM, HSBC
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
-30%
-20%
-10%
0%
10%
20%
30%
40%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
40%
45%
50%
55%
Market share of Maruti in Total passanger carsy -o-y
-20%
0%
20%
40%
60%
80%
100%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
50%
55%
60%
65%
70%
75%
80%
Market share of Maruti in Vans y -o-y
Source: Company data, SIAM, HSBC Source: Company data, SIAM, HSBC
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Profitability outlookMaruti 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
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.
Raw material costs
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.
Chart 4.1: Increase in prices of primary raw materials since3QFY10
27%
39%34%
9%
23%
52%58%
0%
10%
20%
30%
40%
50%
60%
70%
HR
Ste
el
CR
steel
Galvanised
Aluminium
Copper
CastIron
Rubber
Source: Company data, HSBC estimates
Slower growth in higher-margin products
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
16.4% 16.1%15.0%
12.1% 12.1%10.7%
6.6%
9.2%
12.5% 13.0%
15.5%
13.5%
10.7%9.7% 10.2% 9.8%
6.6%
10.7%
0%
5%
10%
15%
20%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
EBITDA margin
16.4% 16.1%15.0%
12.1% 12.1%10.7%
6.6%
9.2%
12.5% 13.0%
15.5%
13.5%
10.7%9.7% 10.2% 9.8%
6.6%
10.7%
0%
5%
10%
15%
20%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
EBITDA margin
Source: Company data, HSBC
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Chart 4.3: Contribution of Swift + DZire to total sales
24%
30%
25%23%
26%25%
29%26%
24%
22%
28%
15%
20%
25%
30%
35%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
% of total domestic sales
24%
30%
25%23%
26%25%
29%26%
24%
22%
28%
15%
20%
25%
30%
35%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
% of total domestic sales
Source: Company data, HSBC estimates
Export growth and realisation
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
quarters, partly due to the economic slowdown in
Europe and partly because the company has made a
concerted effort to grow outside of Europe.
Chart 4.4: EUR vs. INR
6666
64 6566
69 69
64
58
6061
63
65 66 66
50
55
60
65
70
75
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12e
6666
64 6566
69 69
64
58
6061
63
65 66 66
50
55
60
65
70
75
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12e
Source: Thomson One, HSBC estimates
Chart 4.5: Contribution of exports to the total sales
6%
9% 8%11%
13%
15%15% 15%14%
11%9% 9%
11%12%
0%
5%
10%
15%
20%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
Exports as % of total sales
6%
9% 8%11%
13%
15%15% 15%14%
11%9% 9%
11%12%
0%
5%
10%
15%
20%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
Exports as % of total sales
Source: Company data, HSBC
Table 4.1: EBITDA margins in the past few quarters
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
EBITDA margins 10.7% 10.7% 9.7% 10.2% 9.8% 6.6%EBITDA margins change -284 bps 09 bps -102 bps 52 bps -45 bps -323 bpsyen q-o-q 50.2 54.5 55.0 55.0 55.1 62.5
Comments Steep margin fall dueto 1) inc in royalty;
Price hikes in augustresulted in 40bps
decline in rawmaterial cost
Annual staff costpayout of INR522mcame in this quarter
Margins expansiondue to change in
accounting policy
ASPs improved near3% q/q due to higher
proportion of dieselcar sales in the
quarter
Commodity priceskept high
2) higher rawmaterial costs andlower exports revs
due to a weakeningEUR
Discounts down 18%y/y
ASPs fell 1.5% dueto EUR depreciation
and adverse mix
Cost cutting helpedmaintain EBITDA
margins
Royalty costsincreased due to
currencydepreciation
Royalty paymentsapproval increased
from 5% to 8%
Lower proportion ofA3 in 2Q resulted in
lower domesticrealisations
Despite increase inraw material costs
Utilization declinedowing to labour
issues
Realisation ofexports declined due
to EUR
Source: Company data, HSBC estimates
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Table 4.2: EUR tailwinds
FY12e FY13e FY14e
Exports in EUR 4.0% 4.0% 4.0%Exports in USD 6.0% 6.0% 6.0%Imports in USD 6.0% 6.0% 6.0%EUR/INR rate 65.6 66.0 66.0y-o-y 8.6% 0.5% 0.0%Net impact on the top line 0.3% 0.0% 0.0%Impact on EBITDA margins 34 bp 02 bp 00 bp
Source: HSBC estimates
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
4042
53 53
5152 52
50 50
54 55 55 55
60
64
40
45
50
55
60
65
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12e
Source: Company data, HSBC estimates, DataStream
In our view, every 1% change in the JPY/INR rate
impacts Marutis EBITDA margins by 20bps and
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 22.0Others in INR 66.0EBITDA margin 12.0
Appreciation in YEN 5.0%Yen denominated costs 23.1Others in INR 66.0EBITDA margin 10.9
Every 1% yen appreciation impacts EBITDA margin by 22 bpEvery 1% yen appreciation impacts EBITDA by -1.8%
Source: Company data, HSBC estimates
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