Analysis: Maruti Suzuki India Ltd – #DARKHORSESTOCK

thumbnail
Reading Time: 5 minutes

Maruti Suzuki India Ltd a 100% debt free, a 38 years old company is a part of Suzuki Motor Corporation a Japanese multinational corporation headquartered in Minami-ku, Hamamatsu.In 2016, Suzuki was the eleventh biggest automaker by production worldwide. Suzuki has over 45,000 employees and has 35 production facilities in 23 countries, and 133 distributors in 192 countries.

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 was established in February 1981 with production starting in 1983 with the Maruti 700, made entirely in India. The Japanese car major held 56.21% stake in Maruti Suzuki.

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. The company has nine 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, True Value Solutions Ltd, Maruti Insurance Broker Ltd and J J Impex (Delhi) Pvt Ltd.

Considering huge distribution network of the cars along with its low cost annual service of cars Maruti Suzuki is a household name in the India automobile industry. It is also said that majority of the first time car buyers prefer Maruti as their first car. 

Also Read on FinMedium:  How to detect Accounting Frauds – Candor Investing

Strong parent support

MSIL has effectively leveraged its association with its parent, Suzuki Motor Corporation (SMC), which has extended product development support, shared technological expertise, and provided access to a broad product range.

In January 2019, SMG completed the construction of Plant II and thereby starting production.

Plant II having an annual capacity of 2.5 lakh units It currently sources vehicles from SMC’s wholly-owned subsidiary in Gujarat under a contract manufacturing arrangement, wherein the vehicles will be sold to MSIL at cost. Along with Plant II, the powertrain plant has also become operational.

Construction of Plant III has already begun and the same is expected to come online by 2020, taking the capacity of the Gujarat plant to 7.5 lakh units annually and cumulative capacity of MSIL to 23 lakh units.

Plant I at Gujarat was completed and started commercial production from March 2017 with an annual capacity of 2.5 lakh units. In January 2019, SMG completed the construction of Plant II and thereby starting production.

SMC during fiscal 2018, has approved a new method of calculation of royalty wherein for all new models starting IGNIS (i.e IGNIS, Dzire, New Swift, Breza, New Ertiga and New Wagon R), the royalty will be paid in Indian Rupee. Once a particular level of volume is achieved, the royalty will come down.

Also Read on FinMedium:  Its time to revamp the basics !

Also recently Maruti Suzuki India has forayed into premium automobile segment with the exclusive showroom and separate cars through its Nexa Brand. Financials-: On the financial front the company has delivered a solid Sales growth of 13% and 16% over 5 and 3 years period. Apart from that the Compounded net profit Growth rate of the company stands at 25 % over the 3 and 5 year period. Company has huge amount of investments in various other companies , Subsidies and capital markets which is around 37,000cr or approx. 1200Rs per share which creates immense value for the company & shareholders over long term.

One of the biggest concern currently is that the automobile sector is not performing very well. Maruti on the other hand one of the India’s largest car manufacturers didn’t sell a single unit in the domestic market in the month of April. While the pain of the COVID-19 crisis would result in a very weak FY21, it is expected that Maruti will come back stronger and recover faster than peers. Furthermore, Volume recovery in 2HFY21 is critical to the stock’s performance.

Partnering Up

Maruti has partnered with Karur Vysya Bank to offer simpler and flexible financing schemes for new customers. Through the partnership with the bank, the company is seeking to offer prospective buyers special scheme of up to 100 percent on-road funding with six months holiday period on all models, except van EECO), loans for both salaried and self-employed customers and repayment period up to 84 months

Also Read on FinMedium:  Biocon 2020 Annual report takeaways.

Maruti has also partnered with IndusInd Bank for vehicle financing to help spur sales after the resumption of operations following lockdown relaxations.

Through the partnership, consumers can avail of a low EMI scheme for the first three months starting at Rs 899 per lakh; step-up scheme with EMI starting with Rs 1,800 per lakh; up to 100 percent on-road funding for customers with valid income proof, the company said in a statement.

Financials

Past Financials have not been presented for analysis since the data due to the the pandemic and complete Lockdown may be distorted . For instance due to complete lockdown the company did not sell a single unit in the domestic market in the month of april, therefore emphasis has not been made on the past financials here.

Source link

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!

Please Share :)
Dark Horse Stocks
DHS aims to reach a wider audience by providing them with access to the data. Thereby helping them analyze financial reports and make their own investment decisions.
Back To Top