Maruti Suzuki India Ltd – Way of Life

Date Published: February 15, 2021

Company Overview:

Maruti Suzuki India Ltd (formerly Maruti Udyog Ltd) is India’s largest passenger car company accounting for over 50 per cent of the domestic car market. The company offers full range of cars from entry level Maruti 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. Maruti Suzuki India Ltd was incorporated on February 24, 1981 with the name Maruti Udyog Ltd. The company was formed as a government company with Suzuki as a minor partner to make a people’s car for middle class India. Over the years the company’s product range has widened ownership has changed hands and the customer has evolved. In October 2 1982 the company signed the license and joint venture agreement with Suzuki Motor Corporation Japan. In the year 1983 the company started their productions and launched Maruti 800. Since inception, the company has produced and sold over 7.5 million vehicles in India and exported over 500,000 units to Europe and other countries. 

Industry Overview:

India became the fifth largest auto market in 2019 with sales reaching to 3.81 million units. It was the seventh largest manufacturer of commercial vehicles in 2019. India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India and major automobile players in the Indian market is expected to make India a leader in the two-wheeler and four-wheeler market in the world. With the spontaneous economic growth accelerated by an increase in opportunities for Indian businesses and households, what we saw was the emergence of a middle class that was not as poor as the rural farmer nor as rich as the business barons based out of Bombay. Along with this growth came the emergence of an automobile sector that was historically driven by the Indian elite. The late 1980s and early 1990s saw a spontaneous growth in the automobile sector, with many new players entering the market. One of the beneficiaries of this shift in the economy through liberalization and globalization was Maruti Suzuki. The pre-Suzuki era in the automobile sector was ruled by Ambassador. However, what we saw in the post-liberalization era was the growth of Maruti into an industry giant. Today, Maruti Suzuki is the market leader with a wide range of portfolio in its kitty and it today enjoys a brand loyalty that no other company can claim in the country.

Company Operations:

Maruti Suzuki India Limited, subsidiary of Suzuki Motor Corporation, Japan, is India’s biggest car maker with more than 51 per cent market share in the passenger vehicles segment in April-August 2019. The company recorded sale of 1,563,297 units in FY20. Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor Corporation, Japan, is India’s largest passenger car maker. Maruti Suzuki is credited with having ushered in the automobile revolution in the country. The Company is engaged in the business of manufacturing and sale of passenger vehicles in India. Making a small beginning with the iconic Maruti 800 car, Maruti Suzuki today has a vast portfolio of 16 car models with over 150 variants. Maruti Suzuki’s product range extends from entry level small cars like Alto 800, Alto K10 to the luxury sedan Ciaz. Other activities include facilitation of pre-owned car sales fleet management, car financing. The Company has manufacturing facilities in Gurgaon and Manesar in Haryana and a state of the art R&D center in Rohtak, Haryana. In addition to car manufacturing company is in other business also like finance, insurance etc.

Market Size:

Domestic automobiles production increased at 2.36 per cent CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29 per cent CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20. Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for 80.8 per cent and 12.9 per cent market share, respectively, accounting for a combined sale of over 20.1 million vehicles in FY20. Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94 per cent during FY16-FY20. Two wheelers made up 73.9 per cent of the vehicles exported, followed by passenger vehicles at 14.2 per cent, three wheelers at 10.5 per cent and commercial vehicles at 1.3 per cent.

Government Initiatives:

The Government of India encourages foreign investment in the automobile sector and has allowed 100 per cent foreign direct investment (FDI) under the automatic route. Some of the recent initiatives taken by the Government of India are –

  • Under Union Budget 2019-20, the Government announced to provide additional income tax deduction of Rs 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.
  • The Government aims to develop India as a global manufacturing center and a Research and Development (R&D) hub. Under NATRiP, the Government of India is planning to set up R&D centers at a total cost of US$ 388.5 million to enable the industry to be on par with global standards.
  • The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of EVs in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme.

The Government will also set up incubation center for start-ups working in the EVs space. In February 2019, the Government of India approved FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22.

Road Ahead:

With the most ambitious plan ever in the history of Indian automotive sector, the union government very recently announced its intentions to encourage emission-free vehicles and promote the sales of electric cars. As per this policy, the government was initially planning to target 100% electric cars on Indian roads by 2030. Though this ambitious target was scaled down to 30% later, it is still a big hurdle for several Indian companies which are reluctant to spend on research and development. However, Maruti Suzuki seems one step ahead of its rivals as it has announced a wide range of plans to expand its production facilities across the country as well as to invest further in developing indigenous technologies. The automobile industry is supported by various factors such as availability of skilled labor at low cost, robust R&D centers, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labor. Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.

Our View:

Indian automobile sector is one of the fastest growing sectors across the world owing to the demand from the growing population as well as due to the emergence of a new middle class in the country, which otherwise was divided dichotomously as urban rich and rural poor.The sector is one of the largest in the world in terms of the number of vehicles it produces and today contributes to nearly 7% of GDP of the country. Given the growing demand for automobiles each year, what lies ahead for the automotive sector is a bright future. Easy on the pocket, high localization level and the willingness to respond to the changing preferences. It was these three things that made Maruti Suzuki India’s favorite automobile brand. Recently, Maruti Suzuki announced its intentions to undergo one of the biggest ever expansions in its history. With the installation and up-gradation of existing facilities in Gujarat to raise the production to 2.5 million units by 2022, the company aims to continue its dominance in the coming decades as well. Maruti Suzuki’s success story, in fact, is one of the glorious narratives from the history of independent India and its manufacturing sector.

As per the mean estimates of earnings projections made by brokers at Bloomberg, the estimated EPS for FY2021 and FY2022 stands at Rs.141.99 and Rs.240.90 respectively as compared to EPS of Rs 111.52 for FY 2020. The stock is trading at a PE of 22.92 (FY 2020). Therefore, taking into consideration that this recommendation of Maruti Suzuki India Ltd is being given for 1 year time horizon.

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