AUTOMOBILE SECTOR

The automotive industry in India is one of the largest in the world and one of the fastest growing globally. India's passenger car and commercial vehicle manufacturing industry is the seventh largest in the world, with an annual production of more than 3.7 million units in 2010. According to recent reports, India is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world, growing 16-18 per cent to sell around three million units in the course of 2011-12. As of 2010, India is home to 40 million passenger vehicles. More than 3.7 million automotive vehicles were produced in India in 2010 (an increase of 33.9%), making the country the second fastest growing automobile market in the world. According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected to increase to 5 million by 2015 and more than 9 million by 2020.

The automobiles sector in India is a highly vibrant sector which includes segments like passenger cars, two wheelers, three wheelers and commercial vehicles performing very well due to growth in India's economy. Major players include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hero Honda, Bajaj Auto, Ashok Leyland.

Parameter TATA MOTORS

Mahindra & Mahindra

Maruti Suzuki

Market Cap 86,939.40 45,962.54 38,182.22Sales 1,23,133.30 31,158.47 36,811.70Net Profit 9,064.77 3,041.15 2,344.13Total Asset 48,917.13 35,974.51 14,762.90

What Affects the Industry?

Demand Favourable demographics and rising incomes of a country provide a boost to the automobile sector due to more demand for cars and two wheelers in particular which are discretionary goods. However when inflation rises and there is upward pressure on interest rates there is cyclical trough in sales of automobiles. Supply India is a competitive market in terms of product offerings. In each category of autos - Passenger small cars, Passenger Hatchbacks, Passenger Sedans, Passenger Luxury there are more than 2 to 3 players. Within the two wheeler market though, two players dominate the market - Hero Honda and Bajaj Auto. Expenses One key monitor able for the automobile sector is the input costs - commodities. Also, as some companies are foreign parent owned, high royalty expenses can be an issue. Capital Structure Most automobile companies are not levered (low debt as a proportion to equity) and hence most companies are low on financial risk.

Valuation of Auto Sector-

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While valuing an auto company, measures like EV/SALES, EV/EBITDA, PE, and Price to Book should be used. Always be watchful of domestic interest rates as auto stocks tend to make cyclical price moves and exhibit a negative correlation to interest rates. Another Factor determines the likely trends in consumer demand for cars in the future. It was interesting to note that in the last few years the real cost of buying cars in India had declined sharply, due to the high rates of growth of the economy and consequently per capita incomes, and the relatively much slower increase in car prices. On the basis of these studies, we expect the demand for cars to double in the next five years and grow at this rate through the rest of the decade.

Industry Ratios

Ratios Maruti Suzuki Tata Motors Mahindra and Mahindra

Average

P/E Ratios 16.35 8.26 15.47 13.36Price To Book Value

2.64 4.47 3.20 3.436

EV to Sales 0.97 0.84 1.95 1.253EV to EBITDA 8.50 5.92 9.17 7.8633Dividend Yield 0.57 1.50 1.55 1.2066Return On Capital Employed

22.72 26.60 17.59 22.303

Return On Equity 17.42 64.65 20.49 34.186Asset Turnover Ratio

2.64 2.57 0.97 2.06

Inventory Turnover Ratio

30.87 10.04 7.52 16.14

Debtor turnover Ratio

45.73 18.11 8.55 24.13

Debt to Equity 0.05 2.47 1.06 1.19Interest Coverage Ratio

109.85 5.38 5.01 40.08

Current Ratio 1.21 0.81 1.95 1.32EBITDA margin 11.40 14.19 21.22 15.60Net Profit Margin 6.47 7.53 9.88 7.96

DuPont ROE= Net Profit Margin * Asset Turnover * Leverage

= Net Profit * Sales * Total asset

Sales Total Asset Total Equity

= Net Profit

Total Equity

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2011 Company Name Net Profit

Margin(%)Asset Turnover (times)

Leverage (times) ROE

Tata Motors 7.53 2.57 2.72 52.64Mahindra & Mahindra

9.88 0.97 1.23 11.79

MSIL 6.47 2.64 1.03 17.60

2010Company Name Net Profit

Margin(%)Asset Turnover (times)

Leverage (times) ROE

Tata Motors 2.76 1.72 2.12 10.06Mahindra & Mahindra

8.29 2.74 1.37 31.12

MSIL 8.65 2.78 1.07 25.73

2009Company Name Net Profit

Margin(%)Asset Turnover (times)

Leverage (times) ROE

Tata Motors -3.49 1.37 2.06 -9.85Mahindra & Mahindra

5.20 2.30 1.77 21.17

MSIL 5.68 2.33 1.07 14.16

DuPont analysis tells us that ROE is affected by three things:

Operating efficiency, which is measured by profit margin Asset use efficiency, which is measured by total asset turnover Financial leverage, which is measured by the equity multiplier.

If ROE is unsatisfactory, the DuPont analysis helps locate the part of the business that is underperforming. In year 2009 Tata Motors performance was underperformed related to Operating Efficiency of the Business.

Sector Performance is improved from year 2009 to 2010 where the ROE of each Company is showing Growth where as in 2011 the Performance of the sector is deteriorating. Due to Global Recession in the Economy and Rising fuel prices has hit the Sector. Only Tata Motors has gained a edge over its rivals due to increase in profit Margin. Whereas M&M Asset Turnover ratio has affected the ROE of the Company.

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Automobile sector Vs GDP 2011.

One of the major industrial sectors in India is the automobile sector. Subsequent to the liberalization, the automobile sector has been aptly described as the sunrise sector of the Indian economy as this sector has witnessed tremendous growth. Automobile Industry was deli censed in July 1991 with the announcement of the New Industrial Policy. The passenger car industry was, however, deli censed in 1993. No industrial licence is required for setting up of any unit for manufacture of automobiles except in some special cases. The norms for Foreign Investment and import of technology have also been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive. At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological up gradation on the royalty payment of 5% without any duration limit and lump sum payment of US$ 2 million is also allowed under automatic route in this sector. With the gradual liberalization of the automobile sector since 1991, the number of manufacturing facilities in India has grown progressively.The cumulative production data for April-December 2011 shows overall production growth of 14.94 percent over same period last year. Production in December 2011 registered growth of 10.91 percent as compared to December 2010.The overall sales growth rate recorded for April-December 2011 was 12.55 percent. In the month of December 2011 sales registered a growth rate of 8.45 percent as compared to December 2010.Passenger Vehicles segment grew marginally at 0.49 percent during April-December 2011 over same period last year. Passenger cars recorded de-growth of (-) 2.28 percent, utility vehicles grew by 12.67 percent and vans grew by 7.72 percent in this period. In December 2011, passenger cars and utility vehicles recorded growth at 8.49 percent and 25.54 percent. Vans recorded de-growth at (-) 11.62 percent respectively. On the other hand, growth in overall passenger vehicles grew at 8.85 percent in the month of December 2011. The overall commercial vehicles (CV) segment registered growth of 19.28 percent during April-December 2011 as compared to the same period last year. While medium & heavy commercial vehicles (M&HCVs) registered growth of 9.34 percent and, light commercial vehicles grew at 27.97 percent. However, in the month of December 2011 over December 2010, the growth in sales of the overall CV segment stood at 14.50 percent.Three wheelers sales recorded de-growth of (-) 0.07 percent in April-December 2011. While passenger carriers registered a decline by (-) 2.91 percent during April-December 2011, whereas, goods carriers registered growth of 12.52 percent. Two wheelers registered a growth of 15.23 percent during April-December 2011. Also, mopeds, motorcycles and scooters grew by 9.69 percent, 14.01 percent and 22.50 percent respectively. If growth figures for December 2011 to December 2010 are compared, the growth figures for two wheelers were at 8.52 percent whereas, three Wheelers registered de-growth at (-) 3.42 percent in the month of December 2011.During April-December 2011, overall automobile exports registered a growth rate of 28.97 percent. Passenger Vehicles registered growth at 18.14 percent in this period. Two wheelers, commercial vehicles and three wheelers segments recorded growth of 29.75 percent, 24.66 percent and 42.63 percent respectively during April-December 2011. Overall automobile exports registered a growth of 15.79 percent in December 2011 as compared to December 2010.

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Maruti Suzuki India Ltd.

Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Limited) is a subsidiary of Suzuki Motor Corporation, Japan. MSIL has been the leader of the Indian car market for over two and a half decades. The company has two manufacturing facilities located at Gurgaon and Manesar, south of New Delhi, India. Both the facilities have a combined capability to produce over a 1.2 million (1,200,000) vehicles annually. The company plans to expand its manufacturing capacity to 1.75 million by 2013.

The company offers a wide range of cars across different segments. It offers 15 brands and over 150 variants - Maruti 800, people movers, Omni and Eeco, international brands Alto, Alto-K10, A-star, WagonR, Swift, Ritz and Estilo, off-roader Gypsy, SUV Grand Vitara, sedans SX4, Swift DZire and Kizashi. In an environment friendly initiative, in August 2010 Maruti Suzuki introduced factory fitted CNG option on 5 models across vehicle segments. These include Eeco, Alto, Estilo, Wagon R and Sx4.

In fiscal 2009-10 Maruti Suzuki became the only Indian company to manufacture and sell One Million cars in a year. Maruti Suzuki has employee strength over 8,500 (as at end March 2011). In 2010-11, the company sold over 1.27 Million vehicles including

1, 38,266 units of exports. With this, at the end of March 2011, Maruti Suzuki had a market share of 44.9 per cent of the Indian passenger car market.

Maruti Suzuki's revenue has grown consistently over the years.

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Chairman’s Report

Chairman’s Report states the Company’s Past, Present and Future Prospect. The Company’s Growth in 2008 and 2009 was very low due to Global Recession in 2008 which hit the Growth of all the Sectors in the Economy and trend analysis led to predict the growth of the Sector around 10 – 12 Percent. But the Actual Growth of Automobile Sector was 29 Percent. The Demand of the MSIL products was met by Production Carried Out at Gurgaon plant and Partly at Manesar Plant. Company is Building its Manesar Plant to increase the Production Capacity and meet Future demand for MSIL cars. This is estimated to be completed by 2012. Company sold 1.27 Million cars in year 2010-11 i.e. 25 Percent Increase in sales as compared to previous Accounting year 2009-10 which was 1.02 Million and the Production carried out without investing into production capacity led to an achievement for the company. Demand of Cars in Future is been estimated considering the following points. Real Cost of Buying Cars in India has declined sharply, due to high rates of growth in the economy as well as increase in per capita income whereas increase in the car prices has been relatively slower. Demand Projected for the year 2011-2012 is 10-15 percent due to increase in Petrol Prices and Increase in Interest Rates. Company’s Prediction about future growth in Indian market is high which led them to build new plant at Manesar. Company is moving aggressively to increase its sales and increasing its production capacity by building new plants. It has also setup an Research and Development plant at Rhotak which earlier was carried out only at Japan by Suzuki Motor Corporation. Company is Optimistic about its Exports of small cars in European region. It was affected due to production disruption, logistical and infrastructural imperatives.

Company is more Emphasising on its Research and Development Team which will lead to innovation and meet customer needs. Relying on its K-Series Engine which is light weight, fuel efficient and cleaner. This will lead company to move to new generation of vehicles they call as “Tecno_Logical” it’s a combination of Technology and Logic. Company determines its manpower and important source to carry out its production at optimised level.

Managing Directors Message

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Report States about company’s actual growth and strength, weakness, opportunities in market. In 2010-11 market saw a growth of 29 percent in which MSIL was able to achieve a marginal market share. But it faced a dull export market in Europe it led company to explore non-European market ultimately it led to decline in exports by 6 percent than previous year. Company launched new model and variants in the market. Cost of materials, technology, new model introduction, and adverse foreign exchange rates impacted on profit margin and profit declined to 8.4 percent. Company Predicts Substantial growth in the Sector due to efforts by Government, Industry and Household of India over the past decade. These are the opportunities for the company. Inflation is a big problem which economy and also the Company is facing in India it will lead to increase in price of commodities, land, manpower, technology and energy this are important factors of production. It cannot be overcome by economies of scale, productivity or innovation. A significant value- add in the car comes from component industry. It has to improve scalability, robustness in manufacturing and quality system which requires high capital and need to be raised at reasonable cost.

Company its not only aiming at single objective of growth in market share or sales it has multiple objective. While increasing the volume of sales it doesn’t compromise on process, quality. To Ensure the Efficiency and high quality output it need to Train its Vendors and staff at regular interval. It aims at providing global level technology to its customers. And to provide all company needs proper infrastructure and logistic facilities to provide product to end customer and it is not sufficient in India. This costs are to be incurred which may lead to have a close look at profit margins.

MSIL differentiate itself from other players of industry claiming they understand better end needs of customer and there product is Fuel efficient, High engine performance, driveability, body styling, safety, security, comfort, entertainment features and cost. Company is working on Research team to come up with new products with CNG and hybrid cars which leads to Low emission of CO2 which will also affordable to consumers.

Company is predicting high growth in future markets. So it will increase its market share by Innovation and investing in Research and Development and launching new models in India.

Auditor’s Report

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Consolidated balance sheet of Maruti Suzuki India Limited (the “Company”) and its subsidiaries, its jointly controlled entities and associate companies will be referred as a Group as at 31st March, 2011. This is responsibility of Company Management. Auditor’s responsibility is to express an opinion on financial statement based on their audit.Audit has been conducted in accordance to the entire auditing standard that is accepted in India. An audit is planned and performs to obtain reasonable assurance about whether the financial statements are free of material misstatement. Audit is been examined on a test basis, evidence supporting the amounts and disclosure in the financial statements. It also includes assessing the accounting principles used and estimates made by management as well as evaluating the overall financial statement presentation.

Following are not Audited:- 8 subsidiaries and 8 jointly controlled entities included in the consolidated financial

statements, which constitute total assets of ` 3,135 million and net assets of `1,601 million as at March 31st, 2011, total revenue of `5,430 million, net profit of `184 million and net cash flows amounting to ` 449 million for the year then ended.

15 associate companies which constitute net profit of `753 million for the year then ended. These financial statements and other financial information have been audited by other auditors whose reports have been furnished to us, and our opinion on the consolidated financial statements to the extent they have been derived from such financial statements is based solely on the report of such other auditors.

All the Reports is been Audited as Per Accounting Standards and financial statements have been prepared by the Company’s management in accordance with requirement of Accounting Standard (AS) 21.

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Cash Flow Analysis for year ended in 2011.

(Rs. In Millions)

A) Cash from Operating Activities:-

Non cash expenditure of Depreciation has been added to the profit for the year ended which amounts to Rs. 10313 and Interest Expenses paid by the company on the borrowed funds of Rs 3093.0 Interest income is income Earned by the company on Investment on long term corporate Bonds of Rs 7000. Amount of Interest Received in 2083. Company has Shared Profit in respect of Investment in Associates which leads to outflow of cash from the Company and amount is Rs.753. Company had incurred a loss on sale of Asset amounting to Rs. 79. Where as it has also made a profit of Rs.699 on Sale of Investment. It has made a provision on Doubtful Debts and advances of 1 million. It has write off the provision made in the past which has incurred as a loss in these year of Rs 191. It has also made a gain on Foreign Exchange this leads to inflow of cash in the company of 20 million.

Changes in Working Capital:-

Debtors have increased by Rs.1008 as Compared to Previous year because of company has increased its Debtors Turnover Ratio as Calculated above. Current Assets and Loans & Advances have been decreased by amount of Rs.1370 and Inventories have increased by 2108 which means company’s Inventory turnover ratio has increased and Current Liabilities have increased for the firm by Rs.6487 which leads to higher out flow of cash. After paying all the Expenses and Adding the Incomes Company’s generating cash of Rs 45014 million. This is higher than year 2010 which was Rs 42022. Tax Paid by the Company in 2011 is Rs. 10314 million and in 2010 it was Rs. 10341 which means company has generated higher Profit in 2010 as compared to 2011 which leads to higher tax payements.

B) Cash Flow From Investing Activities:-

Company is expanding its Existence in the Country by investing more in Fixed Assets to earn more profit using these fixed assets it has invested Rs. 26541 million into Fixed Assets which is nearly 100 percent more than invested in 2010. It has also sold some fixed assets amounting to Rs. 80 million which leads to Cash inflow, Whereas in 2010 the net inflow of cash due to sale of fixed asset was higher by 6.5 times amounting to Rs. 495 million.

Management has sold its Investments of Rs. 340790 million in 2011 and in 2010 it has sold the investment amounting to Rs 167822 million. Management has purchased investments of Rs. 320616 after selling the Investment of Rs. 340790 in 2011 and in 2010 it has purchased the investment amounting to Rs. 207754. And it has received the Interest on investment of Rs 1811 million and 2564million in the year 2011 and 2010 respectively.

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Investing Activities leads to net outflow of cash from the Company of Rs. 4476 million in 2011 and in 2010 it leads to outflow of cash amounting to Rs. 50677 million due to high blockage of funds in Investments.

C) Cash Flow From Financing Activities:-

Management has taken Short-term Borrowings of Rs. 312 million in 2011 and repaid the short-term borrowings of Rs.3408 million a higher part of amount is been paid which was taken in form of short-term borrowings of Rs.4015 in year 2010. Management has also repaid Rs.419 million of short-term borrowings in 2010. Company is trying to be a Debt free by repaying its Long-term borrowings. It has paid Rs. 1420 million and Rs 1472 million in 2011 and 2010 respectively. It has also paid the Interest and Dividend to Investors and Owner of the Company of Rs. 322 million in form of interest and Rs. 1732 in form of dividend to Shareholders in year 2011 where as in 2010 it has paid interest amounting to Rs. 358 million and Dividend of Rs. 1011. All the financing activity leads to net outflow of cash in year 2011 and inflow in year 2010 of Rs.6570 and Rs.755 respectively.

Overall it leads to inflow of funds in the company from all the 3 activities when added to Opening Cash Balance and amount deposited in bank in current and deposit accounts and cheque and cash in hand amount to Rs.23654 million in 2011 where as it leads to outflow of cash from the Company of Rs.18241 million.

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Ratio Analysis for the year 2011

A) Valuation ratios

The ratios are presented in quintiles (divided into 5 equal parts) - placing of the company versus sector peers. Valuations are the most important element of arriving at the decision of whether the shares of a particular company should be purchased or not. Higher growth companies deserve higher valuations

2011 2010

1.Price Earning Ratio PERatio=Market PriceEPS

Market Price 1304 1236.90EPS 82.50 88.09

PE Ratio 15.81 14.04

A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. The P/E is referred to as the "multiple", because it shows how much investors are willing to pay per RUPEE of earnings. If a company were currently trading at a multiple (P/E) of 15.81, the interpretation is that an investor is willing to pay Rs 15.81 for Rs.1 of current earnings in 2011.where as P/E ratio of 2010 was 14.04TATA Motors P/E ratio is 8.26 where as M&M P/E ratio is 14.95. These means Maruti Suzuki is doing well in sector as compared to their Competitors.

2.Earnings Per Share EPS= NPATTotal Shares

2011 2010NPAT (in lakhs’) 238340 254500Total number of Equity Shares 2,889 2,889

Earnings Per Share 82.50 88.09

Earnings Per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-

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earnings valuation ratio. It determines how much per share is earning in case of maruti the share is earning Rs 82.50/- in year 2011 where as in 2010 it was earning 88.09 which means performance of the company has came down.

3.Market To Book Value Market ¿ BookValue= MPSBookValue

MPS 1304 1236.90BOOK VALUE 511.37 421.67

Market to Book Value 2.55 2.93

A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies by industry. Ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately. Maruti price to book value has decreased from 2010 to 2011 which means company was enjoying more premium status in market in 2010 than in 2011. Industry Average is 3.44 where MSIL is underperforming in the sector.

4. EV to Sales Ev ¿ sales= EVSales

EV3546550

4189330

Sales4086550

3232240

Ev to Sales 0.87 1.30

EV= Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. (in Lakh’s)

3766500 + 30900- 250850

This value compares enterprise value of company to company sales. Gives investors an idea of how much it costs to buy company sales. The EV/sales measure can be negative when the cash in the company is more than the market capitalization and debt structure, signalling that the company can essentially be bought with its own cash. The EV/sales measure can be slightly deceiving: high EV/Sales is not always a bad thing as it can be a sign that investors believe the future sales will greatly increase. Lower EV/sales can signal that the future sales prospects are not very attractive. In case of MSIL the EV/sales is positive .87 in 2011 which leads investors to predict the sales of the firm will increase further where as in 2010 ratio is 1.30 which means investors believe that company sales would increase in

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2011 but due to Labour issue the sales in year 2011 came down. Where Industry Average is 1.25.

5. EV to EBITDA Ev ¿ EBITDA= EVEBITDA

EV3546550

4189330

EBITDA425820

457750

Ev to EBITDA 8.33 9.15

EV/EBITDA is a valuation multiple that is often used in parallel with, or as an alternative to , the P/E ratio. Typically this ratio is applied when valuing cash based businesses. An advantage of this multiple is that it is capital structure neutral. Cash based business of MSIL is 8.33. In 2011 and in 2010 is 9.15. Industry Average is 7.86.

6.Yield Ratio Yeild Ratio= DPSMarket Price per Share

∗100

Dividend per share 7.50 6.00Market Value per share 1304 1236.90

Yield Ratio 0.58 0.49

It states how much company pays out dividend with relative to its share price . MSIL is paying Dividend of 0.58 with respect to its Market share price in 2011 and in previous year its dividend payout ratio was 0.49. Industry overall pays the average Dividend 1.21 where in these Sector company pays higher Dividend than MSIL

7.Dividend Payout Ratio Dividend Payout Ratio=DPSEPS

*100

Dividend per share 7.00 6.50Earnings per share 82.50 88.09

Dividend Payout Ratio 6.33 7.12

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Earnings Yield Ratio reveals what an investor’s money actually yield in terms of earning alone. Divisible profit earning capacity of a company in relation to market price of its share. Higher the ratio less risky is the Investment. MSIL earning is around 6% on its market Price of Rs. 1304 where as in 2010 it was 7.12% on market price was 1236.90 which means it was less risky in year 2010 than in 2011.

B) Management Effectiveness

The management effectiveness as suggested by the ROCE and ROE reflect the return the company makes on every Rs. 100 invested. Higher return ratios reflect higher strength in the company's business model.

1.Return on Capital Employed (ROCE) ROCE= NPBITCapitalEmployed

∗100

Net Profit (After Tax) 324470 373610Rs. In million Rs. In million

Share capital 1445 1445Reserves and surplus 141643 120381Secured loans 426 362Unsecured loans 4115 8693Capital Employed 147629 130881

ROCE 23% 28.73%

Return on Capital Employed shows the percentage of profit earned on the capital employed in the firm. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. MSIL earns nearly 23 percent on the capital employed which is good growth for the company but when compared to growth of 2010 the growth in the previous year was more by 5.73 percent Once of the reason could be unsecured loans has been redeemed by the company in that financial year.

2.Return on Equity (ROE) ROE= NPATEquity

*100

Net Profit (After Tax) 230710 254500Share Capital 1445 1445Reserves & Surplus 141643 120381

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Equity 143088 121826

ROE 16.12 20.89

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares. Also known as "return on net worth" (RONW).MSIL earning on equity is 16.12% which states the earning of Company on equity share holder capital after subtracting all the expenses and tax which is obligation for a company. The return on shareholders’ fund in 2011 was 16.2 percent which was low when compared with 2010 with the return of 20.89 percent.

3.Total Asset Turnover Ratio Total Asset Turnover Ratio= Net SalesTotal Assets

∗100

Net sales 3654370 3232240 Fixed assets 71705 55635

Investments 54392 73968Current assets, loans and advances 64904 39232Total Assets 191001 168835

Total Assets Turnover Ratio 1.913 1.914

This ratio is useful to determine the amount of sales that are generated from each rupee of assets. As noted above, companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. MSIL asset turnover ratio is lower which means the profit margin is higher for the firm in 2011 where profit margin was also bit higher in 2010 as compared to 2011.

4.Return of Total Assets (ROTA) ROA= NPATTotal Net Assets

∗100

Net Profit (After Tax) 230710 254500Total Assets 14722.70 13064.60

ROTA 0.22 0.29

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Changes in this measure from year to year show a company’s changing ability to generate profit on the assets under its control. Another way to calculate this return is: Asset turnover multiplied by operating profit margin. Company is generating about 22 percent of return on Asset Employed by them in 2011 where as in 2010 it is generating higher profit which is 29 percent.

5.Inventory Turnover Ratio

Inventory Turnover Ratio=COGS

Avg Inventory*100

Opening Stock 12276 9023

Materials 276723 241881

Purchases 12875 9050

- Closing Stock 14384 12088

COGS 287490 247866

Avg Inventory 302802.34 148412.72

133300 105555

Inventory Turnover Ratio 22 23.48

COGS = (opening stock + Purchases+ raw materials consumed – Closing stock) Average Holding of inventory= (opn stk+ clsg stk )/2

Inventory turnover ratio indicates how fast the stock is moving and generating sales. A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse. MSIL stock turnover ratio is 22 which mean they have good edge over sales. This will earn good profit. In 2010 inventory turnover was higher which means company generated higher sales in 2010.

6.Debtors Turnover Ratio DebtorsTurnover Ratio=Credit SalesAvg Debtors

∗100

Net sales 4041910 3218050Avg Debtors 89490 82070

Debtors turnover ratio 45.17 39.21

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A measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. In case of MSIL the Debtors turnovers ratio is high and major of its operating business is on case basis. It avoids the risk of bad debts for the firm. In 2010 company gained good debtors turn over which lead to quicker inflow of money into business as compared to 2011 which means clients in 2010 were able to enjoy credit period for 39 days where as in 2011 it was 45 days.

7.Creditors Turnover Ratio Creditors Turnover Ratio=Credit PurchasesAvgCreditors

∗100

2011 Rs. In Millions 2010 Rs. In MillionsCreditors 29531 23432Total Creditors 29531 23432Credit Purchases 12875 9050

Creditors Turnover Ratio 43.59 38.93

Creditor turnover ratio is also known as payables turnover ratio. It indicates the speed with which the payments are made to the trade creditors. It establishes relationship between net credit annual purchases and average accounts payables. Shorter average payment period or higher payable turnover ratio may indicate less period of credit enjoyed by the business it may be due to the fact that either business has better liquidity position; believe in availing cash discount and consequently enjoys better credit standing in the market or business credit rating among suppliers is not good and therefore they do not allow reasonable period of credit. MSIL accounts Payable Ratio is 43.59 which is more or less equal to Debtors turnover ratio which means outflow and inflow of cash is been maintained by the company. And credit period enjoyed by the company has increased from previous year from 39 days to 44 days.

C) Solvency and Margin ratios

Solvency ratios are extremely important metrics for analyzing the risk involved in investing in the company's shares. Higher debt to equity and low interest coverage are reflective of pressure in the company's business and hence investment should be avoided in such companies.

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1.Debt Equity Ratio Debt Equity Ratio= DebtEquity

Secured Loans 426 362Unsecured Loans 4115 8693Debt 4541 9055Share Capital 1445 1445Reserves & Surplus 141643 120381Equity 143088 121826

Debt Equity Ratio 0.022 0.067

A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, but ratio of MSIL is 0.022 which is equivalent to industry average in 2011 company has repaid its unsecure loan and trying to be debt free firm.

2.Interest Coverage RatioInterest Coverage Ratio= EBIT

Interest Expenses

EBIT 327070 373610Interest Expenses 2440 3350

Interest Coverage Ratio 134.05 111.53

A ratio that is used to assess a company's financial durability by examining whether it is at least profitably enough to pay off its interest expenses. A ratio greater than 1 indicates that the company has more than enough interest coverage to pay off its interest expenses. MSIL debt equity ratio is 134.05 it means it has sufficient earning of y-o-y basis to cover its debt expenses i.e. interest.

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2011 2010

3.Current Ratios

Sundry Debtors 9502 8494

Inventories 14384 12276

Cash and Bank Balance 25281 1627

Other Current Assets 1700 883

Loans and Advances 14037 15952

Current Asset 64904 39232

Sundry Creditors 29531 23432

Advances From Customers/Dealers 1781 2489

Book Overdraft 1220 675

Unclaimed dividend 5 4

Other Liabilities 1774 1124

Interest Accrued 9 43

Provision 5176 6223

Current Liabilities 41642 36483

Current Ratios 1.56 1.08

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. MSIL ratio is 1.56:1 which states company has Rs. 1.56 to pay a debt of Rs. 1. This ensures company’s liquidity better than 2010 which is Rs1.08 for debt of Rs. 1 Current

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Assets includes Current Assets and Loans and Advances while Current Liabilities are formed by all the Current Liabilities and Provisions.

4) Liquid (or Quick Ratio) = Quick Assets

Quick Liabilities

4.Quick Ratios or Liquid Ratio Quick Ratio= Quick Assets Quick Liabilities

Current Asset 64904 39232

Inventories 14384 12276

Current Liabilities 40422 35808

Quick Ratios 1.61 1.10

Quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. It is more conservative than the current ratio because it excludes inventory from current assets. MSIL current ratio is 1.61 which means it is liquid company and has more liquidity in hand to overcome short term liabilities for year 2011. Where as in 2010 company’s ability to pay short term liabilities was Rs.1.10 for liabilities of Rs. 1.

5.Absolute Liquid ratio Absolute Liquid ratio= Cash + Cash Equivalents+marketable Immediate Liabilities

Cash and Bank Balance 252810 16270

Immediate Liabilities 8680 5960

Cash Ratio 29.13 2.73

MSIL Absolute Liquid ratio is 29.13 times which is sufficient to meet its immediate obligations. For the year 2011 Immediate Liabilities include current liabilities it excludes provision and secured and unsecured liabilities. In 2010 Company’s Ability to pay its immediate liabilities from cash and cash equivalent is around 2.73 times.

6. EBITDA MarginEBITDAMargin= EBITDA

NET SALES∗100

Profit before Interest, Tax, Depreciation and Amortisation 41951 45457Net Sales 366,112 293,028

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EBITDA 11.46 15.51

A measurement of a company's operating profitability. EBITDA margin can provide an investor with a cleaner view of a company's core profitability. The higher the EBITDA margin, the less operating expenses eat into a company's bottom line, leading to a more profitable operation. MSIL EBITDA margin is 11.46% it means company is operating its business efficiently and has sufficient surplus to take care of other expenses but when compared to 2010 the efficiency of company was higher than 2011 which was 15.51 percent. Company was working more efficiently in 2010.

7. Net Profit MarginNet Profit Margin = Net Profit Sales

Net Profit 230710 254500Net Sales 3654370 2943710Net Profit Margin 6.31 8.65

A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every Rupee of sales a company actually keeps in earnings. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 6% profit margin means the company has a net income of Rs. 0.06 for each Rupee of sales in 2011. In 2010 Company was able to earn higher profit margin by 2.5% this means net income of company was Rs.0.08 on sale of Rs. 1.

D) Company’s Growth Position

Growth figures of companies, viz. Sales, Operating Profits and Profits after Tax are very important numbers reflecting the quality of a company's business. Growing businesses deserve better valuations and are often sought by investors

1) 3 Yr CAGR Sales (%) =

=(36543.70/18050.70)^1/3 -1

= 26.50

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3 year CAGR show 3 year annual compounded growth rate of sales of company. A higher percentage shows that company has grown aggressively over past 3 years in terms of sales which in case of MSIL it is it has grown at 26.50 % rate.

2) 3 yr CAGR Profit (%) =

= (2307.10/1789.90)^1/3

= 10.87

Growth rate of the company when compounded annually is around 10.87% which is not so impressive for MSIL which results company growth is lower than industry average which is around 18%.

3) 1 year Sales Growth (%) = (Ending Value/ Beginning Value)-1

= 36543.70/29437.10 – 1

=24.14

Sales increased by 24.14 percent on Y-o-Y basis which Is good indicator of growth for the company.

4) 1 yr EBITDA Growth (%) = (Ending Value/ Beginning Value) -1

= 4302/4577.50 -1

= -7%

1 year Growth of company is negative due to increase in manufacturing expenses. It is bad for company growth. It states y-o-y growth of company is negative where as industry growth is positive.

E) Share holding Pattern

Shareholding Pattern reflects the pattern of ownership in the company. A higher shareholding by promoters, FIIs signifies greater confidence in the company. 2011

Promoter Shareholding (%) 54.21FII Shareholding (%) 19.35DII Shareholding (%) 17.38Public Shareholding (%) 2.63Promoter Shg. Pledged (%) 0.00

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ShareHolding Pattern

Promoter ShareHoldingFII shareholdingDII ShareholdingPublic ShareHoldingPromoter Shg. Pledged

Long-term outlook positive with 15% volume CAGR over FY11-16 Short-term headwinds notwithstanding, Maruti Suzuki (MSIL) expects industry demand to be strong, with volumes doubling over the next five years to 4.5m-5m units and CAGR of 10-12% through the rest of the decade. However, MSIL anticipates growth to be nonlinear, impacted by macro-factors. It believes Suzuki Motor Corporation's (SMC) design philosophy of aggressive and sporty cars, K-series technology and the popularity of the diesel car will enable MSIL to maintain leadership. To supplement this, MSIL is developing R&D capability with SMC to offer a pipeline of new models. In FY11 MSIL's domestic volumes grew 30.1%, outperforming industry growth of 29%, and it increased its passenger vehicle market share by 30bp to 44.9%. Growth was broad based, driven by strong sales in rural and semi-urban markets. Sales in the top 10 cities, which were previously sluggish, grew well. MSIL launched model refreshes with alternative fuel and engine options, which were well received in the market.

MSIL's is expanding capacity at Manesar by adding two assembly lines of 0.25m units each (by Sep-11 and Sep-12) taking total capacity to 1.9m units reflecting in MSIL's preparedness by adding significant capacityBased on its positive volume outlook, MSIL is expanding capacity at Manesar with the second line of 0.25m units commencing operations by September 2011 and third line of 0.25m units by September 2012, taking total capacity to 1.9m units. Given a strong possibility of increasing small-car exports and the need to cut the risk of production disruptions, MSIL plans to set up a 1m unit plant in Gujarat. However, plans are still on the drawing board.

MSIL increased production to 1.27m units on an installed base of 1m units in FY11, with exit capacity of 1.4m units learning from FY11 capacity constraints.In FY11 robust passenger car demand took automobile OEMs by surprise. It posed a challenge of production capacity for MSIL and its vendors. MSIL increased production to 1.27m units on an installed base of 1m units by increasing manufacturing capability through better facility utilization, higher plant-model flexibility, in-house automation initiatives and ultra-modern flexi-lines. It simultaneously worked with its vendors, enabling them to increase output to match its requirements. March 2011 production was at an annualized rate of 1.4m units. In FY10 and FY11 MSIL commissioned phase three of the machining and

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casting facility for K-series engines, taking manufacturing capacity for these engines to over 0.78m. MSIL is expanding diesel capacity to meet increasing demand for diesel cars and is promoting CNG cars based on its superior i-GPI CNG technology Focus on alternative fuels to counter rising petrol pricesSales have risen of vehicles powered by alternative fuels due to rising petrol prices. The diesel proportion of volumes increased from 60% to over 80% among available models (~20% of total volumes). Considering capacity constraints for diesel engines, MSIL will increase its diesel-engine capacity (in the SPV - Suzuki Power train) from 0.25m to 0.29m units by September 2011. It is focusing on promoting CNG cars. Its i-GPI CNG technology delivers higher fuel efficiency than conventional CNG cars. Besides, the loss of power, compared with gasoline engine cars is negligible in the case of i-GPI, a shortcoming of conventional CNG technology. MSIL believes that once CNG availability improves in India, it could become a popular option due to its low cost and environment friendliness. MSIL also launched an LPG version of WagonR with SET (Smart Efficient Technology) and a diesel version of the SX4 with a super-turbo diesel engine.

CNG - Low running cost & environment friendly

Petrol LPG Diesel CNG0

0.51

1.52

2.53

3.54

Running Cost (INR/km)

Running Cost (INR/km)

CNG offers ~65% and 45% savings in running costs compared with petrol an diesel respectively

The impact of the EU slowdown was diluted by non-EU exports, whose share increased to ~55% in FY11 from ~20% in FY10. New export markets to dilute impact of EU slowdown.New export markets to dilute impact of EU slowdown.MSIL is focused on broad-basing its exports to dilute the impact of a slowdown in the EU.Algeria, Chile, the Netherlands, Indonesia and Sri Lanka were the top export markets inFY11, but MSIL also explored new markets like Hungary, Malaysia, Laos and Lebanon.The exports team worked closely with export distributors to implement sales enablers and shared best practices from the domestic market. This helped to increase export volumes in many markets. In FY11 exports de-grew 6.3% to 138,266 units due to a decline in European exports. The impact was diluted by non-EU exports, whose share increased to ~55% in FY11 from ~20% in FY10. In FY11 MSIL crossed 0.8m units of cumulative exports and cumulative export of A-Star crossed 0.2m in 24 months of exports. In FY11 MSIL exported the Alto K10, which was well received.

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About 40% of MSIL's sales outlets are in the rural format, with scaled-down investment, which enables viability on lower volumes, strengthening of sales and service network to increase reach.MSIL's focus is on widening its sales and service network, its key strength. In FY11, it added 191 sales outlets, totalling 993 outlets in 668 cities. It also increased its service outlets by 206 to 2,946 outlets in 1,395 cities. Over the past four years its rural sales contribution increased, contributing ~20% to its domestic sales. About 40% of MSIL's sales outlets are in the rural format, with scaled-down investment, which enables viability on lower volumes. MSIL's network services ~1.2m vehicles a month. With an increasing service load, MSIL turned its focus to imparting training and initiated tie-ups with 28 ITIs (Industrial Training Institutes) to increase technical staff at workshops.

In FY11, service, spares and accessories business grew ~25% to INR25.8b (~7% of net revenue) and realize potential of spares and servicing revenues.MSIL promoted the use of genuine parts among customers to enhance vehicle safety and performance. The company worked on standardization of parts infrastructure at sales and service outlets to ensure better availability and faster vehicle service. Dealer parts inventories were reduced, releasing working capital for the vehicle sales business. MSIL is also expanding its accessories in line with a changing consumer lifestyle and market trends.5-MSIL has a three-year roadmap beginning FY13 to reduce vendor imports by 6%-7% from 14-15% of revenue Targeting vendor localizations to cut forex exposure, costsTo reduce its exposure to the yen, MSIL increased its focus on localization of components imported by vendors. This will help to cut input costs. MSIL has a three-year roadmap beginning FY13 to reduce vendor imports by 600-700bp from 14-15% of revenue. Besides, MSIL is considering opportunities from FTAs and other such arrangements for source substitution of technologically complex items, which are being imported. In FY09 MSIL began to design and develop dies for critical sheet-metal parts and engine components. The development of in-house dies for body parts helped MSIL to save 25- 40% costs (compared with imported dies). This initiative helped MSIL to fulfil 30% of its requirements for sheet metal dies for new models and 100% of its requirement of engine parts like cylinder heads.

Maruti True Value enables customer retention by facilitating re-purchase of new cars and enhances dealers' profitability Maruti True Value: Pre-owned car business scales up well.MSIL's pre-owned car business sold 212,640 cars in FY11, posting 30% growth. It enables customer retention by facilitating re-purchase of new cars and enhances dealers' profitability through the sale of certified pre-owned cars under the brand Maruti True Value. With shortening car ownership cycles the residual value of a car is becoming an important determinant of cost of ownership.

MSIL Future Growth:-Maruti’s 2QFY12 performance is below estimates with EBITDA margins at 6.3% (v/s est. 8.4%) impacted by labour issues, higher discounts, adverse forex movement and advertising cost.

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Volumes de-grew by 20% Yearly basis (10% Quarterly basis) to 252,307 units, impacted by ~43 day strike at Manesar plant with volume loss of 28,539 units. Realizations improved by 1.1% Quarterly basis (4.8% Yearly basis) to INR298, 741/unit (v/s est. INR288, 865/unit), driven by higher accessories and spare sales but despite higher discounts.

Net revenues de-grew 14% Yearly basis to INR78.3b (v/s est. INR75.2b). EBITDA margins declined by 4.20% from previous year to 6.3%, impacted by adverse forex movement, negative operating leverage and higher discounts/advertising.

Discounts were higher by INR4,200/unit on quarterly basis to INR 13,500/unit. Royalty was higher by 1.20 percent on quarterly basis to 6% impacted by adverse Indian rupee movement, including INR500m pertaining to 1st quarter of financial year 2012 by .60%

Higher depreciation and lower treasury income restricted reported PAT to INR2.4b (v/s est INR3.88b) - de-growth of 60% on yearly basis.

We downgrade FY12 consolidated EPS estimates by ~20% to INR57.8 and FY13 by 6.6% to INR83.3, impacted by prolonged strike, poor demand and adverse INR movement. Our FY12 and FY13 estimates factors in for volume growth of -10% and 15%, and EBITDA margin of 7.8% and 9.4% respectively.

Overall Conclusion:- Maruti has underperformed the Sensex by 16% over the past 12 months as both demand and profitability were under pressure. And its trading on its low price further Decrease in value is not expected from these Price.

With resolution of labour issues at Manesar, it’s expected that Maruti will gradually recover and defend its market share despite competitive pressure. And it will further lead to increase in EBITDA margin and it will gain in business by moderating RM cost, higher operating leverage, reduction in imports and stability in forex.

Company has very high Potential to achieve its Targets and increase its Market share and Profit and outperform in the Sector as well as in the Economy.

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