Maruti December 27, 2006 Arunesh Chand Mankotia

ANALYSIS OF MARUTI

Arunesh Chand MankotiaDecember 27, 2006

AUTOMOBILE INDUSTRY IN INDIA

• Automobile Industry in India is still in its infancy but growing rapidly.

• The opportunities in the automobile industry in India are attracting big names with the big purse and they are investing vigorously in infrastructure, design and development, and marketing

• India is the 2nd largest two wheeler manufacturer in the world

• Second largest tractor manufacturer in the world• 5th largest commercial manufacturer in the world• 3rd largest car market in Asia, surpassing China

in the process

Major players have started sourcing components from India, such as

• Fiat Plans To Source US $200 mn. Worth Of Components From India Per Annum

• Mercedes Benz (Daimler Chrysler) Has Set Up 7 Component JVs In India For Global Sourcing Of Parts

• Cummins USA Is Already Sourcing Engine Parts From India For Cummins Global Operations

• Multi National such as DELPHI and VISTEON have started exporting components made in India to their various other plants around the world- Investing further to make India as a manufacturing base.

• Key Player 402

• Investment US $ 2.3 billion

• Output US $ 4 billion

• Exports US $ 417 million

• Employment 250,000 persons

Industry Segments

The Indian automobile segment can be divided into several segments viz.

Two-wheelers (motorcycles, geared and ungeared scooters and mopeds), Three wheelers, commercial vehicles (light, medium and heavy),

Passenger cars, utility vehicles (UVs) and SUVs

Industry Scenario

Around 80% of all new cars are financed. The increased availability of finance at low rates and strong GDP growth translated in a healthy growth for the industry.

Major Manufacturers of Automobiles in India

• Maruti Udyog Ltd.• Hyundai motors India• TATA motors• Honda• Toyota• General Motors India• Ford India Ltd.• Fiat

Player wise Market Shares

45%

7%15%

17%

16% MUL

M&M

TATA

HYUNDAI

OTHERS

Company Background

Maruti Udyog Limited was established in 1981 to meet the growing demand of a personal mode of transport caused by the lack of an efficient public transport system.

Suzuki grabbed the opportunity in 1983 with both hands and formed a joint venture with the Indian Government, which was called Maruti Udyog Ltd (MUL). 

The first cars rolled out for sale on 14th December 1983

• The company reached a total production of one million vehicles in March 1994,

• Becoming the first Indian Company to cross this milestone. It crossed the two million mark in 1997.

Board Member of Maruti

• Mr Shinzo Nakanishi, Chairman • Mr Jagdish Khattar, Managing Director • Mr Hirofumi Nagao, Joint Managing Director • Mr Shinichi Takeuchi, Joint Managing Director • Mr Kinji Saito, Director (Marketing and Sales) • Mr Osamu Suzuki, Director • Mr R C Bhargava, Director • Mr S V Bhave, Director • Mr Kumar Mangalam Birla, Director • Mr Amal Ganguli, Director • Ms Pallavi Shroff, Director • Mr Manvinder Singh Banga, Director

The Objectives of MUL

– Modernization of the Indian Automobile Industry.

– Production of fuel-efficient vehicles to conserve scarce resources.

– Production of large number of motor vehicles which was necessary for economic growth.

“ The leader in the Indian Automobile Industry Creating customer delight and shareholder’s wealth; A pride of India”

VISION

Present PerformanceRs m) 4QFY04 4QFY05 Change FY04 FY05 Change

Volumes sold (units) 144,103 146760 1.8% 472,122 536,301 13.6%

Net sales 28,873 30452 5.5% 93,456 109,624 17.3%

Expenditure 25,961 26297 1.3% 84,428 95,561 13.2%

Operating profit (EBDITA) 2,911 4,155 42.7% 9,027 14,063 55.8%

Operating profit margin (%) 10.1% 13.6%   9.7% 12.8%  

Other income 998.4 969.2 -2.9% 4,055 3,915 -3.5%

Interest 115.8 99.5 -14.1% 434 360 -17.0%

Depreciation 1,516 1122.2 -26.0% 4,949 4,568 -7.7%

Profit before tax 2,278 3,902 71.3% 7,699 13,049 69.5%

Tax 706 1307.9 85.3% 2,277 4,513 98.2%

Profit after tax/(loss) 1,572 2,595 65.0% 5,422 8,536 57.4%

Net profit margin (%) 5.4% 8.5%   5.8% 7.8%  

No. of shares (m) 288.9 288.9 288.9 288.9 288.9  

Diluted earnings per share (Rs)*

21.8 35.9   18.8 29.5  

P/E (x)         14.8  

18%

Cars - Performance Snapshot

Segment Models FY04 FY05 % change

A1 M800 167,561 116,262 -30.6%

C Omni, Versa 59,526 65,019 9.2%

A2 Alto, Wagon-R, Zen

176,132 271,280 54.0%

A3 Baleno, Esteem 14,173 29,637 109.1%

Total passenger cars

  417,392 482,198 15.5%

MUV Gypsy,Vitara 3,555 5,204 46.4%

Domestic   420,947 487,402 15.8%

Export   51,175 48,899 -4.4%

Total   472,122 536,301 13.6%

The company’s operating margins, as is evident from the graph, has been consistently improving since 3QFY04.

This improvement is on a low base and further increase is likely to be limited. This is because of two reasons. One, new model launches will require additional promotional expenditures and secondly, given the intensity of competition, there is likely to be pricing pressure on existing models.

Contd……

• Maruti postpones diesel Esteem launch – Decided to apply brakes on the launch of diesel

version of its mid-size offering Esteem as well as Gypsy.

• Increase capital expenditure in the next 2 years in order to increase the capacity and more importantly, to enter the diesel-engine market

Product Segmentation

• M 800 A1 Mini A• Alto A2 Compact B• Baleno A3 Mid-size C• Esteem A3 Mid-size C• Wagon R A2 Compact B• Zen A2 Compact B• Versa UV C• Omni UV A• Swift B+

Model Length Classification Price Classification

Value Chain Analysis

Raw materials Processing Finished Goods

Raw Materials cost = 84,406 Total sales=1,16,894

Value addition = 32,488

PEST Analysis

• Political- Government Initiative.

• Economic

– Rising Oil prices.– Export growth of 59%.– More investment growth.– 6.9% GDP.

• Social Cultural• Awareness high.• Disposable income is high.• Attitudes

• Technological– Internet.– Distribution– Cheap products

PORTER’S FIVE MODEL

Threat ofnew entrants

Bargaining power of buyers

Bargaining power of suppliers

Threat ofSubstitute products

and services

STRENGTHS

• Leader in small cars

• Market Share

• Growth exports

• superior technology, styling

• One stop shop

• True value’, ‘Maruti finance’‘Maruti Insurance’

• After sales service

WEAKNESSES

• Product diversification • No diesel car

• Perception about quality

• Weak image of made in India

OPPORTUNITIES

• High scope of domestic consumption

• Huge export market

• Auto components

• Easy availability of finance at low interest rates

THREATS

• Rising oil prices

• Growing d or premium car segment

• Mid-size cars crossed the one-lakh mark at 1.38 lakh units

• Low manufacturing cost in china and Thailand

Present Strategies being Followed

• Price-cut strategy

• Using JIT in order to reduce Inventory

• Company has also implemented a vehicle-tracking system

• Maruti Udyog Ltd is all set to deal in `pre-owned' cars from other manufacturers at its True Value outlets

• Maruti earmarks nearly 0.3 per cent of its turnover as IT spend • Sending engineers from India to Japan for a long-term training

• Transfer of technology

• Tied up with Appu Ghar

• MUL has also organised a simple contest for visitors.

Policy

• Nothing goes waste

• Expanding the car market

• Operational efficiency and productivity

New Strategies

• More on R&D• Introduce at least one new passenger car

model every year• Also plans to displace the good old

Ambassador from the taxis and government vehicles segment. – We are also offering discounts to taxi owners

to buy our cars.

RECOMMENDATIONS

• Continuous value addition to professional skill• Training customized to meet organizational objectives• Competency mapping to identify individual training

needs• Outsource HR for long term strategic plan• Focus on Product Diversification• Should launch Diesel cars

Since the opening up of the Indian automobile market in the early 1990s, a lot has changed.  Customers can now choose from a wide range of models. Maruti's overwhelming dominance of the market has gone. Yet, one thing remains unchanged - the price sensitiveness of Indian customers.

• http://www.blonnet.com/ew/2002/01/30/stories/2002013000230300.htm

• http://www.thehindubusinessline.com/bline/2003/08/19/19hdline.htm

• http://www.rediff.com/business/2000/may/22maruti.htm

• http://www.rediff.com/business/2000/apr/24maruti.htm• http://www.rediff.com/business/2000/feb/09maruti.htm