Financial

Management
Project –
Maruti Suzuki
GROUP 2 – SECTION A
Maruti Suzuki Overview
• Automobile manufacturer since 1981
• Joint venture between Maruti Udyog Limited and Suzuki Motor
Corporation
• Market share leader with 53%
• Diverse product portfolio with more than 16 models
• Wide sales and services outlets, major revenue generator
• Currently, net profits have been declining
Automobile Industry Overview
• Indian Auto Industry – 4th largest in the world
• Automobile export to grow at CAGR of 3.05
• FDI Invested from April 2000 to March 2019 is US$ 21.38 billion
• 100% FDI through direct route for this sector

• GoI promoting Evs through various schemes such as FAME (Faster Adoption
and Manufacturing of (Hybrid) and Electric Vehicles in India)

• Expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026

Competitive Analysis: Market Share
Passenger Vehicle Market Share 2018
2.4 1.2
Top 4 carmakers Maruti,
Hyundai, M&M, and Tata
2.9
4.5 accounted for over 82 percent
5.2 of the Indian PV market
7

7.3 51
Major Factors Affecting the industry:
• Increasing Fuel Prices
16.2
• Increasing Insurance Prices

Maruti Suzuki Hyundai Motor India Mahindra & Mahindra

Tata Motors Honda Cars India TOYOTA KIRLOSKAR

Ford India Renault India Nissan Motor India

Maruti Suzuki: SWOT
STRENGTHS

• 53% Market share

S W •
WEAKNESSES

Poor interior
• Market Leader quality
• Huge dealer network
• Tussle between
• Diverse product
portfolio management and
• India's one of the most labor union affects
trusted brands productivity
• Sales service a major • Low market share
revenue contributor in SUV segment

OPPORTUNITIES THREATS
• Increasing Incomes of
middle class
• Export to newer foreign
O T • Constantly updating
emission norms
• Industry facing decline
markets • Foreign players investing in
• Introduction of newer India to setup new plants
models • Promotion of electric
vehicles
Maruti Suzuki: Porter 5 Forces Analysis
Maruti Suzuki: Value Chain Analysis
Financial Analysis
Cost of Capital : Standard Deviation & Returns
Maruti Suzuki Nifty 50 Maruti
Class Nifty 50
Suzuki

2.44
Standard
0.0788 0.0393
Deviation
Average
2.44 1.01
Return

1.01
*Data considered is of closing stock from 2014 - 2019
0.0788

0.0393

STANDARD DEVIATION AVERAGE RETURN

• S.D of Maruti Suzuki Stock is higher than Nifty 50. Hence, it is riskier to invest in Maruti Suzuki
• Returns on Maruti Suzuki is higher than Nifty 50
• Investor has to take calculative risk before investing
Cost of Capital : Sharpe Ratio, Beta & WACC
Maruti Suzuki Market Maruti
Class Market
Suzuki

1.29
Sharpe Ratio 0.24011 0.1171

1
Beta 1.29 1

WACC 13.78%
0.24011

*Data considered is of closing stock from 2014 - 2019

0.1171

SHARPE RATIO BETA

• Maruti Suzuki will give better risk adjusted return than market
• The stock of Maruti Suzuki is 30% more volatile than the market
• The WACC is 13.78% . Hence, if IRR of an investment in Maruti is less than 13.78% the investor
should buy back the shares
Maruti Suzuki: Stock Price Analysis
2016 April to 2018 Sep there was
a rise in the stock price:
• Rise in the disposable income
• Increase in consumption of
domestic passenger vehicle
• Launched models in economic
and premium segment

2018 Oct to Present there is a

decline in the stock price:
• Domestic vehicle sales have
fallen down by 19%
• Regulatory changes made by
GoI increased the expenses
• Increased competition created
more weight on the stock price
• Falling Rupee value and
increasing fuel price
Working Capital Management
60
52.992 51.103
50.616
48.436
No. of Days 50 45.124

40

30
22.668 21.043
19.21 18.043
20 16.467
8.585 6.839 8.003
10 5.955 5.922

0
2015 2016 2017 2018 2019
Year
Day Sales in Inventory Days in Payable Days sales in receivable

• Maruti has been able to optimize its average inventory days as there has been decrease in
inventory since 2015
• Maruti has successfully has been able to increase its days in payable which gives Maruti ample
time to clear of its credit
• Maruti has to reduce its days sales in receivables in order to get its revenues on time
Working Capital Management
40
27.797 29.508
26.998
30 23.966 24.47

20
No. of Days

10

-10
2015 2016 2017 2018 2019
-17.328 -18.929
-20 -23.618
-29.026 -26.633
-30

-40
Year
Operating Cycle Cash Cycle
• Marutis’ Operating cycle has increased the last year which is mostly due to increase in days sales
in receivable. Hence, they should focus on their operations
• The cash cycle is negative that indicates the company has been working with vendors capital.
The general trend is that it has increased over the year, but due to the current slowdown the
cash cycle has reduced which is more desirable
Capital Structure & Miller Modigilani Model
Debt Equity Ratio Rate of equity as unleverd firm (KsU)
0.8 0.7109 14.00% 12.75%
0.7 12.00% 10.64%
0.6 10.00% 8.59% 8.13%
0.5 0.4067 0.4217
0.3638 0.3638 8.00%
0.4 5.11%
6.00%
0.3
0.2 4.00%
0.1 2.00%
0 0.00%
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Year Year
Debt Equity Ratio Rate of equity as unleverd firm (KsU)

• Maruti had the highest Debt to Equity ratio in the year 2016, i.e there liabilities were higher
compared to their equity
• The trend towards reducing ratio is in favor to Maruti. Their liabilities have reduced over time
when compared to their equity.
• KsU is the rate of equity of the firm if the firm did not have any debt (unleverd)
 Competitive Analysis : Working Capital
Management
Maruti Suzuki Tata Motors Mahindra & Mahindra • Maruti Suzuki has the least average
inventory days compared to its
competitors

87.21
• The company should try to
increase the no. of days in payable,
as the competitors are doing better
• Maruti has the least days sales in

59.98
51.1
receivable which is the best in the
market
31.2031
31.152

23.2336
17.7494
16.4605

8.0037

DAYS SALES IN INVENTORY DAYS IN PAYABLE DAYS SALE IN RECEIVABLE

Competitive Analysis: Working Capital
Management
Maruti Suzuki Tata Motors Mahindra & Mahindra
• Maruti Suzuki has the least
Operating Cycle days, which is the

55.43
best amongst the competitors.
48.9 • Maruti could try to reduce and
make its cash cycle positive for
enhanced desirability to do
24.47

business.

OPERATING CYCLE CASH CYCLE

-11.08
-26.63

-31.77
Competitive Analysis: Weighted Average of Cost
Capital
Maruti Suzuki Tata Motors Mahindra & Mahindra
• Maruti Suzuki will give better risk
adjusted return than market
• The stock of Maruti Suzuki is 30%

13.78
more volatile than the market

12.13

11.36

WE IG HTE D AVE RAG E O F CO ST CAPITAL

 Competitive Analysis: Stock Price Analysis
Maruti Suzuki Tata Motors
10000 400
No. of Days

No. of Days
300
5000 200
100
0 0
01 April 2018 01 April 2019 01 April 2018 01 April 2019
Year Year
Maruti Suzuki Tata Motors

Mahindra
1500
No. of Days

1000 Marutis’ stock although reducing over

500 the last year has very high stock value
0 when compared to its competition.
01 April 2018 01 April 2019
Hence, long term investors have
Year
benefitted and this stock is more
Mahindra profitable for them
Conclusion
• Revenue has decreased by 14% and the stock prices have declined over the last
year
• Due to the economic slow down
• Increase in fuel prices
• Instability of Indian rupee

• GoI has improved the credit availability and reduced the cost of credit
• Reducing the GST from 28% to 18% will reduce the prices and this may
increase the demand
• Although Maruti Suzuki is doing better than its competitors there is a scope of
improvement for the benefit of its competitors
THANK YOU