Report on Indian Automobile industry
68
Summer Internship Report On Valuation of Maruti Suzuki Ltd. and Study of Sales Trends in Automobile Industry At: In partial fulfilment of the requirements for: Masters of Business Administration (Full Time) Submitted by: Tanesh Gagnani Roll No. 081121 Batch of 2011 Internship period: April 12, 2010 to June 07, 2010 Under the guidance of: Parthiv Shah Prof Parag Rijwani Research Head IMNU Jhaveri Securities Pvt. Ltd. Ahmedabad
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This is a report on Indian Automobile industry, which separate comments on each segment, future trends. it also has specific focus on valuation of Maruti Suzuki India Ltd.
Transcript of Report on Indian Automobile industry
Summer Internship Report On
Valuation of Maruti Suzuki Ltd. and Study of Sales Trends in Automobile Industry
At:
In partial fulfilment of the requirements for:
Masters of Business Administration (Full Time)
Submitted by:
Tanesh Gagnani
Roll No. 081121
Batch of 2011
Internship period: April 12, 2010 to June 07, 2010
Under the guidance of:
Parthiv Shah Prof Parag Rijwani
Research Head IMNU
Jhaveri Securities Pvt. Ltd. Ahmedabad
Page | 1
ACKNOWLEDGEMENT
The special thank goes to my supervisor and research head, Mr. Parthiv Shah. The supervision
and support that he gave truly helped the progression and smoothness of the internship program.
The co-operation is much indeed appreciated.
My grateful thanks also go to Mr. Nipun Bhadd, Ms. Pratik Sharma, Mr. Arpit Amin, Mr.
Mukesh Khayani and Ms. Meha Debuy. A big contribution and hard worked from all of you
during the eight week is very great indeed. My project during the program would be nothing
without the enthusiasm and imagination from all of you. Besides, this internship program made
me realize the value of working together as a team and as a new experience in working
environment, which challenges us every minute. Not to forget, great appreciation goes to the rest
of Jhaveri Securities staff who help me from time to time during the project. The whole program
really brought us together to work in a team and develop respect of each other.
I would also like to appreciate the contribution of my faculty, Prof Parag Rijwani, for his
constant support throughout the internship.
Last but not the least I would like to thank all the other people who contributed to the successful
completion of the project.
Tanesh Gagnani
Page | 2
EXECUTIVE SUMMARY
Jhaveri Securities is one of biggest share brokering house in Gujarat with a client base of
approximately 70000 and presence in every major city in Gujarat. It provides all the facilities
ranging from basic stock broking with strong support from in house research department to
commodity trading, mutual funds, derivative trading and currency derivatives.
In the first part of this report valuation of Maruti Suzuki Ltd. has been. The valuation method
used for this is two stage FCFF. In this valuation the first stage is considered of high growth
phase in which the company will grow at a rate of 10.8% from 2012, since 2010 had a
exceptionally high growth in profits for 2011 the growth projection is kept at 13.5%, terminal
growth rate is kept equal to risk free rate i.e. 4.58%. In the end the fair value of Maruti is found
to be Rs1465 which is approximately 5% higher than current market price of Rs.1396. Therefore
the call given on Maruti Suzuki Ltd. is ‘BUY’.
India’s automobile industry is 7th largest in the world and it also its growth rate is also one of the
fastest in the world. In the last 5 years Indian automobile industry has grown at a phenomenal
CAGR of 12.4%, while the world average for the same duration has been just .81%. During 2007
to 2009 the growth of Indian automobile industry considerably slowed down but 2010 has been
phenomenal for Indian companies almost all of the companies across all segments have bounced
back with brilliant numbers. This was attributed to three factors:
1. Increase in sales due to increase in demand
2. Increase in profit margins due to decline in raw material prices.
3. Low base effect.
Now since economic scenario seems favorable the growth is likely to continue.
Page | 3
Jhaveri Securities ............................................................................................................................ 6
Services Offered .............................................................................................................................. 7
Derivatives Trading: ................................................................................................................... 7
Commodity Trading: ................................................................................................................... 7
Currency Derivatives: ................................................................................................................. 7
Mutual Fund ................................................................................................................................ 7
7S Framework ................................................................................................................................. 8
STRATEGY ................................................................................................................................ 9
STRUCTURE ............................................................................................................................. 9
SYSTEMS................................................................................................................................... 9
STYLE ...................................................................................................................................... 10
STAFF....................................................................................................................................... 10
SHARED VALUES .................................................................................................................. 10
Company History .......................................................................................................................... 12
Shareholding Pattern ..................................................................................................................... 13
Investment Rationale .................................................................................................................... 14
Financial Analysis ......................................................................................................................... 17
Key Ratios ................................................................................................................................. 17
Ratios to measure ‘Short Term Solvency’ ................................................................................ 17
Turnover Measures ................................................................................................................... 17
Receivables Turnover ............................................................................................................... 18
Historical Trends ........................................................................................................................... 19
Net Sales ................................................................................................................................... 19
Growth rates in PBIT and Net Profit ........................................................................................ 19
Return on Net-Worth ................................................................................................................ 19
Dividend Pay-out ratio .............................................................................................................. 19
Reinvestment Rate .................................................................................................................... 19
Return on Capital ...................................................................................................................... 20
Growth Rate .............................................................................................................................. 20
Valuation ................................................................................................................................... 20
Free Cash Flow to Firm ................................................................................................................ 22
Page | 4
Balance Sheet Abstract ................................................................................................................. 23
Profit and Loss Account Abstract ................................................................................................. 24
EPS ................................................................................................................................................ 25
Price Variations ............................................................................................................................. 26
Conclusion .................................................................................................................................... 26
Overview ....................................................................................................................................... 27
Economy as a Factor ..................................................................................................................... 30
STRENGTHS ............................................................................................................................... 31
WEAKNESS ................................................................................................................................. 31
OPPOURTINITES ........................................................................................................................ 32
THREATS..................................................................................................................................... 32
Two Wheelers Segment ................................................................................................................ 38
Three Wheeler Segment ................................................................................................................ 42
Passenger Vehicles Segment ......................................................................................................... 43
Bajaj Auto Ltd............................................................................................................................... 46
Highlights .................................................................................................................................. 46
Hero Honda ................................................................................................................................... 48
Highlights .................................................................................................................................. 48
TVS Motor Co. ............................................................................................................................. 50
Highlights .................................................................................................................................. 50
Ashok Leyland .............................................................................................................................. 52
Highlights .................................................................................................................................. 53
Highlights .................................................................................................................................. 54
TATA Motors ............................................................................................................................... 56
Highlights .................................................................................................................................. 56
Conclusion .................................................................................................................................... 58
Learning’s from the project .......................................................................................................... 59
Learning Soft Skills ...................................................................................................................... 59
Contribution to the organization ................................................................................................... 59
Passenger Vehicles Monthly Domestic Sales Data ...................................................................... 63
Passenger Vehicles Monthly Export Data .................................................................................... 65
Page | 5
Beta Calculation ............................................................................................................................ 67
Page | 6
Jhaveri Securities
JHAVERI Securities is one of the largest stock broking houses in Gujarat with the client base of
over 70000, 375 franchises and 35 branches, with presence in every district of Gujarat.
JHAVERI Securities was established in 1992 with its first office and current headquarters in
Vadodara at a highly strategic location; opposite to Vadodara stock exchange. Since its inception
the company has played a pivotal role in the development of primary and secondary markets in
Gujarat. It has membership in all the major stock exchange, offices at key locations, panel of
experts to guide all decisions and transparent business interactions are the key elements that help
in everyday activities. This has been made possible by the management's policy of investing
heavily in technology and human resource to constantly upgrade its services.
At Jhaveri Securities technology and human resources work hand in hand. The latest computer
software and the best human mind ware come together to assist clients to derive maximum
benefits of their investments. Be it long term returns or short term gains, JHAVERI has systems
in place that keep in total touch with the pulse of the market. Small movements are tracked,
financial performance is charted, data collated and analyzed. No market trend is hidden from the
alert market managers of JHAVERI. Guts feeling are doubly checked on the most modern
systems and software leaving no room for errors. What the client finally gets is a gist of the
numerous man hours that have gone in working out best possible options based on his individual
needs and requirements.
It is the reason why Jhaveri Securities won the prestigious “Best Performing Individual Financial
Advisor” award by CNBC in the year 2008-2009.
Jhaveri Securities Vision Statement says: "Knowledge is power and power brings security. Risk
is a very relative term and changes with every individual and situation. Financial management is
not just about managing risk but also managing knowledge and finally deriving answers that
generate wealth, security and trust".
Page | 7
Services Offered
Equity Trading:
For more than 15 years, Equity Broking is mainstay at JHAVERI. From “Saudas in the Ring” to
fully computerized trading, we have delivered real value for money service with our esteem
traditional team. Extremely good infrastructure supported by qualified professionals coupled
with very competitive rates, services at JHAVERI is real value for money. Strong research
reports at regular intervals always provide guiding lights in decision making. Besides this, it also
has extremely popular following value.
Derivatives Trading:
Although this is not the core strength of Jhaveri Securities but it is one of the services being
provided by Jhaveri Securities. Jhaveri Securities does not provide any research reports or
trading calls on derivatives whatsoever.
Commodity Trading:
Commodity trading is another strong point of Jhaveri. Jhaveri Securities has a dedicated
department for commodity trading which provides advisory, daily calls and trade itself.
Currency Derivatives:
Jhaveri Securities has started publishing advisory reports on derivatives this May and it is in a
very nascent stage.
Mutual Fund
Besides securities Jhaveri also in the business of retailing Mutual Funds though Jhaveri
Securities does not have a mutual fund of their own.
All the services discussed above are provided online i.e. e-trading facility is available for all the
services discussed above.
Page | 8
7S Framework
The 7-S framework of McKinsey is a Value Based Management (VBM) model that describes
how one can holistically and effectively organize a company. Together these factors determine
the way in which a corporation operates. The model analyses an organization through seven key
elements – Structure, Strategy, Skills, Staff, Systems, Style & Super ordinate Goals. It further
describes organization’s ability to change, and its proper mode of change. All these factors are
interdependent and it is impossible to make significant progress in one area without making a
progress in the others as well.
Page | 9
STRATEGY
Strategy is the way company aims to improve its position vis-à-vis competition. The company
responds to the competitors move by planning an effective strategy. Jhaveri Security’s strategy
includes 5 components:
• Ease of accessibility
• Timely and accurate guidance
• Quality analysis for its partners and clients
• Cost leadership
• Full service provider
STRUCTURE
The structure of an organization helps coordinate various tasks of the organization and hence
enhance efficiency. The structure at Jhaveri Securities Pvt. Ltd. is, Kamal Jhaveri heads the
organization and is followed by the following people comprising the top management:
Parthiv Shah- Head Research Department
Manish Shah- VP Operations
The middle level management has Zonal Heads, Branch Heads, and partners which include
franchise owners.
SYSTEMS
Jhaveri Securities has a very good research department in place and to serve, support and advice
its branch heads, franchise owners which inturn support the huge client base of 70000. To
support its Research Department Jhaveri Securities has subscription of all the latest databases,
libraries and tracking and charting softwares. Which serve the Research Department with all
kinds of information that they might need at any stage. There is a dedicated IT department which
is responsible for all the network and provides clients with e-trading facilities. All the paper work
Page | 10
is handled by separate department and Mr. Kamal Jhaveri the CMD of the Jhaveri Securities with
Mr. Manish Shah overlooks the entire organization and its operations.
STYLE
As Jhaveri Securities does not require very diverse and highly expert employees for most
departments. Jhaveri Securities does not hire from top notch B-Schools or Tech. colleges rather
they hire people who have experience for that particular job description and have a lot of
knowledge gained through experience.
The work environment at Jhaveri Securities is collaborative and encouraging every employee to
go beyond their defined roles and learn more. In addition to it the culture is also of a free
workplace where communication is given due importance with email client and internal
messaging system. The culture ensures that a strong team spirit bonds everyone and that people
are constantly motivated to go beyond their individual capacities.
STAFF
They recruit fresher & experienced people but never from a top educational institute instead they
seek candidates with passion for stock market or people with relevant experience in the particular
job description. All the training provided to employees is of on-job experiential learning type.
SHARED VALUES
There are a set of rules and regulation that need to be followed from the CMD to a support staff.
Jhaveri Securities is very ethical in the business and corporate governance. They imbibe the
following values in every employee:
• Integrity
• Excellence
• Learning
• Fairness
• Accountability
Page | 11
Page | 12
Valuation: Maruti Suzuki Ltd.
Company History
Maruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is India's largest passenger car company,
accounting for about 49 per cent of the domestic car market. The company offers full range of
cars from entry level Maruti 800 & Alto to stylish hatchback Ritz, A-star, Swift, Wagon R,
Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. The company is a
subsidiary of Suzuki Motor Corporation of Japan.
The company is engaged in the business of manufacturing, purchase and sale of motor vehicles
and spare parts (automobiles). The other activities of the company include facilitation of pre-
owned car sales, fleet management and car financing. They have four plants, three located at
Palam Gurgaon Road, Gurgaon, Haryana and one located at Manesar Industrial Town, Gurgaon,
Haryana.
The company has seven subsidiary companies, namely Maruti Insurance Business Agency Ltd,
Maruti Insurance Distribution Services Ltd, Maruti Insurance Agency Solutions Ltd, Maruti
Insurance Agency Network Ltd, Maruti Insurance Agency Services Ltd Maruti Insurance
Agency Logistics Ltd and True Value Solutions Ltd. The first six subsidiaries are engaged in the
business of selling motor insurance policies to owners of Maruti Suzuki vehicles and seventh
subsidiary, True Value Solutions Ltd is engaged in the business of sale of certified pre-owned
cars under the brand 'Maruti True Value'
Page | 13
Shareholding Pattern
Source: Capital Line Plus
Company’s major stake of over 54% is held by foreign promoter group namely Suzuki group.
Institution holding in Maruti is little less than 38% which also suggests the low risk and high
potential of this stock and after that about 8% of the company’s stock is held by general public.
54.2101 0
54.2101
37.7879
8.002
45.7899
100
0
ShareHolding pattern
Foreign (Promoter & Group)
Indian (Promoter & Group)
Total of Promoter
Non Promoter (Institution)
Non Promoter (Non-Institution)
Page | 14
Investment Rationale
Maruti Suzuki is a market leader in the domestic passenger car market with a market share of
51.2% in FY10. The company has a strong product portfolio spanning across various price
points. Maruti has made significant investments in building an elaborate distribution network
with 802 sales and 2470 service outlets, which in our view remains a competitive edge for the
company. In FY10, the company achieved a key milestone of vehicle sales in excess of 1 million
units.
Over the last six months Maruti has underperformed the BSE Auto Index by 25% on the back of
heightened concerns regarding market share erosion and margin pressure on account of
commodity cost increases and adverse currency movements. Although market share loss is a
given in light of competitive launches (Nano will surely erode some of its market share). It can
be expected that Maruti’s domestic volume growth in the passenger car segment over the next
few years should remain good at about 10% YoY reasons for that being:
1. Good volume growth despite market share loss
Despite several new launches in the compact car segment, we believe volume ramp up for the
new entrants would take a few years. Maruti’s strong distribution reach of 802 sales outlets
and 2470 service stations remains a competitive edge. The company plans to focus on the
largely under-penetrated rural markets, which currently contribute 16.5% of its domestic
volumes (9 % in FY09). Furthermore, we note that Maruti’s current product portfolio is fairly
diversified with the revenue share from the compact car segment accounting for 56% of total
sales.
2. Margin levers to partially offset input cost pressure
Maruti’s calibrated capacity expansion would ensure high utilization levels over the next two
years. The company has completed its platform rationalization and up gradation efforts in
Q4FY10, which we feel could bring in cost efficiencies in the subsequent period. Further
with the recent price hike of ~ 1% on blended basis, it would be able to partially offset some
Page | 15
portion of commodity cost increase. Adverse forex movement is likely to impact operating
profits by ~2% in FY11E and FY12E, based on Maruti’s unhedged exposure.
3. Expect frequency of new launches to accelerate
Maruti has been consistently launching one new model every year in addition to refreshers of
its existing models. In the context of emission norms change, the company has upgraded
most of its existing models to BS-IV emission standards. In addition to one new model
launch, Maruti will also undertake model face-lifts at regular intervals.
4. Industry outlook remains positive.
Passenger car demand in India is on an up move following the growing demand for cars led
by improving income and consumption levels. Favorable domestic story coupled with low
penetration levels provides a huge upside opportunity for the passenger car players in the
domestic market. Increasing competition will lead to an overall broadening of the car market
in India. Domestic passenger vehicle segment in India have registered a 15% CAGR growth
in the past 4 years.
Maruti's Sales trend (Source: SIAM)
5. Maruti’s current performance
Maruti’s total sales grew by 23% to 88140 units in May 2010 on robust demand. The
domestic sales recorded its highest monthly sales at 76120 units, up by 21% in May 2010.
0
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100
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-09
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Sep-
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-09
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-09
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-10
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-10
May
-10
Domestic Sales
Exports
Page | 16
The previous domestic monthly sales high was in Feb 2010. Segment wise, A2 and A3
registered highest domestic monthly sales. The A2 segment that comprises of compact car
brands grew by 17% to 62679 units while the A3 segment i.e. sedan models grew by
impressive 61% to 10883 units in May 2010. Surprisingly the M800 sales grew by 10% to
2558 units in May 2010. The exports of Maruti's passenger cars grew by healthy 33% to
12020 units on robust demand, however its market shares slipped by 100 bps to 49% in May
2010. On overall basis, Maruti's total sales crossed over 1-lakh units (on including its
multipurpose and utility vehicle sales).
Page | 17
Financial Analysis
Key Ratios
Ratios to measure ‘Short Term Solvency’
1. Current Ratio = Current AssetsCurrent Liabilities
= 1.788
2. Cash Ratio = CashCurrent Liabilities
= 0.632
The value of current ratio is 1.788 is fairly good, its value is greater than 1 which suggests that
after a period of 1 year when these assets will be converted into cash Maruti will end up getting
cash instead of paying and its value is not so high that it may suggest some inefficient use of its
current assets. The value of cash ratio is .632 which is on the higher side and tells us that the
company is currently having enough cash to pay of 63.2% of its current liabilities.
Turnover Measures
3. 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 = 𝐶𝐶𝐼𝐼𝐶𝐶𝐼𝐼 𝐼𝐼𝑜𝑜 𝑔𝑔𝐼𝐼𝐼𝐼𝑔𝑔𝐶𝐶 𝐶𝐶𝐼𝐼𝑠𝑠𝑔𝑔𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼
= 27.86 times
4. 𝐷𝐷𝐷𝐷𝐼𝐼𝐶𝐶′𝑆𝑆𝐷𝐷𝑠𝑠𝐼𝐼𝐶𝐶 𝑖𝑖𝐼𝐼 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 = 365 𝐷𝐷𝐷𝐷𝐼𝐼𝐶𝐶𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑇𝑇𝑇𝑇𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼
=13.1 Days
Page | 18
The turnover figures are extremely good the inventory turnover ratio of 27.86 suggests that the
inventory is turned over 27.86 times every year and the ratio of Days Sales in inventory of 13.1
days tells us that Maruti holds 13.1 days of inventory with itself.
Receivables Turnover
5. 𝑅𝑅𝐼𝐼𝑅𝑅𝐼𝐼𝐼𝐼𝑖𝑖𝐷𝐷𝑅𝑅𝑠𝑠𝐼𝐼𝐶𝐶 𝐼𝐼𝑇𝑇𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 = 𝑆𝑆𝐷𝐷𝑠𝑠𝐼𝐼𝐶𝐶𝐴𝐴𝑅𝑅𝑅𝑅𝐼𝐼𝑇𝑇𝐼𝐼𝐼𝐼𝐶𝐶 𝑅𝑅𝐼𝐼𝑅𝑅𝐼𝐼𝑖𝑖𝐼𝐼𝐷𝐷𝑅𝑅𝑠𝑠𝐼𝐼𝐶𝐶
= 30.315 times
6. 𝐷𝐷𝐷𝐷𝐼𝐼𝐶𝐶′𝐶𝐶𝐷𝐷𝑠𝑠𝐼𝐼𝐶𝐶 𝑖𝑖𝐼𝐼 𝐼𝐼𝐼𝐼𝑅𝑅𝐼𝐼𝑖𝑖𝐼𝐼𝐷𝐷𝑅𝑅𝑠𝑠𝐼𝐼𝐶𝐶 = 365 𝐷𝐷𝐷𝐷𝐼𝐼𝐶𝐶𝑅𝑅𝐼𝐼𝑅𝑅𝐼𝐼𝑖𝑖𝐼𝐼𝐷𝐷𝑅𝑅𝑠𝑠𝐼𝐼𝐶𝐶 𝐼𝐼𝑇𝑇𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼
= 12.04 Days The turnover figures are extremely good the receivables turnover ratio of 30.315 times suggests
that the receivables is turned over 12.04 times every year and the ratio of Days Sales in
receivables of 13.1 days tells us that Maruti holds 13.1 days of receivables with itself.
Page | 19
Historical Trends
Net Sales
Source: Company
Maruti’s Net Sales has grown at a CAGR of about 14.5% for 14 years and for the last 5 years the
CAGR for growth in Net sales has been 17.66%. This trend might get dampened by recession but
Maruti is still likely to continue a moderate growth of about 10%.
Growth rates in PBIT and Net Profit Maruti’s last 14 year CAGR for PBIT is 9.8% and 5 year CAGR is 16%. For Net Profit the 14 year CAGR has been 11.1% and 5 year CAGR has been 11.01%.
Return on Net-Worth Maruti’s Average Return on net worth for the last 14 years has been 18.76%. This is extremely good, since average return on NIFTY for the last 10 years has been 13.87%.
Dividend Pay-out ratio Maruti’s average dividend payout for the last 14 years in comparison to its net profit is about 10.84%. This is similar to its peers.
Reinvestment Rate Maruti’s average reinvestment rate for the last 14 years has been 95.3% and for the last 5 years it has been extraordinarily high at 119.64%.
0
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Net Sales
Net Sales
Page | 20
Return on Capital Maruti’s average return on capital for the last 14 years has been 17.42%, and for the last 5 years it averages out at 17.78%.
Growth Rate Growth rate is nothing but multiplication of ‘Return on Capital’ and ‘Reinvestment Rate’.
𝐺𝐺𝐼𝐼𝐼𝐼𝐺𝐺𝐼𝐼ℎ 𝑅𝑅𝐷𝐷𝐼𝐼𝐼𝐼 = 𝑅𝑅𝐼𝐼𝐼𝐼𝑇𝑇𝐼𝐼𝐼𝐼 𝐼𝐼𝐼𝐼 𝐶𝐶𝐷𝐷𝐶𝐶𝑖𝑖𝐼𝐼𝐷𝐷𝑠𝑠 𝑥𝑥 𝑅𝑅𝐼𝐼𝑖𝑖𝐼𝐼𝐼𝐼𝐼𝐼𝐶𝐶𝐼𝐼𝑅𝑅𝐼𝐼𝐼𝐼𝐼𝐼 𝐼𝐼𝐷𝐷𝐼𝐼𝐼𝐼
Average Growth Rate for the last 14 years has been 18.83% and for the last 5 years it has been
19.22%.
Valuation Valuation method used here to value Maruti is ‘Free Cash Flow To Firm’ or FCFF. All the rates used here are based on historical data and variations are made in them after discussions. Following are assumptions and rates used for valuation.
Operating Margin: Last 14 year’s average operating margin is 14.69%, last 10 year’s average operating margin is 12.56%, last 5 year’s average operating margin is 16.42% but operating margin for 2009 was very low compared to these at 12.06. For calculation purposes we have taken operating margin to be at 15% for the first 2011 to 2013 and after that at 14% since there will be pressure on it due to increased competition.
Reinvestment Rate: Reinvestment rate used for 2010 is kept at 75% due amazing results shown by the company a good part of this growth came from decreased raw material prices and low base effect. But it can be safely assumed this growth will be very difficult to maintain. Hence the Reinvestment rate is assumed to be 75% for 2010 and for later years it is assumed to be 60%.
Return on Capital: Last 5 years average return on capital was averaging at 18% and this I believe Maruti will be able to maintain.
Debt to Equity: Current Debt to Equity ratio is 9% but since Maruti will not be able to maintain its reinvestment rates there will be a substantial decrease in cash outflows hence Maruti will decrease its Debt to Equity ratio to 5%.
Dividend: Company will increase the dividend ratio to 32% of its net eventually.
Other Income: Other Income will grow at a constant rate of 12% given the steady increase in cash.
Page | 21
Working Capital: Company’s working capital currently is negative but as its growth will slow down it will become difficult to maintain a negative working capital so excess cash i.e. remainder of net profits after paying dividends and reinvestment
Depreciation: Last 14 year average depreciation is at about 8.5% this is taken as constant.
Growth Rate: Since 2010 was an exceptional year growth rate for 2011 will be 13.5% but for the consecutive 4 years high growth rate period is taken at 10.8%.
Terminal Growth Rate: Terminal Growth Rate is taken same as Risk Free Rate
𝑅𝑅𝑖𝑖𝐶𝐶𝑅𝑅 𝐹𝐹𝐼𝐼𝐼𝐼𝐼𝐼 𝑅𝑅𝐷𝐷𝐼𝐼𝐼𝐼 = 10 𝑌𝑌𝐼𝐼𝐷𝐷𝐼𝐼 𝐵𝐵𝐼𝐼𝐼𝐼𝑔𝑔 𝑅𝑅𝐷𝐷𝐼𝐼𝐼𝐼 − 𝐷𝐷𝐼𝐼𝑜𝑜𝐷𝐷𝑇𝑇𝑠𝑠𝐼𝐼 𝑆𝑆𝐶𝐶𝐼𝐼𝐼𝐼𝐷𝐷𝑔𝑔
Here Default Spread is dependent upon India’s currency risk which according to Moody’s Rating is ‘Ba2’ which when converted into default spread comes out to be equal to 3%1
Beta
. 10 year Bond rate is on June 6 was at 7.58%. Risk Free Rate comes out to be at 4.58%.
2
1 http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html 2 Annexure-IV and Beta Calc. in Maruti-Final.xls
: Beta of Maruti comes out to be ‘.8068’ after normalizing it with industry.
Page | 22
Free Cash Flow to Firm3
Particulars 2014E 2013E 2012E 2011E 2010 EBIT(1-t) 3049.824 3020.135 2736.258 2480.014 2429.996
Net Capital Expenditure[Capital Expenditure- Depreciation] 391.24 367.24 346.48 888.24 -14.39 Change in Working Capital
Calculation of Growth Rate(R.R*ROC) 10.80% 10.80% 10.80% 10.80%
15.05%
1) ROC 18.00% 18.00% 18.00% 18.00% 20.07% EBIT(1-T) 3049.82 3020.14 2736.26 2480.01 2430 Book Value of Equity & Debt 18692.19 16732.21 15216.54 13784.29 12107.18
2) Reinvestment Rate 0.6 0.6 0.6 0.6 0.75 Cap ex 1789.08 1613.01 1455.15 1873.22 -14.39 Change in WC 0 0 0 0 0 EBIT(1-T) 3049.82 3020.14 2736.26 2480.01 2430
FCFF 3441.06 3387.38 3082.74 3368.25 2415.61 WACC 0.12 0.12 0.12 0.12 0.12 Present value 2204.23 2425.42 2212.39 2703.95 2164.33
Terminal Value ( 4 years high growth) 30620.24
Firm Value 42330.57 Equity Value 42330.57 Face Value 5 No of Shares 288910060 Price Per Share 1465.181477
3 FCFF in Maruti-Final.xls
Page | 23
Balance Sheet Abstract4
2014E 2013E 2012E 2011E 2010
SOURCES OF FUNDS : Share Capital 144.5 144.5 144.5 144.5 144.5
Reserves Total 17657.59 15790.94 14076.57 12501.64 10383.48 Equity Share Warrants 0 0 0 0 0
Equity Application Money 0 0 0 0 0 Total Shareholders’ Funds 17802.09 15935.44 14221.07 12646.14 10527.98
Total Debt 890.1 796.77 995.47 1138.15 1579.2
Total Liabilities 18692.19 16732.21 15216.54 13784.29 12107.18
APPLICATION OF FUNDS : Gross Block 16445.18 14656.1 13043.09 11587.95 9714.73
Less: Accumulated Depreciation 10250.07 8852.23 7606.46 6497.8 5512.82 Less: Impairment of Assets
Net Block 6195.11 5803.88 5436.63 5090.15 4201.91 Total Assets 18692.19 16732.21 15216.54 13784.29 12107.18
4 Balance Sheet in Maruti-Final.xls
Page | 24
Profit and Loss Account Abstract5
2014E 2013E 2012E 2011E 2010
INCOME :
Sales Turnover 49998.4
6 45124.9
7 40726.5 36756.7
7 31947.6
8 Excise Duty 7499.77 6768.74 6108.98 5513.52 2848
Net Sales 42498.6
9 38356.2
2 34617.5
3 31243.2
6 29099.6
8 Other Income 1606.44 1434.32 1280.64 1143.43 1020.92 Stock Adjustments 0 0 0 0 0
Total Income
44105.13
39790.54
35898.17
32386.69 30120.6
Total Expenditure
36548.88
32602.79 29424.9
26556.77
25668.72
Operating Profit 5949.82 5753.43 5192.63 4686.49 4451.88 Interest 63.93 57.23 71.5 81.75 33.5 Gross Profit 5885.89 5696.21 5121.13 4604.74 4418.38 Depreciation 1397.84 1245.77 1108.66 984.98 825.02 Minority Interest (before tax) 0 0 0 0 0 Profit Before Tax 4488.05 4450.44 4012.47 3619.77 3593.36 Tax 1481.06 1468.64 1324.11 1194.52 1094 Fringe Benefit Tax
Deferred Tax Net Profit 3006.99 2981.79 2688.35 2425.24 2497.62
Minority Interest (after tax)
0 Profit/Loss of Associate Company
Net Profit after Minority Interest & P/L Asso.Co. 3006.99 2981.79 2688.35 2425.24 2497.62 Extraordinary Items
0
Adjusted Net Profit 3006.99 2981.79 2688.35 2425.24 2497.62
Adjst. below Net Profit 3006.99 2981.79 2688.35 2425.24 2497.62
P & L Balance brought forward 15495.1 13628.4
5 11914.0
8 10339.1
5 8221 Statutory Appropriations
0
Appropriations 1124.57 1115.14 973.98 850.31 379.47
P & L Balance carried down 17377.5
3 15495.1 13628.4
5 11914.0
8 10339.1
5
Dividend 962.24 954.17 833.39 727.57 324.69
5 Profit and Loss in Maruti-Final.xls
Page | 25
Preference Dividend Equity Dividend (%) 665.91% 660.33% 576.74% 503.51% 224.70%
Dividend Tax @ 16.87% 162.33 160.97 140.59 122.74 54.78
EPS before Minority Interest (Unit Curr.) 104.08 103.21 93.05 83.94 86.45 EPS before Minority Interest (Adj) (Unit Curr.) 104.08 103.21 93.05 83.94 86.45 EPS after Minority Interest (Unit Curr.) 104.08 103.21 93.05 83.94 86.45 EPS after Minority Interest (Adj) (Unit Curr.) 104.08 103.21 93.05 83.94 86.45
EPS
0
20
40
60
80
100
120
2008 2009 2010 2011E 2012E 2013E 2014E
EPS before Minority Interest
EPS before Minority Interest
Page | 26
Price Variations
Maruti Suzuki Ltd Stock price (Source: Money Control.com)
Conclusion
The analysis of Maruti Suzuki Ltd. Suggests that the stock is slightly undervalued (considering the conservative estimations used) even though the best time to buy this stock was in May. Maruti’s stock is still a value buy considering all the factors like;
1. Maruti is a fundamentally very strong company. 2. Future prospects for automobile sector are great. 3. Maruti’s valuation is higher than its current stock price by 5% and if the company
decides to go for expansion by installing new plants (this is a strong possibility since all the plants of Maruti are running at full capacity) in the next few years.
Considering all the factors, I give it a ‘BUY’ rating.
Page | 27
Sales Trends in Automobile Industry
Overview
Comparison of growth of Automobile Sales in India and World
Indian Automobile Industry is seventh largest in the world total production for 2009 being
26,32,694 6 units. India also is the fourth largest automobile exporter of automobiles. The
performance figures for Indian Automobile industry have been exceptional, over the past 10
years from 2004 to 2009 the net production of automobiles in India has grown at a CAGR of
12.40%7
6 International Organization of Motor Vehicle Manufacturers 7 Refer to Annexure- I
(5 year CAGR for passenger Cars has been 15.05%). The importance of these figures
increases even more if we consider the total unit increase in world automobile production has
been at a 10 year CAGR of 0.81%.
-2
0
2
4
6
8
10
12
14
Indian Automobile Industry
World Average for Automobile industry
5 year CAGR(%)
10 year CAGR(%)
Page | 28
In the last 10 years in terms of growth Indian Automobile Industry has clearly outperformed the
world average by a gigantic margin but it is not the point where we consider automobile industry
in India to be a mature one, in-fact it is not showing any signs of maturing. 2009 was marked as a
negative year for most world automobile industry, showing a negative growth by a whopping
13.5%. Whereas Indian Automobile Industry showed a completely reverse trend and registered a
growth of 12.90%. This comes to prove that Automobile markets for developed countries may be
saturated or even shrinking in face of recession but Indian automobile market remains upbeat.
Total Automobiles Production in India (Source: Society of Indian Automobile Manufacturers (SIAM))
Even though growth of Indian Automobile Industry has been spectacular, it still remains a
fraction of world automobile market with just 4.3% in terms of total volume in units produced
and figure becomes even lower if we consider the share in terms of currency. Automobile
penetration (cars) is still very low in India a little over 10 cars per 1000 people (optimistic figure;
0
20,00,000
40,00,000
60,00,000
80,00,000
1,00,00,000
1,20,00,000
1,40,00,000
1,60,00,000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Passenger Vehicles
Commercial Vehicles
Three Wheelers
Two Wheelers
Grand Total
Page | 29
planning commission report8 this number is 7). Projections9
Automobile Export Trends From India (Source: Society of Indian Automobile Manufacturers (SIAM))
for car penetration for India are
extremely good at 382 per 1000 people by 2025. Automobile industry is bound to boom.
India is fast becoming a production hub for major automobile manufacturers who want to
manufacture to cars so as to export. It is estimated that within next 4 years Indian auto players
alone will investment $30 Billion 10 . This investment discussed suggests the industry’s self
perspective which and the likely trend for auto industry for this decade. This investment is aimed
at not only satisfying domestic demand but also to support the export demand which have grown
at a fantastic 6 year CAGR of 24.7%11
8 Page 8 -
.
http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_automaive.pdf 9 Page 24 - http://www2.goldmansachs.com/ideas/brics/brics-at-8/BRICS-doc.pdf 10 http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/Auto-cos-lines-up-30-bn-investment-in-4-years/articleshow/6009682.cms 11 Annexure – II
0
2,00,000
4,00,000
6,00,000
8,00,000
10,00,000
12,00,000
14,00,000
16,00,000
18,00,000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Passenger Vehicles
Commercial Vehicles
Three Wheelers
Two Wheelers
Grand Total
Page | 30
Economy as a Factor Sale of Commercial Vehicles is backed by strong IIP numbers (17.6% YoY). This has created
high growth expectations. Lot of new launches are expected this season with support of strong
economic indicators growth seems certain. Margins which were under pressure due to strong
steel prices will also improve as the steel prices have started to soften.
There are some concerns on the possibility rising material prices and also there is a strong
likelihood of a hike in interest rates. Given the increased competition in the small car segment it
would become very difficult for players to pass this increased cost on to the consumers.
Page | 31
SWOT- Analysis
STRENGTHS 1. Indian Automobile Industry is globally cost competitive: It is possible because of cheap
labor availability and tax holidays provided by SEZs.
2. Government support: Indian government has also put Auto among its priorities12
3. Indian Automotive Industry is following global accepted quality measures at a lower
cost. This makes it a perfect destination for production-outsourcing of automobiles.
with
2012 target to become 10% of our GDP.
4. The availability large talent pool at cheap prices.
5. Availability of cheap R&D; 4 IITs be deemed as centers of excellence for automobile
research and access to latest technology.
WEAKNESS The biggest and probably the only weakness of Indian automobile Industry is its slow growth
in Research and Development most companies (barring TATA and M&M) do not have
adequate spending on R&D in comparison to their turnover. Maruti for instance is
completely dependent upon Suzuki for any new technology all of the successful cars sold by
it were developed by Suzuki; Swift, A-Star (which replaced alto in other markets as New
Alto), SX4, Ritz etc. This weakness will soon become history as Indian companies are
catching fast in R&D and are showing strong signs of success e.g.: M&M Scorpio Hybrid,
TATA Nano.
Besides R&D the other weakness is political hostility (TATA Nano Singur plant) but is only
a regional problem of less developed states or pro-communist states, states like Gujarat,
Maharashtra are proving to be a haven for Industries.
12 Page 26 - http://www.planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_automaive.pdf
Page | 32
OPPOURTINITES 1. India has a large pool of cheap talent which can be utilized in decreasing the R&D
expenses.
2. India has potential to become manufacturing and export hub with it cheap labor
availability.
3. India has very low car penetration about 10 per 1000 this number expected become
382 by 2025, this means that there is plenty of room for new entrants to enter and
grow with the market without having others existing competitors having to suffer a
market loss.
THREATS 1. Indian markets have always suffered from duplicate products and cheap counterfeits this
puts pressure on original equipment manufacturers to reduce the prices and compete with
cheaper counterfeits.
2. India shares a border with china which presents it with a unique problem of cheaper
counterfeits in a very huge manner through illegal imports and dumping.
3. With liberalization and foreign players entering Indian markets there is intense pressure
on local players to improve and upgrade their products and if they don’t they might
become extinct.
4. Certain component imports from FTA regime countries are becoming a threat existing
players13
.
13 Badri Narayanan G. and Pankaj Vashisht: Determinants of Competitiveness of the Indian Auto Industry
Page | 33
PORTER'S FIVE FORCES ANALYSIS OF
AUTOMOBILE INDUSTRY
Porter's Five Forces is a way of examining the attractiveness of an industry. It does so by looking
at five forces which act on that industry. These forces are determinants of that industry's
profitability.
The five forces are:
1. THE THREAT OF NEW ENTRANTS
In the automobile (car) sector, the threat of new entrants is generally very low. The industry is
very mature and it has successfully reached economies of scale. In order to compete in this
industry a manufacture must be able to achieve economies of scale. For this to occur,
:
Page | 34
manufacturers must mass-produce the automobiles so that they are affordable to the consumer.
The huge amount of capital requirement, large distribution networks and brand image constitutes
to other factors that restrict the entry of new barriers. The existing loyalty to major brands,
incentives for using a particular buyer, higher fixed costs, scarcity of resources, high costs of
switching companies, and government regulations constituted the barriers to entry which in turn
reduced the competition in auto industry. It costs a lot to set up a car manufacturing facility, a
new firm may usually have a very low brand equity, legislation and government policy such as
safety, EPA and emissions are very rigid and it takes quite a lot of time to establish a strong
distribution network.
2. THE BARGAINING POWER OF BUYERS/CUSTOMERS:
In the automobile sector, the buyers wield considerable power. The manufacturers depend on
them to stay in business. If they cannot keep their buyers happy then they risk losing them to
their competitors. The buyers have low switching cost if they are not happy. The automobile
manufacturers are competing against each other on value, features, quality, style and
customization to appeal to their customers. In the past when the economy was not liberalized, the
car manufacturers themselves had much of the power, but with the entry of foreign companies
after liberalization the power switched from SELLERS to BUYERS as the foreign manufacturers
offered alternatives to domestic vehicles.
However, the bargaining power with the buyers is MODERATELY high & not completely high,
the reason being that the buyers are not large but few in number. Second, the buyers do not have
the ability to integrate backwards into the industry, if they want a car then they have to purchase
it from a car dealer only, they themselves won’t manufacture a car.
3. THE BARGAINING POWER OF SUPPLIERS
In the automobile industry this refers to all the suppliers of parts, tires, components, electronics,
and even the assembly line workers. To manufacture a car lots of different parts are required &
to accomplish this there exist many suppliers. These suppliers rely on one or two automakers to
buy a majority of their products. If an automaker decided to switch suppliers, it could be
:
Page | 35
devastating to the previous supplier's business. As a result, suppliers are extremely susceptible to
the demands and requirements of the automobile manufacturer and hold very little power.
4. THREAT OF SUBSTITUTE PRODUCTS:
The threat of substitutes to the automobile sector is fairly mild. There avail many other mode of
transportation such as walking, cycling, taking a bus, train, rickshaw and to a larger extent an
airplane or helicopter but none offer the utility, convenience, independence, and value afforded
by automobiles. The switching costs associated with using a different mode of transportation,
such as train, may be high in terms of personal time, convenience, and utility, but not necessarily
monetarily the cost of fuel consumed on a similar round trip, daily parking, car insurance, and
maintenance). Substitutes products all depend on the geographic location of the consumer. In
places with high population densities (eg Mumbai), people prefer walking or cycling or taking a
train, more rather than owing a car & keep waiting at signals for 2-long hours. On the contrary,
there are people who would prefer to have at least one car for the “status” title in the society.
5. INTENSITY OF RIVALRY AMONG COMPETITORS
As per me INTENSITY OF RIVALRY AMONG COMPETITORS is the most important
force in automobile industry. The price, quality, durability, and many other aspects of different
manufacturers are greatly taken into consideration when deciding which Brand to purchase. For
instance, in India market for sedans & coupe, companies like BMW, Audi & Mercedes are into
fierce competition. The price & the features offered by BMW for its 3-series model are often
compared to the price & the features of AUDI A-4 model & Mercedes C-class models. Similarly
Skoda Fabia, Honda Jazz & Volkswagen Polo are being highly compared on features,
performance & prices. Also the newly launched TATA NANO (the lowest price car) is
:
Rivalry among the competitors is very strong is this industry. Tit-for-tat price slashes, ad
campaigns, and product developments keep them on the edge of innovation and profitability.
One of the reasons for such high rivalry is the lack of differentiation opportunities. All the
companies make cars (Sedans, Hatchbacks, and SUV’s). Before making any purchases the
competitors are compared to one another constantly.
Page | 36
extensively competing in price with Maruti-800, which was the lowest price available car before
the launch of Nano.
KEY CERTAINITY
In auto sector, the very requirement of a company for its survival is REGULAR
TECHNOLOGY UP GRADATION. For instance in the past we had just PETROL cars, then
with the gradual hike in petrol prices, cars using diesel & CNG–Gas as fuel were manufacture &
now, very recently, the renowned car companies are coming up with HYBRID cars due to the
concerns regarding the Global Warming. Thus, it is very possible that in future also
technological changes would be taking place keeping in view the customer’s requirement &
environmental scenario.
KEY UNCERTAINITY:
A very vital uncertainty in Auto sector is the PRICE OF THE RAW-MATERIAL
Entering of global brands into the market providing the variety of cars with wide ranges
in the prices, which gave liberty to the customers to choose as per their need.
(Steel,
Aluminum etc.). Changes in the cost of raw-material have a direct impact on the price of the
cars, which further affect the demand of the car. Thus, if in future the price of steel increases, the
sale price of car would increase, this will have a negative impact on its demand & vise-a-versa.
KEY SUCCESS FACTORS:
New designs, fuel efficient engines and various offers throughout the year resulted in the
growth of revenues for the automobile sector.
Page | 37
Industry Breakup
Indian Automobile Industry can be broken up into four categories:
Domestic Market Share for 2009-10
Passenger Vehicles 15.86 15.86
Commercial Vehicles 4.32 4.32
Three Wheelers 3.58 3.58
Two Wheelers 76.23 76.23
Market Share of each segment (source: SIAM)
15.86
4.32
3.58
76.23
Market Share
Passenger Vehicles
Commercial Vehicles
Three Wheelers
Two Wheelers
Page | 38
Two Wheelers Segment
Yearly Sales Trend Two Wheelers (source: SIAM)
Two wheeler sales are back on double digit growth path backed by robust economic growth and
availability of finances translating which have translated into this increase in demand. The two-
wheeler sales grew at a healthy rate of 31% which resulted into a unit sold reach 1057773 units
in May 2010 and sequentially it grew by 7% from 988128 units in April 2010. Of the 1057773
domestic sales accounted for 936555 units and exports accounted for 121218 units with a growth
rate of 29% and 51% respectively.
0
20,00,000
40,00,000
60,00,000
80,00,000
1,00,00,000
1,20,00,000
Export
Domestic Sales
Page | 39
Two wheeler sales monthly data (Source: SIAM)
Indian Metrological department has predicted normal South West Monsoons, which can help
improve rural income, and there by rural demand for automobiles in general, and two wheelers in
particular. Thus the near term outlook is positive.
Market Share for scooters segment (Source: SIAM)
0
200000
400000
600000
800000
1000000
1200000
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Dec
-09
Jan-
10
Feb-
10
Mar
-10
Apr
-10
May
-10
Export
Domestic
11
15
5
20
48
--Suzuki Motorcycle India Pvt. Ltd.
--Hero Honda Motor
--Mahindra & Mahindra
--TVS Motor Co.
--Honda Motorcycle
Page | 40
Scooters
Scooters segment has given a comeback and this segment is proving to be the biggest thriving
and upbeat two-wheeler segment. Its total sales grew by robust 46% to 160753 units in May
2010. The domestic sales grew by 45% to 157509 units and the exports zoomed ahead by
whopping 105% to 3244 units in May 2010.
The scooter segment was the sole segment in two wheeler industry to remain unaffected by the
sudden recession in 2008. It has been on healthy growth trail especially from November 2006
with few occasional hiccups. Cashing on the trend, Piaggio would be re-entering the scooter
segment beginning with Vespa LX 125 model. The board of Piaggio & Co has okayed a plan to
invest nearly Euro 30 million over two years to establish a 1.5-lakh capacity plant that will
produce a model specially developed for India, the world's second-largest two-wheeler market.
The first scooter is expected to roll out by the end of 2012.
Also Honda Motorcycle's (Honda) total scooter sales grew by 28% to 77695 units in May 2010
on demand. Its domestic sales grew by 28% to 76980 units while the exports grew by whopping
105% to 715 units in May 2010. However its market share slipped to 48% in May 2010 from
55% in May 2009.
Page | 41
Motorcycles segment market share (source: SIAM)
Motorcycles
The motorcycle sales grew by 29% to 842143 units in May 2010 backed by demand in domestic
as well as export markets. The domestic sales grew by 26% to 725311 units while the exports
grew by robust 49% to 116832 units partly lifted by low base too.
Bajaj Auto's total sales grew by impressive 63% to 269488 units in May 2010 partly lifted by
demand and low base effect. The domestic sales grew by notable 69% to 191726 units while the
exports grew by robust 51% to 77762 units in May 2010. Its market share improved to 32% in
May 2010 from 25% in May 2009.
0
32
49
8
07 3
--Suzuki Motorcycle India Pvt. Ltd.
--Bajaj Auto
--Hero Honda Motor
--TVS Motor Co.
--Royal Enf. Sales
--Honda Motorcycle
Page | 42
Three Wheeler Segment
Yearly sales trend in three wheeler segment (source: SIAM)
Three wheeler segment has grown at a rate of about 9.7% yearly in the last six years if calculated
geometrically. While the domestic sales grew at a CAGR of about 7.6% and exports grew at a
CAGR of 16.8%.
Three wheeler segment Market Share for April (Source: SIAM)
In three wheeler segment 88% of the market share is held by three players namely Bajaj Auto,
Piaggio, and M&M.
0
1,00,000
2,00,000
3,00,000
4,00,000
5,00,000
6,00,000
7,00,000
Export
Domestic Sales
35
44
9
12
Bajaj Auto
Piaggio
M&M
Others
Page | 43
Passenger Vehicles Segment
Passenger Cars Sales yearly trend (source: SIAM)
Total passenger vehicles segment has grown at a rate of little over 15% in the last 6 years with
domestic sales growing at a rate of about 13.7% and exports growing at a rate of 22.9% 6 year
CAGR. Domestic sales were had to face some beating in 2009 but the industry showed allover
marginal growth because of exports growth was over 53%.For the current year, the passenger
vehicle industry continued on its robust growth trail with 31% growth in May 2010 to 223687
units backed by demand and partly low base. The domestic sales grew by 35% to 190575 units
on demand and low base while the exports grew by 11% to 33112 units despite healthy base.
Despite the series of price hikes in span of four months in passenger vehicle industry as well as
fuel price hike, the passenger vehicle demand is undeterred owing to increased purchasing power
given to consumers with change in tax slabs, healthy economic growth and specially the
launches of new/variants of small cars such as VW Polo, GM Beat, Ford Figo and Maruti
Suzuki's new Wagon R and Eeco at attractive prices.
0
5,00,000
10,00,000
15,00,000
20,00,000
25,00,000
30,00,000
Export
Domestic Sales
Page | 44
Passenger vehicles monthly sales (Source: SIAM)
Source: SIAM
The compact car segment is about to see some increased competition with the launch of Nissan’s
‘Made in India' car Micra. This compact car would be hitting the Indian stands from July 2010.
Nissan has commenced the production of first Micra at its Chennai plant in May 2010. The car
has been displayed in showroom from May 25 2010 and would hit the Indian market in July
2010. Its exports are expected to begin from September 2010. Nissan is looking at exporting to
more than 100 countries including Europe, Middle East and Africa.
0
50000
100000
150000
200000
250000
300000
Apr
-09
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Dec
-09
Jan-
10
Feb-
10
Mar
-10
Apr
-10
May
-10
Exports
domestic
Market Share Passenger Vehicles Segment
Maruti
Hyundai
Tata Motors
M&M
GM
Others
Page | 45
Passenger Cars
The passenger car's total sales grew by 26% to 181130 units in May 2010 largely on demand.
The domestic sales grew by healthy 30% to 148481 units on low base and demand while the
growth in exports were restricted to 10% to 32649 units on account of high base.
Utility Vehicle
The utility vehicle sales grew by impressive 58% to 25783 units in May 2010 on demand and
steep low base effect. Its domestic sales grew by impressive 56% to 25432 units while the
exports grew by whopping 409% to 351 units in May 2010.
Multi Purpose Vehicle (MPV)
The MPV sales grew by robust 51% to 16774 units in May 2010 on healthy demand. Its
domestic sales grew by robust 51% to 16662 units while the exports grew by notable 49% to 112
units in May 2010.
Page | 46
Bajaj Auto Ltd.
1. Bajaj Sales Trend; in 000's (source SIAM, Company)
Highlights
• For May ’10, Bajaj Auto reported sturdy 61.6% yoy volume growth (though 4.5% lower
mom), led by robust motorcycle and three-wheeler volumes.
• Motorcycles posted robust 62.9% yoy volume growth (though 2.6% lower mom), to
268,840 units. The newly-launched Discover-150 sold 12,377 units, Pulsar (75,974 units)
and Discover (107,076 units) made up 68% of motorcycle sales.
• In May ’10, export growth was 63.5% yoy (though 15.8% lower mom), to 95,964 units.
• For Q4FY10: 80.5% growth in net sales to 3399.5 crores and 4 fold rise in net profit to
532 crores.
• FY10 sales grew over 35% to 11508 crores while net profit showed a 160% growth to all
time high at 1702 crores.
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Mar
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Apr
-10
May
-10
2Wh's
3Wh's
Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E
11508.5 1814.02 117.51 2292 2309 984.9 33161.61 19.5
Page | 47
• EBITDA margin for the quarter was the highest ever at 22.9% and 21.7% for Q4FY10
and FY10.
• There are many strategic launches planned for FY11 such as Discover 100cc, Pulsar
135cc and Platina 125cc all these combined with already launched Discover 150cc would
expand volume based growth.
• FY10 YoY units growth in 2Wh’s for BAL has been 31% and for 3Wh’s has been 24%.
This was a result of strong domestic demand.
Page | 48
Hero Honda
2. All figures in 000's (Source SIAM)
Highlights
• Hero Honda's total scooter sales grew by impressive 64% to 24746 units in May 2010
despite high base. Its domestic sales grew by robust 61% to 23738 units while the exports
surged by significant 200% to 1008 units in May 2010. Its market share grew by 100 bps
to 15% in May 2010.
• Hero Honda's total sales grew by 12% to 411187 units in May 2010 purely on demand.
The domestic sales grew by 12% to 401320 units while the exports grew by 16% to 9867
units in May 2010. However its market shares slipped by 700 bps to 49% in May 2010.
The company raised prices of its products by up to Rs 1,000 with immediate effect in
June 2010 due to rising input costs.
050
100150200250300350400450500
May
-09
Jun-
09
Jul-0
9
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Dec
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Jan-
10
Feb-
10
Mar
-10
Apr
-10
May
-10
Hero Honda: Sales Volume
Sales Volume
Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E
15758.18 2231.83 111.8 1984.35 2094 1311.7 39625 17.75
Page | 49
• Hero Honda introduced two new models in April – the refreshed Glamour and Glamour
FI. It plans to continue to build on its strategy of innovation and technology focus by
introducing new products and product refreshes.
• Hero Honda recently crossed a significant milestone by covering 100,000 villages under
its rural initiative:“Har Gaaon Har Angan”. This umbrella platform for all rural
initiatives has helped in steadily widening its presence in rural and upcountry markets,
taking its contribution to sales to 42% of the total.
Page | 50
TVS Motor Co.
3 TVS Motors Sales; All figures in 000's (source SIAM, Company)
Highlights
• TVS Motor's scooter sales grew by robust 42% to 31884 units in May 2010 though partly
driven by demand and partly low base effect. The domestic sales grew by robust 40% to
30567 units while the exports grew by whopping 101% to 1317 units in May 2010. The
market share was intact at 20% in May 2010.
• TVS's total sales grew by 27% to 67906 units in May 2010 on demand as well as low
base. Its domestic sales grew by 21% to 52319 units while the exports grew by robust
51% to 15587 units in May 2010. Its market share was intact at 8% in May 2010.
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Apr
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May
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Motorcycles & Mopeds
Scooter
Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E
4356.07 132.69 3.64 97.1 108.8 40.5 2306.55 26.68
Page | 51
• The moped segment's total sales grew by 29% to 54877 units in May 2010 on healthy
demand. It solely represents TVS motor. Its domestic sales grew by 27% to 53735 units.
Its exports grew by outstanding 661% to 1142 units in May 2010 lifted by both robust
demand and low base.
• Motorcycle volumes increased 26.9% yoy and 2.9% mom, marking the sixth consecutive
month of mom volume growth. In Feb ’10, TVS introduced the auto-clutch motorcycle
Jive in Tamil Nadu and Andhra Pradesh, with the countrywide launch coming in Mar and
Apr. This has contributed to TVS’ motorcycle growth.
• Three-wheeler volumes increased 217.3% year on year (but lower 85.8% month on
month) to 2,313 units. Exports increased 62.1% year on year (though 6.1% lower mom),
to 18,046 units, marking the sixth consecutive month of year on year volume growth for
TVS’ exports.
Page | 52
Ashok Leyland
4 Production and Sales Figures (source: Ashok Leyland Website)
0
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3000
4000
5000
6000
7000
8000
9000
10000
Production
Sales Domestic
Sales Exports
Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E
7244.71 426.21 3.2 62.5 70.35 31.1 8321.27 19.67
Page | 53
5. Sales Breakup (source: Ashok Leyland website)
Highlights
• The Ashok Leyland-Nissan joint ventures for LCV will the roll-out of the first wave of
products next year with a capacity of 1.5Lac units.
• It is expected the JV will launch 3 new vehicles in next 3 years.
• Total vehicle sales more than trebled to 6,502 units (228.9% YOY) in May. Domestic
sales surged to 5,973 units compared with 1,697 in May 2009 while exports nearly
doubled to 529 units.
• The M&HCV passenger and goods segment were the main drivers of volumes, which
increased 103.1% and 315.2% YoY to 1,436 units and 4,958 units, respectively.
• The LCV segment recorded strong growth of 42.1% YoY and 111.8% MoM though the
base is very low. Going forward, with the Pantnagar plant reaching full capacity
utilization we expect larger LCV sales in the northern region.
• Exports improved in volume terms by 88.9% YoY and 3.7% MoM to 529 units though
according to contribution to total sales the segment declined slightly on YoY basis.
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MDV Passenger MDV Goods LCV Total
May-09
May-10
Page | 54
Mahindra and Mahindra
Monthly Sales trend (Source: SIAM)
Highlights
• Mahindra & Mahindra's (M&M) total scooter sales grew by whopping 260% to 8206
units in May 2010. The robust growth is partly driven by fact that M&M entered the
scooter space only in April 2009 thus driven by low base. Its domestic sales grew by
whopping 267% to 8046 units while the exports grew by impressive 82% to 160 units in
May 2010. Its market share grew by 300 bps to 5% in May 2010
• Domestic UV sales grew 50% yoy, while exports grew 275% yoy (from a low base),
driving overall UV growth to 55%.
• Domestic tractor volumes rose 29% yoy, while export growth was just 3% yoy. Overall
tractor growth came in at 27.8% yoy and 5.8% mom. The launch of an ultra-cheap entry-
level tractor aimed at small and marginal farmers could provide the necessary impetus to
M&M’s tractor volumes
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Mar
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Apr
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May
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UV & 3Wh's
Tractor
Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E
18602.11 2087.75 36.89 631.65 641.8 347 35745.07 17.12
Page | 55
• Three-wheeler volumes too were robust, at 145.7% yoy and 13% mom. This growth is
attributable to good demand for Gio and Maxximo
• LCV volumes grew 21.2% yoy, while Logan sales shot up 94.8% (primarily on the
export of 350 units).
Page | 56
TATA Motors
Tata Motors monthly Sales Trends (Source: SIAM)
Highlights
• Tata Motors' (Tata) total sales grew by robust 45% to 19125 units in May 2010 gaining
from demand and low base effect. The domestic sales grew by robust 45% to 18618
units. It included Nano sales of 3550 units.
• Brand wise, the Indica range sales were lower by 15% to 8468 units while the Indigo
range grew by whopping 133% to 6600 units in May 2010.
• The exports improved by robust 56% to 507 units in May 2010. Its market share
improved to 11% in May 2010 from 9% in May 2009.
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Pessenger Cars
Commercial Vehicles
Sales Net Profit EPS(TTM) CMP 52W-High 52W-Low Mkt. Cap P/E
35593.05 2240.08 39.26 800 882 269.5 45648 20.38
Page | 57
• Tata Motors commenced the commercial operations of people's car Nano at its mother
plant in Sanand, Gujarat. The company's initial capacity of 2.5 lakh cars per annum
would be achieved in phases while with some balancing could be expanded to 3.5 lakh
units per annum.
Page | 58
Conclusion
Automobile sector after a strong run of over 10 years showed a strong decline in
growth for the years 2007-2009. That was because of the recession which affected
entire world economies but as the economy is bouncing back the sale of
automobiles have picked up and that too with a bang, growth rates even higher of
what they were for the years prior to recession. India is back to becoming one of
the fastest growing automobile markets in the word and many reports suggesting
that India will surpass china in the average automobile (Passenger Vehicle
Segment) by 2025 there is tremendous potential in automobile industry and the
recent growth figures by all the automobile majors prove this point that Indian
automobile industry is back on track.
Now the competition will not be limited to just the existing players in the market
i.e. Maruti, Hyundai, TATA, GM, Honda and Skoda. Competition will now be
much higher with all the auto majors lining up for entry into India either to market
their cars here or to manufacture, but all the auto majors seem to be coming to
India.
Page | 59
Learning’s from the project The two months that I spent at Jhaveri Securities have learned new things everyday. It was the
first time I had an exposure to the Capital Market. I learned the basic concepts of capital market.
It also gave me a peep into the organization and its functioning. They were tough two months
where everyday gave me new insights to the capital markets. Most importantly it cleared my
misconception about markets that ‘there must be some hidden stock which people are not aware
of and which will become future Infosys’.
Application of learnt at NIM I had to use the DCF method for valuation of Maruti
Knowledge, techniques and skills picked up I learned how to use DCF method to calculate fair price of stocks.
Learning Soft Skills I learned
How to work under conditions of intense pressure.
Adapting to new work environment.
Importance of communication.
Patience. Future learning I am working on method to find fair value of Index.
Page | 60
Bibliography
• Capitalineplus.com/software • Industry Analysis Service • Moneycontrol.com • Wikipedia.org • Investopedia.org • http://www.stern.nyu.edu/~adamodar • Mauri Suzuki Ltd. Annual reports
Page | 61
Annexure-I
Automobile Production Figures
Page | 62
Annexure – II
Automobile Export Trends
Automobile Exports Trends (Number
of
Vehicles)
Category
2003-
04
2004-
05
2005-
06 2006-07
2007-08 2008-09 2009-10 CAGR(%)
Passenger
Vehicles
1,29,29
1
1,66,40
2
1,75,57
2 1,98,452 2,18,401 3,35,729 4,46,146 22.93%
Commerci
al Vehicles 17,432 29,940 40,600 49,537 58,994 42,625 45,007 17.13%
Three
Wheelers 68,144 66,795 76,881 1,43,896 1,41,225 1,48,066 1,73,282 16.83%
Two
Wheelers
2,65,05
2
3,66,40
7
5,13,16
9 6,19,644 8,19,713 10,04,174 11,40,184 27.53%
Grand
Total
4,79,91
9
6,29,54
4
8,06,22
2
10,11,52
9 12,38,333 15,30,594 18,04,619 24.70%
Source "Society of Indian Automobile Manufacturers
(SIAM)"
Page | 63
Annexure-III
Passenger Vehicles Monthly Domestic Sales Data Category/ Sales
Segment/Sub segment
Manufacturer For The Month Of Cumulative
May Apr - May
2010 2009
%
2010 -
11
2009 -
10
%
Chang
e
Chang
e
Passenger Vehicles
-Passenger Cars
--BMW India Pvt. Ltd. 245 169 45 517 367 41
--Mercedes-Benz India Pvt Ltd 385 181 113 682 359 90
--Volkswagen India Pvt Ltd 1979 301 557 3733 614 508
--Nissan Motor India Pvt Ltd 14 19 -26 38 30 27
--Hind.Motors 701 615 14 1470 1123 31
--Mahindra & Mahindra 450 427 5 753 977 -23
--Tata Motors 18618 12838 45 38380 24040 60
--Maruti Udyog 76120 62878 21 144788 119106 22
--Gen Motors India 6712 3890 73 15616 7395 111
--Ford India 7820 1984 294 15046 3817 294
--Honda Siel Cars 4032 4073 -1 7539 7729 -2
--Hyundai Motor I 27151 23501 16 55652 45742 22
--Fiat Auto India 2163 1175 84 3963 2380 67
--Toyota Kirloskar 710 697 2 1614 1248 29
--Skoda Auto India 1381 1062 30 2666 2110 26
-Total Of Passenger Cars
14848
1
11381
0 30 292457 217037 35
-Utility Vehicles
--BMW India Pvt. Ltd. 26 57 -54 61 99 -38
Page | 64
--Mercedes-Benz India Pvt Ltd 25 12 108 49 12 308
--International Cars & Motors Ltd. 95 68 40 149 221 -33
--Nissan Motor India Pvt Ltd 42 2 2000 65 4 1525
--Force Motors 622 443 40 1177 913 29
--Hind.Motors 182 133 37 308 204 51
--Mahindra & Mahindra 13476 8033 68 26090 21944 19
--Tata Motors 2859 2621 9 6507 5049 29
--Maruti Udyog 968 288 236 1680 1193 41
--Gen Motors India 1502 1198 25 3145 2495 26
--Ford India 260 184 41 543 385 41
--Honda Siel Cars 35 0 -- 106 0 --
--Hyundai Motor I 0 2 -- 0 8 --
--Toyota Kirloskar 5340 3227 65 10439 6062 72
-Total Of Utility Vehicles 25432 16268 56 50319 38589 30
-Multi Purpose Vehicles
--Tata Motors 3709 3448 8 6373 6202 3
--Maruti Udyog 12953 7619 70 23607 15343 54
-Total Of Multi Purpose Vehicles 16662 11067 51 29980 21545 39
Total Of: Passenger Vehicles
19057
5
14114
5 35 372756 277171 34 6Source:Capitalineplus
Page | 65
Passenger Vehicles Monthly Export Data Category/ Export
Segment/Sub segment
Manufacturer For The Month Of Cumulative
May Apr - May
2010 2009
%
2010 - 11 2009 - 10
%
Change Change
Passenger Vehicles
-Passenger Cars
--BMW India Pvt. Ltd. 0 0 -- 0 0 --
--Mercedes-Benz India Pvt Ltd 0 0 -- 0 0 --
--Volkswagen India Pvt Ltd 0 0 -- 0 0 --
--Nissan Motor India Pvt Ltd 0 0 -- 0 0 --
--Hind.Motors 0 0 -- 0 0 --
--Mahindra & Mahindra 382 0 -- 532 0 --
--Tata Motors 507 324 56 931 540 72
--Maruti Udyog 12020 9012 33 24957 15837 58
--Gen Motors India 11 21 -48 64 41 56
--Ford India 0 83 -- 172 121 42
--Honda Siel Cars 0 2 -- 2 2 0
--Hyundai Motor I 19657 20125 -2 43176 42249 2
--Fiat Auto India 72 52 38 294 136 116
--Toyota Kirloskar 0 0 -- 0 0 --
--Skoda Auto India 0 0 -- 0 0 --
-Total Of Passenger Cars 32649 29619 10 70128 58926 19
-Utility Vehicles
--BMW India Pvt. Ltd. 0 0 -- 0 0 --
--Mercedes-Benz India Pvt Ltd 0 0 -- 0 0 --
--International Cars & Motors Ltd. 0 0 -- 0 0 --
--Nissan Motor India Pvt Ltd 0 0 -- 0 0 --
--Force Motors 0 0 -- 0 0 --
Page | 66
--Hind.Motors 0 0 -- 0 0 --
--Mahindra & Mahindra 268 59 354 567 137 314
--Tata Motors 81 10 710 108 17 535
--Maruti Udyog 2 0 -- 2 10 -80
--Gen Motors India 0 0 -- 1 1 0
--Ford India 0 0 -- 0 0 --
--Honda Siel Cars 0 0 -- 0 0 --
--Hyundai Motor I 0 0 -- 0 0 --
--Toyota Kirloskar 0 0 -- 0 0 --
-Total Of Utility Vehicles 351 69 409 678 165 311
-Multi Purpose Vehicles
--Tata Motors 0 0 -- 0 0 --
--Maruti Udyog 112 75 49 199 131 52
-Total Of Multi Purpose Vehicles 112 75 49 199 131 52
Total Of: Passenger Vehicles 33112 29763 11 71005 59222 20 7Source: Capitalineplus
Page | 67
Annexure-IV
Beta Calculation
Total Market Risk Preimum for India 9.00% Default Spread 4.50%
Company Name Beta D/E Corrected Beta Maruti Suzuki 0.792 0.09 0.806836
Tata Motors 1.435 0.97 1.255493 Hero Honda Motor 0.6329 0.03 0.776246 M & M 1.2225 0.69 1.112738 Bajaj Auto 0.7119 0 0.760951 Ashok Leyland 1.2224 0.67 1.102542 TVS Motor Co. 1.0485 0.96 1.250394 Average 1.009314 0.487143
BETA (AVG) Levered 1.009314
D/E (AVG) 0.487143 Tax 33.00% BETA (AVG) Unlevered 0.760951
