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IPO Analysis
Maruti Udyog Ltd.
Opinion
Issue Opens June 12, 2003
Instrument Equity
Pub Iss Size (No.) 7.22 Crore
Issue Closes June 19, 2003
Face Value (Rs) 5
Floor Price (Rs) 115
Min. Application (Retail) 100 Nos. and in multiples of 100 thereafter.

Book Building/Fixed Port 100% Book Building
Industry Automobile
Listing BSE and NSE
Main Promoter Suzuki
P/E (FY03) 22.5
Lead Manager Kotak Mahindra Capital Company Ltd

Post-ISSUE SHARE HOLDING (%)
Promoters
Suzuki Motor Corporation 54.2
President of India 20.8
Public 25.0
TOTAL 100.00

KEY RATIOS FY 2003 FY 2002 FY 2001
RONW (%) 4.9 4.2 Neg
Debt Equity 0.15 0.26 0.44

*BALANCE SHEET (Rs Cr)
FY
2003		 FY 2002 FY 2001
Equity 144.5 132.3 132.3
Reserves 2953.5 2291.4 2232.5
Debt + Liabilities 2141.7 2196.8 2449.2
Total Assets 3009.3 2503.1 2512.8

*Profit/ Loss (Rs Cr)
FY
2003		 FY 2002 FY 2001
Total Income 9426.0 9398.9 9250.1
Expenditure 6883.7 6790.5 6885.7
Operating profit 369.8 277.2 (168.8)
Financial Expenses 55.8 76.4 74.6
Depreciation 322.1 342.9 322.3
Tax 135.7 13.8 0.2
Profit after tax 146.4 104.5 (269.4)
Equity capital 144.5 132.3 132.3
EPS (Rs.) 5.1 79.2 Neg
* The Balance Sheet and Profit/ Loss Account are as per Indian Accounting Standards. And, they pertain to unconsolidated accounts of the entity.
Issue Highlights

Issue is being made through 100% Book Building Process wherein 60% of the issue shall be allocated to QIBs (Qualified Institutional Buyers) on a discretionary basis, 15% to Non-Institutional Investors and 25% would be allocated to Retail Investors on a proportionate basis.

Maruti is a 54.2% subsidiary of Suzuki Motor Corporation which is the largest manufacturer of mini passenger vehicles in Japan since the past three decades. In terms of volumes, Suzuki had a market share of 31.6% in the year 2002.

Maruti is the largest car manufacturer in India since 1986. Maruti revolutionized the car market with the launch of its Maruti 800. As on March, 2003, Maruti garnered a market share of 54.6% on the back of sales volumes of 330,013 cars.

Maruti has a diverse product range including 10 basic models and over 50 variants. The car prices range from Rs 2 lakhs to Rs 18 lakhs per car.

Huge network of 178 authorised dealers with 243 sales outlets in 161 cities.

With its entry, Maruti changed the face of the Indian car industry. However, it failed to capitalize on the same and in fact posted a loss of Rs 266 crore in FY01. Although the company has turned around, Maruti’s lack of new models resulted in Hyundai and Ford gaining market share at its expense. Technical collaboration with a promoter like Suzuki and Suzuki’s declaration to make India a hub for Asian countries augurs well for the company. Maruti’s tie up with SBI for providing finance, planned capital expenditure of Rs 350 crore in FY04 and its new strategy of inducing customers to exchange an old Maruti car for a new one, will take time to show results. At a floor price of Rs 115, we feel the company is quoting at a substantial premium. After the initial euphoria on listing is over, investors will get an opportunity to enter the company on declines.

Strengths
With the exit of PAL (Premier Automobile Ltd in 2000, Maruti has absolutely no competition in the A segment (cars priced less than Rs 3 lakhs). Thus it is a monopoly player in this segment.

At 54.6%, Maruti’s market share was more than three times the market share of the manufacturer ranked second in terms of sales volumes.

Brand strength – Maruti has been in the car market since almost 20 years. This is much earlier than Hyundai or Telco or Ford. It is the only company which has been ranked no. 1 for three times in a row in terms of customer satisfaction in the JD Power Survey 2002.
Concerns

Although Maruti enjoys monopoly position in the A segment, its sales volume has declined consistently over the past four years. Further, the company expects the segment to grow at a CAGR of just 2.7% between FY02 and FY07. Thus there does not seem much scope for growth in this segment.

Sales volume in units

FY00 FY01 FY02 FY03
271,488 210,797 206,350 193,302

The B segment is expected to grow at a CAGR of 12.3%. However, Maruti faces tough competition from the likes of Telco (Indica), Hyundai (Santro) and Fiat (Palio and Uno). The ability of Maruti to expand market share in this segment rests solely on Zen, Alto and Wagon R.

Maruti has Rs 800 crore of exports which are denominated in US dollars and Rs 750 crore of imports which are denominated in JPY. The depreciation of USD against the rupee and appreciation of JPY could result in a double whammy and affect the profitability of the company, by way of falling realizations and rising input costs.

Maruti is the only company that manufactures only passenger cars in India. Hence it cannot be compared to a Telco or M&M and Hindustan Motors in is in turn around mode. Thus below, we give the comparison of Maruti vis-a vis International companies:

  P/E Ratio RoE (%) ROCE (%)
2003 2004* 2003 2004* 2003 2004*
Maruti 22.7 8.8 5.0 11.3 9.6 16.2
KIA Motors 5.1 4.2 15.0 16.1 18.0 18.7
Hyundai 5.4 4.9 13.5 13.4 17.6 18.2
Proton 3.8 4.3 20.9 16.0 64.6 39.5
* Based on projected earnings

  Priya Madani
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