MUL

Company Report – Maruti Udyog Ltd.
November
(MUL) 01, 2006
COMPANY Maruti Udyog Ltd. (MUL)

REPORT Rs. 972 Buy Initiating Coverage
Ashish Apte
+91-20-6623 8333
Summary
e.info@idbicapital.com
Maruti Udyog Ltd. (MUL) is the market leader in the passenger car segment with 46% market share.
Nifty: 3767; Sensex: 13033
We expect MUL to retain its leadership position on back of an aggressive new product launch,
which includes a thrust on diesel as well. The management focus on cost reduction and productivity
improvement (typical – being a subsidiary of Suzuki, Japan), ensures margins are maintained.
Key Stock Data
We estimate FY08E revenues at Rs.156.8bn and PAT at Rs.15.3bn, 2 year CAGR growth of 14.3%
Sector Automobiles
and 13.7%, respectively. This is on back of overall volumes at 0.73m vs. 0.56m currently. Our DCF
Bloomberg/Reuters MUL@IN/MRTI.BO
values Maruti at Rs.1,068. The current price discounts 20.3x FY07E EPS of Rs.48.0 and 18.3x FY08E
Shares o/s (m) 288.9
EPS of Rs.53.2. We recommend a ‘Buy’ with a 1-year price target of Rs.1,068 (~10% upside).
Market cap (Rs bn) 280.8
Market cap (US$ m) 6,236
3-m daily average vol. 347,490 Investment highlights
Passenger car penetration in India expected to rise
Car penetration levels estimated to double in the next 5-years from the current abysmally low 7 per
Price Performance thousand. Strong growth in GDP, a booming middle-class with increasing disposable incomes, easy
financing likely to drive demand for passenger vehicles in India.
52-week high/low Rs991/535
-1m -3m -12m Aggressive new product launch; foray into Diesel
Absolute (%) (0.9) 23.6 76.3 MUL's plans to launch 5 new models over the next 5-years, a smart strategy considering most of its
Rel to Sensex (%) (5.0) 2.9 13.1 growth in the last 18 months has been driven by new launch Swift. By the year-end, the Diesel variant
will enable MUL to offer the complete spectrum in the Mini, Compact car segment. Innovative new
financing options are being offered for the new models to drive sales.
Highest operating margins in the industry

Shareholding Pattern (%) With successful implementation of cost cutting (Challenge 30 and Challenge 50) and productivity
Promoters 64.48 increase programs (Use of Kaizen and focus on lower re-work), MUL enjoys EBIDTA margin of 17.1%
FIIs/NRIs/OCBs/GDR 14.44 i.e. the highest in the industry.
MFs/Banks/FIs 16.90
High customer satisfaction
Non Promoter Corporate 1.45
MUL has won the JD Power Survey for being the best in customer satisfaction for the 7th consecutive
Public & Others 2.72
year. In the Total Customer Satisfaction 2004 (TCS) study by TNS, MUL models were ranked highest;
MUL will also manufacture and export to Nissan a new car in 2008-09.
Capacity expansion at the correct time

Stock vs Relative to Sensex
The new car plant at Manesar for 100,000 units is being set up with an investment of Rs.25bn, plans
Price (Rs.)
are to scale it up to 3 lac units over next 3-years. This should mitigate capacity constraints, as the
1100
1000
Gurgaon plant is operating at full capacity.
900
800
Table 1: Financial snapshot (Rs m)
700
600 Year-end: March FY05 FY06 FY07E FY08E
500 Net sales 109,108 120,034 138,309 156,867
400 EBITDA 17,976 20,558 23,948 27,186
Nov-05
Apr-06
Aug-06
May-06
Jan-06
Jun-06
Jul-06
Sep-06
Feb-06
Mar-06
Oct-06
Dec-05
PAT 8,535 11,891 13,863 15,380

EPS (Rs.) 29.6 41.2 48.0 53.2
MUL Relative to Sensex
Source: Capitaline
P/E (x) 14.3 13.7 20.3 18.3
Source: Company reports; IDBI Capital Market Services
1
Company Report – Maruti Udyog Ltd. (MUL)
Investment positives
Passenger car penetration in India expected to increase
Passenger car The penetration level of passenger cars in India is just 7 cars per 1,000 Indians compared to 12 in Sri Lanka / Pakistan
penetration expected and over 100 in Europe / US. We believe there is a good case for this to improve going forward. Strong GDP growth of 8%
to double over next in past 3 years has lead to higher disposable incomes and new job opportunities in the high paying service segments like
5 years IT, BPO/ITES. Increased competition in the financial sector and sharp decline in interest rates, have increased car
affordability. The demand for personal transport is very much there, with 25m two wheelers sold in India over the last
5 years. Upgrades to entry level cars by this segment itself can unleash a demand explosion.
Figure 1: Low car penetration in India

180
165
160
(Car density per 1,000 people)
140
120 98
90
100
80
60
40
7 6 12
20
0
India China Indonesia Brazil Russia South Africa
Country
Excise duty cuts in compact segment

Prior to liberalization, cars were considered as a luxury item. It has taken 15 years for successive governments to reduce
the excise duty from 40% initially to the present 16%. We believe that the excise duty cuts announced in the last budget
will provide the incremental boost to the models in Mini and Compact segment, a stronghold of MUL.
Table 2: Excise duty cuts in compact segment

FY00-01 FY04-05 FY05-06
Excise duty (%) 40 24 16
Leader in passenger car segment

A clear cut leader in MUL is the market leader in the passenger car segment in India. Inspite of extreme competition in the passenger car
passenger cars segment, MUL’s share has always hovered between 45-50% over the last 5 years.
Table 3: Market share for MUL

Category FY01-02 FY02-03 FY03-04 FY04-05 FY05-06
Total PV 675,116 707,198 902,096 1061,572 1143,037
MUL’s domestic volumes 339,964 330,013 420,947 487,402 527,038
% Share 50.4 46.7 46.7 45.9 46.1
Source: SIAM, Annual reports
2
It is even a stronger player in the Mini and Compact sub-segments of the passenger car segment with its key brands-
M800 (Mini) and Alto, Zen, WagonR and Swift (Compact) with a combined market share of ~54% (as of end August 2006).
Table 4: Leader in Mini and Compact subsegment

Sub-segment Industry MUL’s volumes Market share (%)
Mini 41,247 41,247 100
Compact 345,147 168,505 49
Mid-size 96,149 13,565 14
UV 86,854 1,723 2
MPV 30,597 30,597 100
Note: As of end August 2006
Every second car in the Mini and Compact segment taken together is a MUL vehicle. A strong dealership network comprising
390 dealer outlets and 2096 service workshops have been the chief reason for this recognition. Further MUL’s tie-up with
several financial institutions has also fuelled this growth. For e.g. it has a tie-up with SBI and Mahindra Finance which
helps it to tap rural markets, tie-up with Magma and Cholamandalam to tap the eastern and southern part of India
respectively.
Lowest wage ratio in the industry

MUL has successfully reduced the wage bill in the last 3 years. Its wage bill as a % of sales fell from ~3.3% in FY04 to
~1.9% in FY06. This was achieved through VRS schemes (2001 and 2004) and linking of the compensation of workers
with the productivity. Further, the productivity has also improved in terms of hours required to produce a vehicle as can be
seen below:
Figure 2: Index of hours required to produce a vehicle

120
100
100
76.17
80
59.36
(Hrs)
60
46.12
41.86
37.95
40
20
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
A comparison of wage bill as a % of net sales reveals that it has the lowest ratio in the industry.
Table 5: Lowest wage ratio in the industry (%)
Wage bill as a % of net sales FY06

Maruti Udyog 1.89
Tata Motors 5.54
Mahindra & Mahindra 6.71
Ashok Leyland 7.69
3
Indigenization of parts
MUL has laid great emphasis on localization of components. It has a set up a plant which is called Suzuki Power Train.
Items like the foundry unit and the transmission unit which were being imported from Japan earlier, are now are being
made in India. New components are being added every few months and the process of localization begins. The higher the
localization, the cost goes down because these are much cheaper than the imported components.
Most of its key models have reached nearly 100% localization levels.
Table 6: High localization level

Models Localization (%)
M800 95
Zen 95+
Alto 90+
Swift 90
Esteem 95+
Versa 88+
Involvement of suppliers
Supplier involvement The development of the auto-ancillary units in India was primarily initiated by MUL since its inception in 1981. MUL has
helps to reduce costs traditionally worked in close association with its vendors to continuously localize imported parts. Along with its major
and improve vendors, MUL has now moved to tier-2 vendors. MUL’s entire focus is to help them in cutting down their costs, helping
productivity them in better layouts, productivity and improving productivity. MUL clubs the commodity purchases of its tier-1 and
tier-2 suppliers with itself, thereby reducing their commodity cost. Streamlining its supplier base, MUL has cut down its
suppliers from 400 to ~225.
Highest margins in the auto industry

Highest margins in the MUL has been continuously working to improve operational efficiencies since 2002-03. Between FY02 and FY05
car industry it successfully completed ’Challenge-30’ and ‘Challenge-50’ programs whereby the target was 30% cost reduction and
50% productivity improvement by focusing on waste reduction, inventory management, and use of techniques like Kaizen
etc. Also, MUL also improved its product mix in favor of higher priced models in the last few years. It has succeeded
to a large extent in marketing the higher priced Alto as an entry point vehicle for new car buyers rather than the lower
priced M800.
Table 7: Improving product mix

FY03-04 FY04-05 FY05-06
M 800 167,561 116,262 89,223
% Growth (30.6) (23.3)
Alto, WagonR,Zen,Swift 176,132 271,280 335,136
% Growth 54 23.5
Except for MUL all the other competitors have shown a margin drop in the last few years. Further, margins of MUL are the
highest in the industry
Table 8: Highest margin in the passenger car industry (%)
FY03-04 FY04-05 FY05-06
Maruti Udyog 14.0 16.4 17.1
Tata Motors 14.3 13.0 13.6
Mahindra & Mahindra 12.6 13.2 13.0
Ashok Leyland 12.2 11.4 10.9
4
MUL tops customer satisfaction surveys

A very high focus on MUL models have a high level of customer satisfaction. This is borne by the 7th consecutive year’s award from JD Power
quality and customer Survey for being the best in customer satisfaction. Even in the Total Customer Satisfaction 2004 (TCS) study by TNS,
satisfaction MUL models were ranked highest; M800 for entry compact; Zen for premium compact and Esteem for entry midsize. One
important factor contributing to this, is the large 2,100 Service centers spread across the breath of India along with minute
attention paid to quality by the company.
MUL has been constantly changing the looks of its cars to keep their appeal value intact. It has also been very aggressive
in taking price reductions and offering incentives to push sales. Such high degree of customer satisfaction results in
repeat purchases whereby an existing MUL owner prefers to go back to MUL for his second purchase or upgrade of
existing one.
The importance given to quality can also be seen in drop in warranty claims over the last 5 years.
Figure 3: Warranty claims ratio
120
100
100
77
80
62
(%)
60 50
37
40
26 24 21
20
0
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Targeting international markets

Growing exports MUL has shown a very strong growth in exports with the exports growing at a CAGR of ~30% both in volume as well as
value terms. The top 5 export markets were Algeria, Sri Lanka, UK, Chile and Denmark. These countries together contributed
67.3% of the total export sales during FY06.
Table 9: High growth in exports
Category FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 CAGR growth (%)
Export volumes 12,233 32,240 51,175 48,899 34,781 29.9
Sales (m) 1,995 6,204 9,649 11,132 5,734 30.2
The company proposes to expand its export markets and is currently exploring the feasibility of a foray into countries like
Oman, Sudan and Nicaragua. In revenue terms as well, the export revenues have increased from Rs.1,995m in FY02 to
Rs.5,734m in FY06 which is a CAGR of ~30%.
Capacity expansion at just the correct time

New car manufacturing plant
Capacity expansion at The new plant Manesar commencing operations in Q3FY07 has an initial capacity of 100,000 cars, to be scaled up to
the opportune time 300,000 in three years, being set up with an investment of Rs.25bn. The plant is being set up by a subsidiary company,
Maruti Suzuki Automobiles India Ltd (MSAL) in which MUL held 70% stake and the rest by Suzuki Motor Corporation
(SMC). However, in a recent development (April 2006), Maruti has approved the purchasing of the entire shareholding
of SMC and accordingly MUL now owns 100% in MSAL.
5
We believe that setting up a green field plant provides the opportunity for MUL to bring in state-of-the-art manufacturing
facilities. Any expansion at its existing plant would have resulted in disruption in production along with lower flexibility
in setting up the new shop floor. Also, we believe that buying out the stake of SMC eliminates the issue of transfer
pricing and inter-company transactions.
The key product segments in the new plant are:
z Initially the plant will manufacture 100,000 Swifts (including the Diesel one)
z The new car to be manufactured for the joint-venture between Nissan and Suzuki would also be produced in this
new plant. Half of the 100,000 cars will be manufactured for Nissan, the rest sold locally.
New engine and transmission facility
A new plant manufacturing engines and transmission assemblies for cars would be set up with an investment of
Rs.25bn. The initial annual capacity of this facility will be 100,000 diesel engines, 20,000 petrol engines and 140,000
transmission assemblies. It would be gradually expanded in line with the market demand. This facility will be under a
joint venture company, renamed Suzuki Powertrain India Ltd. (earlier called Suzuki Metal India Ltd. or SMIL). Suzuki
Motor Corporation holds 70% stake in Suzuki Powertrain India Ltd. while MUL holds the remaining 30%. This too will
come on stream from early 2007. We believe that MUL would treat this joint-venture company as any other existing
supplier to it but with a greater control over the production schedules and quality (since MUL has a stake of 30%).
New product launches (including a Diesel Swift) to further propel growth

To launch 5 new MUL has consistently launched new models along with variants of its existing models in the past.
models over the next A phenomenon witnessed in the automobile industry is that a new model launch by a renowned player like MUL results in
5 years spurt in sales for that model thereby resulting in incremental income. For e.g. Swift has sold ~ 61,000 units in the first year
of its launch.
Going forward MUL will be launching 5 new models in the next five years which principally would be in the ‘Compact’
segment. MUL is expected to launch the diesel version of its Swift in Q3FY07. We believe that given the technological
capability and enormous brand name enjoyed by MUL, the new models would help in improving or at least maintaining
market share and stay one step ahead of competition.
To manufacture cars for Nissan-Suzuki joint-venture

Contract MUL’s parent company viz. Suzuki and Nissan have entered into a tie-up whereby Nissan would source cars manufactured
manufacturing for at Maruti for exports to Europe. We believe that this is an expression of confidence in MUL’s manufacturing competence
Suzuki-Nissan JV made by 2 global giants. The new car would be manufactured in the plant at Manesar. The car would be sold in export
market under the Nissan badge and volumes of ~50,000 units are expected initially in 2008-09.
Overall a very strong financial profile

A very strong financial The capex of Rs.65bn over FY07-10 will be funded mainly through internal accruals. We have factored in a capex of
profile Rs.34bn over the next 2 years. Of this, Rs.40bn is to be invested in replacement of dies/fixtures, upgradation of its existing
facilities at Gurgaon. Remaining Rs.25bn are to be invested in the new plant at Manesar.
Table 10: Capex program (Rs. m)
Particulars FY04-05 FY05-06 FY06-07E FY07-08E
Capex 4536 (486) 16250 18000
Debt-equity position is comfortable, a large proportion of investments are non-strategic in nature (93% for FY 06)
i.e. Rs.19bn providing additional financial flexibility.
Table 11: Strong financial profile
Particulars FY03-04 FY04-05 FY05-06 FY06-07E FY07-08E
Net worth (Rs. m) 35,912 43,788 54,526 67,226 81,442
Interest cover (x) 29 49 100 322 611
D/E 0.1 0.1 0.01 0.0 0.0
6
Valuation
Overall valuation The final valuation of MUL comes to ~Rs.1,068/share. According to our estimates, MUL likely to achieve earning growth of
comes to Rs.1,068/ 16.5% and 10.9% in FY07 and FY08, respectively. Our DCF values MUL at Rs.1,068 on a standalone basis. We expect that the
share company would deliver basic EPS of Rs.48.0 and Rs.53.2 in FY07 and FY08, a compounded growth of ~13.7% for the next two
years. At the current price of Rs.972, the stock is quoting at 20.3x FY07E EPS of Rs.48.0 and 18.3x FY08E EPS of Rs.53.2.
Table 12: Discounted cash flow (Per Share)
FY06E FY07E FY08-FY12E
EBIT (1-T) 0 48 534
Free cash flow to firm 0 16 503
NPV
Discounted terminal value 616
Discounted cash flows 261
EV 877
Net debt (112)
Value per share (discounted to present) 1,068
Ke 16.5; Terminal value @ 5% growth, B=1.22 Rf.10 year yield = 8%; Risk pr 7%
s/o : 289 m
Sensitivity analysis
Table 13: Sensitivity analysis
Terminal growth rate
3% 4% 5% 6% 7%
10.0% 1,970 2,220 2,570 3,095 3,970
11.0% 1,707 1,886 2,124 2,457 2,956
12.0% 1,562 1,702 1,881 2,120 2,454
WACC 16.5% 969 1,015 1,068 1,131 1,207
13.0% 1,342 1,443 1,569 1,730 1,946
14.0% 1,211 1,289 1,385 1,505 1,659
Relative valuation
On a P/E basis, MUL commands a premium over Mahindra & Mahindra as well as Tata Motors. The reason could be on
account of leadership in passenger car industry, highest operating margins and the MUL brand.
Table 14: Relative valuation (Rs. m)
M&M Tata Motors MUL
Net sales 922,27 243,125 129,358
Operating profit 13684 31,659 23,711
Net profit 8,178 17,342 14,369
EPS (Rs.) 49.5 45.8 49.7
CMP (Rs.) 785 834 972
Operating margins (%) 14.8 13.0 18.3
Net margin (%) 8.9 7.1 11.1
P/E (x) 16 18 20
EV 182,341 337,545 248,315
EV/EBIDTA 13.3 10.7 10.5
EV/Sales 2.0 1.4 1.9
Relative valuation also gives a price range for MUL between Rs.858-Rs.1,015/share. We have used Mahindra & Mahindra
and Tata Motors as MUL’s key competitors. Based on latest Trial Twelve Months (TTM), we have tried to use relative
valuation ratios like P/E, EV/EBITDA and EV/Sales.
7
Concerns
Passenger cars segment extremely competitive
Extreme competition The passenger car segment in India is extremely competitive. Along with MUL, the other strong players are TML, Hyundai,
in the passenger car Ford India, Honda Siel cars, General Motors India etc. The table below gives a snapshot of the key models of MUL and
segment the competitive models of its competitors.
Table 15: Extreme competition

Product Year of launch Competing product Company
Maruti 800 1982 None –
Zen/Alto/Swift/WagonR 1993/2000/2005 Santro, Getz, Xing Hyundai
Indica V2/Xeta Tata Motors
Palio Fiat India
General Motors India
Esteem/Baleno 1994/1999 Ikon, Fiesta Ford India
Accent Hyundai Motors
City Honda Siel Cars
Lancer Mitusbishi
Sienna, Petra Fiat India
Indigo Tata Motors
Opel Astra, Corsa General Motors India
Omni/Versa 1984/2001 Chevrolet Tavera General Motors India
Source: IDBI Capital Market Services
The cheapest Indian car planned for launch in 2008
Tata Motors to launch MUL’s key competitor – Tata Motors is planning to launch the cheapest car in India, expected launched targeted in 2008.
Rs.1 lac car in 2008 Priced at around Rs.100,000 it is expected to be extremely attractive to the Indian consumer – particularly the younger
families. The styling and design of the car have been completed and prototypes are being tested within the plant. It will be
a rear-engine, 4-5 seat, 4-door car with about a 30 horsepower engine.
MUL currently has its M800 which is the lone offering in the ‘Mini’ segment with no competitor for the last 25 years.
We believe that the competitive car from TML would create a newer segment at a price point which is lower than M800.
Further, the new car from TML would be a diesel offering which would be a further upside for the new car. We believe that
this car would pull away volumes from the motorcycle segment (which is a total market of ~8m) and also the first time car
buyer which principally go to MUL as of today.
Absence of a successful product on the ‘Diesel’ side

Out of the total cars sold in India, around 20-22% runs on diesel. This proportion is expected to increase in the future as
the petroleum prices keep on increasing everyday. However, the inherent cost benefit of around Rs.14/litre between
petrol and diesel coupled with the fact that diesel cars generally give higher mileage has resulted in some of the new car
buyers being attracted to diesel.
MUL traditionally has been extremely strong in the petrol technology (due to its association with Suzuki). It did have a few
models with diesel option – Zen and Esteem in the past. However, they have not been that successful and currently MUL
does not sell any diesel vehicle.
8
Rising raw material prices

The principal raw materials for the company are steel, non-ferrous metals, rubber and engineering plastics. These prices
have increased in the last 12-18 months as reflected by the rising raw material to sales revenue ratio trend in the last
2 years.
Table 16: Rising raw material prices
Year-end: March FY03-04 FY04-05 FY05-06

RM/Sales % 77.4 78.1 76.8
In order to mitigate this risk, MUL has gradually reduced its dependence on imported steel. About 2-3 years back,
the proportion of domestic and imported steel was 20:80. As of date, this proportion has become 50:50. This proportion is
expected to increase in the future in favor of domestic steel.
Company profile
Maruti Udyog Ltd. (MUL), a subsidiary of Suzuki Motor Corporation of Japan, has been the leader of the Indian car market for
about two decades. Its manufacturing plant, located some 25 Km south of New Delhi in Gurgaon, has an installed capacity of
3,50,000 units per annum, with a capability to produce about half a million vehicles. The company has a portfolio of 11 brands,
including Maruti 800, premium small car Zen, Swift, international brands Alto and WagonR, off-roader Gypsy, mid-size Esteem,
luxury car Baleno, the MPV Omni, Versa and Luxury SUV Grand Vitara XL7.
In recent years, MUL has made major strides towards its goal of becoming Suzuki Motor Corporation’s R and D hub for Asia.
It has introduced upgraded versions of WagonR, Zen and Esteem, completely designed and styled in-house.
Table 17: Milestones
Year Particulars
1981 Maruti Udyog Ltd. was incorporated under the provisions of the Indian Companies Act, 1956
1982 License and JV agreement signed between Maruti Udyog Ltd. and SMC of Japan
1983 Maruti 800, a 796cc hatchback, India’s first affordable car was launched
1984 Omni, a 796cc MUV was launched. Installed capacity reaches 40,000 units
1985 Launch of Maruti Gypsy (970cc, 4WD off-road vehicle)
1987 Exported first lot of 500 cars to Hungary
1988 Installed capacity reaches 100,000 units
1990 Maruti 1000 (970cc, 3 box), India’s first contemporary sedan launched
1992 SMC increases its stake in MUL to 50%
1993 Zen (993cc, hatchback Car), which was later exported in Europe and elsewhere as the Alto
1994 Esteem 1.3L (1298cc, 3 box car) LX launched
1995 With the launch of second plant, installed capacity reached 200,000 units
1997 New Maruti 800 (796cc,hatchback Car) Standard and Deluxe launched. Produced the 2mth vehicle since the
commencement of production
1999 Launches Baleno, WagonR along with new variants of Omni and Zen
2000 Alto and Altura (luxury estate car) launched
2001 Maruti Versa (luxury MPV) launched
2002 Esteem Diesel. All other variants upgraded. Suzuki Motor Corporation (SMC) increases its stake in MUL to 54.2%
2003 New Suzuki Grand Vitara XL-7 launched. Production of 4mth vehicle. Listed on BSE and NSE
after a public issue oversubscribed 10 times
2004 Alto becomes India’s new best selling car. New variants of Baleno and Versa launched
Source: Company reports
9
Passenger car industry in India

The passenger vehicle industry in India is sub-divided into passenger cars, utility vehicles and multi-purpose vehicles.
The passenger car segment dominates the passenger vehicle industry with ~77% share (for FY06). The overall industry has
grown by ~14% CAGR for the last 4 years.
Table 18: Sub segment in passenger vehicle industry
Category FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 CAGR growth (%)
Passenger cars 509,088 541,491 696,153 820,179 882,094 14.7
Utility vehicles 104,253 113,620 146,388 176,360 194,577 16.9
MPVs 61,775 52,087 59,555 65,033 66,366 1.8
Total PV 675,116 707,198 902,096 1061,572 1143,037 14.1
Source: SIAM, IDBI Capital Market Services
The passenger car industry in India can be divided into 6 sub-segments based on the length of the car – Mini (Upto 3,400mm),
Compact (3,401-4,000mm), Mid-size (4,001-4,500mm), Executive (4,501-4,700mm), Premium (4,701-5,000mm) and Luxury
(5,001mm and above). Compact and Mid-size sub-segments dominate the passenger car industry by contributing to around
88% of the total domestic sales (cumulative figures between April to August 2006).
Figure 4: Compact and mid-size dominate the passeneger car industry in India
Luxury
Premium
0%
Executive 0% Mini
3% 8%
Mid-size
19%
Compact
70%
The top 2 players in each of the sub-segments along with their key brands and market share (as of end August 2006).
Table 19: Key players in the passenger vehicle industry
Sub-segment Top 2 players Key brands Market share (%)

Mini Maruti M800 100
Compact Maruti Alto,Zen,WagonR, Swift 49
Hyundai Santro, Xing 32
Mid-size Hyundai Accent 20
Honda City 20
Executive Skoda Auto India Pvt Ltd Octavia 35
Honda Siel Cars India Civic 29
Premium Honda Siel Cars India Accord 59
Daimler Chrysler India Pvt Ltd E class 19
Luxury Daimler Chrysler India Pvt Ltd S class 100
UV Mahindra and Mahindra Scorpio / Bolero 41
Toyota Kirloskar Motor Pvt Ltd Innova 22
MPV Maruti Omni 100
Source: SIAM, IDBI Capital Market Services
10
Financials
The top line (revenues) has increased by 15.5% for H1FY07 vis-à-vis H1FY06. This growth has been led by volume growth
principally in the Compact sub-segment of the passenger car segment. While exports showed a decline, multi-purpose vehicles
showed a good growth of ~16%. The overall volume growth for the company in H1FY07 stood at 15.3% vis-à-vis H1FY06.
The operating profit (EBITDA) for H1FY07 showed a jump of 35.7% vis-à-vis same period of the earlier year. The EBITDA
margins for H1FY07 have expanded to 18.3% as compared to 15.6% for H1FY06. Average vehicle realization of the Company
was flat at around Rs2.15 lac during H1FY07 vis-à-vis H1FY06. However, the margins showed improvement due to tighter
control over the raw material costs. Lower interest and depreciation costs resulted in net margins for H1FY07 standing at 11.3%
vis-à-vis 8.6% for H1FY06.
Table 20: H1FY07 volume numbers and financial discussion

H1FY06 H1FY07 % Change
Mini 40,214 40,445 0.6
Compact 154504 191197 23.7
Midsize 14935 15960 6.9
Total passenger cars 209,653 247,602 18.1
Utility vehicles 1751 1688 (3.6)
Multi-purpose vehicles 32,232 37,332 15.8
Total domestic vehicles 243,636 286,622 17.6
Exports 18773 16009 (14.7)
Total vehicles 262,409 302,631 15.3
Table 21: Quarter history (Rs. m)

Year-end: March Q2FY07 Q2FY06 YoY Change (%) Q3FY06 Q4FY06 Q1FY07
Gross revenues 34,192 30,399 12 31,142 32,770 31,255
QoQ growth (%) 9 16 2.4 5.2 (4.6)
Net total revenues 35,409 31,490 12 32,208 33,923 32,688
QoQ growth (%) 8 16 2.3 5.3 (3.6)
Materials consumption 25,947 22,335 16 23,933 26,723 23,813
Salaries and wages 714 576 24 584 567 626
General and admn. exp 3,152 2,666 18 2,214 2,975 2,468
(Inc)/Dec in stocks (377) 1,324 (129) (248) (2,356) (217)
Operating profit 5,973 4,589 30 5,725 6,014 5,999
QoQ growth (%) (0.4) 8 25 5.1 (0.3)
Depreciation 596 665 (10) 681 726 641
EBIT 5,377 3,924 37 5,044 5,289 5,358
Interest 31 61 (50) 17 34 33
Pre-tax profits 5,346 3,863 38 5,027 5,255 5,326
QoQ growth (%) 0.4 15 30.1 4.5 1.4
Provisino for taxation 1,672 1,236 35 1,637 1,645 1,630
Reported net profit 3,674 2,627 40 3,390 3,609 3,696
QoQ growth (%) (0.6) 16.0 29.1 6.5 2.4
11
Financial summary
Profit and loss account (Rs. m)
Year-end: March FY04 FY05 FY06 FY07E FY08E

Total revenues 110,474 133,357 147,531 169,996 192,764
YoY growth (%) 23.0 20.7 10.6 15.2 13.4
Operating expenses 101,169 119,295 131,265 150,548 170,278
Raw material expenses 70,265 85,174 92,170 105,529 119,376
Excise and taxes 19,384 23,807 27,009 31,187 35,372
Trading purchases 0 0 0 0 0
Salaries and wages 2,975 1,960 2,287 2,766 3,137
Manufacturing expenses 8,545 8,354 9,799 11,065 12,393
Managerial remunaration 0 0 0 0 0
Operating profit 9,305 14,062 16,266 19,448 22,486
YoY growth (%) 145.2 51.1 15.7 19.6 15.6
Operating margin (%) 8.4 10.5 11.0 11.4 11.7
Treasury income 3,777 3,914 4,292 4,500 4,700
EBDITA 13,081 17,976 20,558 23,948 27,186
EBDITA margin (%) 11.4 13.1 13.5 13.7 13.8
Depreciation 4,949 4,568 2,854 3,487 4,525
EBIT 8,132 13,408 17,704 20,461 22,661
EBIT margin (%) 7.1 9.8 11.7 11.7 11.5
Interest 434 360 204 74 44
Pre-tax profit 7,698 13,047 17,500 20,387 22,617
Pre-tax margin (%) 6.7 9.5 11.5 11.7 11.5
Tax provision 2,277 4,513 5,609 6,524 7,237
Effective tax rate (%) 29.6 34.6 32.1 32.0 32.0
Adjusted net profit 5,421 8,535 11,890 13,863 15,380
YoY growth (%) 270.4 57.4 39.3 16.6 10.9
+(-) Extra-ordinary Inc/(Exp) 0 0 0 0 0
Reported net profit 5,421 8,535 11,890 13,863 15,380
12
Balance sheet (Rs . m)

Equity capital 1,445 1,445 1,445 1,445 1,445
Reserves and surplus 34,467 42,343 53,081 65,781 79,997
Shareholders funds 35,912 43,788 54,526 67,226 81,442
Secured loans 3,119 3,076 717 17 17
Unsecured loans 0 0 0 0 0
Long term loans 3,119 3,076 717 17 17
Net deferred tax liability 1,833 1,100 779 779 779
Minority interest 0 0 0 0 0
Capital employed 40,864 47,964 56,022 68,022 82,238
Gross fixed assets 45,667 50,531 49,546 65,796 83,796
Less accumulated depreciation 27,359 31,794 32,594 36,081 40,606
Add capital work in progress 749 421 920 0 0
Net fixed assets 19,057 19,158 17,872 29,715 43,190
Investments 16,773 15,166 20,512 20,512 28,032
Current assets loans/Advances 20,189 29,720 37,496 39,942 35,440
Inventory 4,398 6,666 8,812 8,963 10,139
Sundry debtors 6,894 5,995 6,548 7,579 8,595
Cash and bank 2,402 10,294 14,016 16,578 9,806
Loans and advances 5,744 6,082 7,662 6,423 6,500
Other current assets 751 683 458 400 400
Current liabilities and provisions 15,318 16,080 19,858 22,147 24,423
Current liabilities 12,114 12,188 15,058 17,347 19,623
Provisions 3,204 3,892 4,800 4,800 4,800
Net current assets 4,871 13,640 17,638 17,795 11,016
Miscellaneous expenditure 163 0 0 0 0
Capital deployed 40,864 47,964 56,022 68,022 82,238
13
Cashflow statement (Rs. m)

Net profit before tax extra-ordinary items 7,698 13,049 17,500 20,387 22,617
Depreciation 4,949 4,568 2,854 3,487 4,525
Interest expense 457 339 204 74 44
Interest income (761) (633) (1,069) 0 0
Dividend income (723) (792) (720) 0 0
Provisions no longer required written back (826) (562) (54) 0 0
Provisions for contingencies 0 0 0 0 0
Provisions for doubtful debts and advances 0 32 10 0 0
Deferred revenue expenditure incurred 724 163 0 0 0
Others 9 108 120 0 0
Operating cash flow 11,527 16,272 18,845 23,948 27,186
(Inc)/Dec in inventory 473 (2,267) (2,146) (151) (1,176)
(Inc)/Dec in debtors (204) 899 (553) (1,031) (1,017)
(Inc)/Dec in loans and advances/OCA (232) (215) (1,301) 1297 (77)
Inc/(Dec) in trade and payables 1,130 1,052 3,185 2,289 2,276
Operating free cash flow 12,694 15,741 18,030 26,353 27,193
Direct taxes (2,335) (4,994) (5,804) (6,524) (7,237)
(Inc)/Dec in capex (1,401) (4,825) (2,103) (15,330) (18,000)
Investment (15,708) 1,514 (5,247) - (7,520)
Others 1,598 1,374 2,043 0 0
Free cash flow 8,958 5,922 10,123 4,499 1,955
Inc/(Dec) in equity capital 0 0 0 0 0
Proceeds of short term borrowings 119 76 17 0 0
Repayment of short term borrowings (133) (119) (2,376) - -
Repayment of long term borrowings (1,427) - - (700) -
Interest paid (472) (443) (260) (74) (44)
Dividend Paid (427) (432) (578) (1,163) (1,163)
Net change in cash and cash equivalents (7,492) 7,892 3,722 2,562 (6,772)
Add total cash generation 9,894 2,402 10,294 14,016 16,578
Closing cash and bank 2,402 10,294 14,016 16,578 9,806
14
Key ratio’s
Valuation ratios (x)
P/E 17.4 14.3 13.7 20.3 18.3
P/CF
P/BV 2.6 2.8 3.0 4.2 3.4
Mcap/Sales 1.04 1.12 1.36 2.03 1.79
EV/Sales 1.0 0.9 1.1 1.8 1.7
EV/EBDITA 7.3 5.6 6.4 11.0 9.9
EV/Capital employed 2.4 2.3 2.5 4.2 3.6
Growth ratios (%)
Earnings growth 270.4 57.4 39.3 16.6 10.9
Revenue growth 23.0 20.7 10.6 15.2 13.4
Gross profit growth 19.2 19.8 14.9 16.4 13.8
EBITDA growth 99.4 37.4 14.4 16.5 13.5
Efficiency ratios
Gross margin (%) 22.6 20.7 19.5 23.7 23.9
EBDITA margin (%) 14.4 16.5 17.1 17.3 17.3
EBIT margin (%) 9.0 12.3 14.7 14.8 14.4
Pre-tax margin (%) 8.5 12.0 14.6 14.7 14.4
Net margin (%) 6.0 7.8 9.9 10.0 9.8
Profitability ratios
Return on equity (%) 16.2 21.4 24.2 22.8 20.7
Return on capital employed (%) 14.9 20.0 23.3 22.5 20.5
Operational RoCE (%)
Average collection period (Days) 27.7 20.1 19.9 20.0 20.0
Inventory turnover (Days) 24 24 31 31 31
Creditors (Days) 63 52 60 60 60
Fixed assets turnover (x) 2.3 2.5 2.3 2.3 2.2
15
Technical evaluation
Analyst
Ankur Agarwala
+91-22-6637 1155
ankur.agarwala@idbicapital.com
Source: Bloomberg
MUL for last couple of months has been consolidating between 920 to 985 levels, which being its previous high (in May 2006)
is considered to be a bullish signal. 50 days, 100 days and 200 days DMA for MUL lies at 925, 848 and 837 respectively. MACD
has once again started diverging giving a positive signal. On the downside a very good support exist at 911 for the counter,
whereas, on the upside, a close above 985 on daily charts for more than three consecutive days may invite a bullish rally into
the counter, which could go up to a level of 1112 in the short time.
Equity Sales/Dealing
Manish Agarwal (91-22) 66371152/54 manish.agarwal@idbicapital.com
Ankur Agarwala (91-22) 66371155 ankur.agarwala@idbicapital.com
Manoj Shettigar (91-22) 66371157 manoj.shettigar@idbicapital.com
Rachit Shah (91-22) 66371156 rachit.shah@idbicapital.com
Manisha Rathod (91-22) 66371155 manisha.rathod@idbicapital.com
Charushila Parkar (91-22) 66371154 charushila.parkar@idbicapital.com
Production & Database
S. Narasimhan Rao (91-22) 66371165 narasimhan.rao@idbicapital.com
IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Ltd.)
Registered Office: 5th floor, Mafatlal Centre, Nariman Point, Mumbai – 400 021. Phones: (91-22) 6637 1212 Fax: (91-22) 2288 5850 Email: info@idbicapital.com
Disclaimer
This document has been prepared by IDBI Capital Market Services Ltd (IDBI Capital) and is meant for the recipient for use as intended and not for circulation. This document should not be reported or copied or made available to others. The information contained
herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of
research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. IDBI Capital, its directors and employees, will not in any way be responsible for the contents of this report. This is not an offer to sell or a
solicitation to buy any securities. The securities discussed in this report may not be suitable for all investors. Investors must make their own investment decision based on their own investment objectives, goals and financial position and based on their own
analysis. IDBI Capital, its directors or employees, may from time to time, have positions in, or options on, and buy and sell securities referred to herein. IDBI Capital, during the normal course of business, from time to time, may solicit from or perform investment
banking or other services for any company mentioned in this document.
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MUL

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Company Report – Maruti Udyog Ltd.

COMPANY Maruti Udyog Ltd. (MUL)

 Highest operating margins in the industry

 Capacity expansion at the correct time

PAT 8,535 11,891 13,863 15,380

Figure 1: Low car penetration in India

 Excise duty cuts in compact segment

Table 2: Excise duty cuts in compact segment

 Leader in passenger car segment

Table 3: Market share for MUL

Source: SIAM, Annual reports

Table 4: Leader in Mini and Compact subsegment

 Lowest wage ratio in the industry

Figure 2: Index of hours required to produce a vehicle

Source: Company reports; IDBI Capital Market Services

Table 5: Lowest wage ratio in the industry (%)

Wage bill as a % of net sales FY06

Table 6: High localization level

 Highest margins in the auto industry

Table 7: Improving product mix

 MUL tops customer satisfaction surveys

Source: Company reports; IDBI Capital Market Services

 Targeting international markets

Source: Company reports; IDBI Capital Market Services

 Capacity expansion at just the correct time

 New product launches (including a Diesel Swift) to further propel growth

 To manufacture cars for Nissan-Suzuki joint-venture

 Overall a very strong financial profile

Table 15: Extreme competition

 The cheapest Indian car planned for launch in 2008

 Absence of a successful product on the ‘Diesel’ side

 Rising raw material prices

Table 16: Rising raw material prices

Year-end: March FY03-04 FY04-05 FY05-06

Table 17: Milestones

Passenger car industry in India

Source: SIAM, IDBI Capital Market Services

Table 19: Key players in the passenger vehicle industry

Sub-segment Top 2 players Key brands Market share (%)

Table 20: H1FY07 volume numbers and financial discussion

 Table 21: Quarter history (Rs. m)

 Profit and loss account (Rs. m)

Year-end: March FY04 FY05 FY06 FY07E FY08E

 Balance sheet (Rs . m)

Year-end: March FY04 FY05 FY06 FY07E FY08E

 Cashflow statement (Rs. m)

Year-end: March FY04 FY05 FY06 FY07E FY08E

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Highest operating margins in the industry

Capacity expansion at the correct time

Excise duty cuts in compact segment

Leader in passenger car segment

Lowest wage ratio in the industry

Highest margins in the auto industry

MUL tops customer satisfaction surveys

Targeting international markets

Capacity expansion at just the correct time

New product launches (including a Diesel Swift) to further propel growth

To manufacture cars for Nissan-Suzuki joint-venture

Overall a very strong financial profile

The cheapest Indian car planned for launch in 2008

Absence of a successful product on the ‘Diesel’ side

Rising raw material prices

Table 21: Quarter history (Rs. m)

Profit and loss account (Rs. m)

Balance sheet (Rs . m)

Cashflow statement (Rs. m)