Group 1 Section B

Corporate Finance Project

Plant Expansion of Maruti Suzuki India Ltd.

Submitted By
Arzoo Dalal 17P076
Aditya Chandrayan 17P064
Chirag Pawar 17P094
Anmol Puri 17P069
Jasleen Kaur 17P083
Sanket Verma 17P105
 Indian Economy Overview

India has retained its position as

India’s GDP increased 7.1 per the third largest startup base in
India has emerged as the fastest
cent in 2016-17 and is expected the world with over 4,750
growing major economy in the
to reach a growth rate of 7 per technology startups, with about
world
cent by September 2018 1,400 new start-ups being
founded in 2016

The M&A activity in India

India is expected to be the third
increased 53.3 per cent to US$ India's labour force is expected
largest consumer economy as its
77.6 billion in 2017 while private to touch 160-170 million by
consumption may triple to US$ 4
equity (PE) deals reached US$ 2020
trillion by 2025
24.4 billio

estimated to surpass USA to

Numerous foreign companies
become the second largest
are setting up their facilities in
economy in terms of purchasing
India on account of various
power parity (PPP) by the year
government initiatives like Make
2040, according to a report by
in India and Digital India
PricewaterhouseCoopers
Automobiles Industry Overview

The industry
The Indian accounts for
auto industry 7.1 per cent of
is one of the the country's
largest in the Gross
Domestic
world Product (GDP)

Two Wheelers The overall

segment with 80 Passenger
per cent market Vehicle (PV)
share owing to a
growing middle segment has
class and a young 14 per cent
population. market share.

. India's electric Indian market

vehicle (EV) is expected to
make India a
sales increased
leader in the
37.5 per cent to
2W and Four
22,000 units Wheeler (4W)
during FY 2015- market in the
16 world by 2020
Automobiles Industry Overview

25 million automobiles
. The sales of passenger
produced in FY17. Total
vehicles and two
production volume grew
wheelers grew by 5.22
at a CAGR of 5.56 per
per cent and 40.31 per
cent between FY12-17
cent year-on-year
and increased 11.27 per
respectively, in December
cent year-on-year in
2017
April-December 2017

Two-wheelers and
Over 67 per cent of
passenger vehicles
export volumes
dominate Indian auto
comprised of two-
market . Sales of two-
wheelers, followed by 22
wheelers are expected to
per cent for passenger
grow 8-10 per cent in
cars.
FY18.
Automobiles Industry Overview – Porter’s Five Forces
Investments:
• The industry has attracted Foreign Direct
Investment (FDI) worth US$ 17.91 billion
during the period April 2000 to September
2017

Road Ahead:
• Automobile industry is supported by
various factors such as availability of
skilled labour at low cost, robust R&D
centres and low cost steel production

• The Indian automotive aftermarket is

estimated to grow at around 10-15 per
cent to reach US$ 16.5 billion by 2021 from
around US$ 7 billion in 2016

• It has the potential to generate up to US$

300 billion in annual revenue by 2026,
create 65 million additional jobs and
contribute over 12 per cent to India’s Gross
Domestic Product
 Maruti Suzuki Company Overview
• Maruti Suzuki India Limited manufactures, purchases, and sells motor vehicles, components, and spare parts primarily in India, rest
of Asia, Europe, Africa, Oceania, and Latin America.

• It offers hatchbacks, sedans, vans, multi utility vehicles, and sport utility vehicles. As of March 2017, it had a market share of 47.4%
of the Indian passenger car market.

• Maruti Suzuki manufactures and sells popular cars such as the Ciaz, Ertiga, Wagon R, Alto, Swift, Celerio, Swift Dzire, Baleno and
Baleno RS, Omni,Alto 800,SX4,Eeco, Ignis. The company is headquartered at New Delhi. In February 2012, the company sold its ten
millionth vehicle in India

• Maruti Suzuki has three manufacturing facilities in India. All manufacturing facilities have a combined production capacity of
1,500,000 vehicles annually.

• Maruti Suzuki has 1,820 sales outlets across 1,471 cities in India. The company aims to double its sales network to 4,000 outlets by
2020. It has 3,145 service stations across 1,506 cities throughout India.

• Maruti’s dealership network is larger than that of Hyundai, Mahindra, Honda, Tata, Toyota and Ford combined. Service is a major
revenue generator of the company. Most of the service stations are managed on franchise basis, where Maruti Suzuki trains the
local staff. Other automobile companies have not been able to match this benchmark set by Maruti Suzuki.

• In 2015 Maruti Suzuki launched NEXA, a new dealership format for its premium cars.
 Maruti Suzuki Financials
Year End 2017 2016 2015 Margin Ratios
Core EBITDA Margin(%) 13.26 13.56 12.09
Operational & Financial Ratios
EBIT Margin(%) 12.99 11.59 9.27
Earnings Per Share (Rs) 248.67 181.99 126.07 Pre Tax Margin(%) 12.87 11.47 8.88

CEPS(Rs) 329.21 271.53 208.8 PAT Margin (%) 9.49 8.26 6.76
Cash Profit Margin (%) 12.86 12.6 11.25
Adjusted EPS (Rs.) 248.67 181.99 126.07

Performance Ratios
DPS(Rs) 75 35 25
ROA (%) 15.5 13.93 11.49
Adjusted DPS(Rs) 75 35 25 ROE (%) 21.68 19.58 16.55

Book NAV/Share(Rs) 1227.65 1013.77 805.25 ROCE (%) 29.37 27.04 21.42
Asset Turnover(x) 1.63 1.69 1.7
Adjusted Book Value (Rs) 1227.65 1013.77 805.25
Inventory Turnover(x) 24.18 22.15 24.87

Tax Rate(%) 26.28 27.96 23.82 Debtors Turnover(x) 61.22 52.77 42.57
Sales/Fixed Asset(x) 4.54 3.08 2.24
Dividend Pay Out Ratio(%) 30.16 19.23 19.83
Working Capital/Sales(x) -17.42 -21.05 -195.99

Efficiency Ratios
Fixed Capital/Sales(x) 0.22 0.32 0.45
Receivable days 5.96 6.92 8.57
Inventory Days 15.1 16.48 14.68
Payable days 48.86 47.41 42.15
 Project Overview

Proposed expansion Planned in 4 phases

will increase total with each phase
production capacity contributing
from 1.5 million 250,000 vehicles
vehicles to 2.5 production capacity
million vehicles once completed

Reduce waiting period of

popular models such as Baleno
and compact SUV Vitara
Brezza
 Project Overview - Facts

The project will be

implemented in 4
phases. 1st assembly
line will be
The cost of
completed in 2018
expansion is Out of the capital
with production Long-Term
The current estimated at 8,500 invested, 30% has
The capacity starting in 2019. 2nd Borrowings of
capacity of Maruti crore which will be been borrowed as GST Rate is 28% for
expansion proposed assembly line will be Maruti Suzuki is 0,
Suzuki Plant is 1.5 used to create 4 debt and the rest automobiles
is 1 million vehicles completed in 2022 hence cost of debt is
millions vehicles assembly lines, each 70% has been raised
with production 0.
with capacity of as Equity.
starting in 2023. 2nd
250,000
assembly line will be
completed in 2026
with production
starting in 2027.
 Project Overview - Assumptions
Net Sales: Calculated the average % vehicles sold
as of capacity and its standard deviation for 10 Interest Rate: Calculated average of the interest
years; Calculated average vehicles sold and rates for competitors
average net sales achieved for past 10 years

Line Items: Except depreciation, Interest Expense

and Provision for Tax, we have calculated average Net Working Capital:We used the 10-year-
% of sales for the past 10 years and then used this average of Maruti Suzuki to calculate Net Working
% of sales along with an inflation rate of 5% every Capital
year to estimate line items for the next 30 years

Beta, Risk-Free Rate and Market Premium: we

Depreciation: To calculate depreciation, we have have the 5-year stock movement of Maruti Suzuki
used average % depreciation as of Plants, property Ltd and Nift-50. We have taken geometric mean to
and equipment using past 5 years of data. calculate Market Return. For risk free rate we have
used the RBI 10-Year Government Securities Yield
 Project Overview - Assumptions
Average % Sales as of capacity based on last 10 years 67.30%
Standard Deviation of Average % Sales as of capacity based on last 10 years 16.2%

Average Net Sales for past 10 years 53.06(‘000 crores)

Average Increase/Decrease in Stock as % of Sales based on last 5 years -0.27%
Average Raw Materials Consumed as % of Sales based on last 5 years 70.69%
Average Power & Fuel Cost as % of Sales based on last 5 years 1.17%
Average Employee Cost as % of Sales based on last 5 years 3.19%
Average Other Manufacturing Expense as % of Sales based on last 5 years 6.29%
Average General and Administrative Expenses as % of Sales based on last 5 years 0.36%

Average Selling and Distribution Expense as % of Sales based on last 5 years 2.86%

Average Miscellaneous Expense as % of Sales based on last 5 years 2.67%

Depreciation Rate based on last 5 years 20.38%
Interest Rate based on competitor’ data 11%
Minimum Cash Balance as % of Sales 2%
Days Sales Outstanding 8.54125
Inventory Turnover 14.0025
Days Payable Outstanding 38.72375
Terminal Value 4%
 Project Overview - Results
Sensitivity Analysis – NPV (‘000 crores)
Beta 9.75% Terminal
Discount
Risk Free Rate 7.64% Growth 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.50% 6.00% 6.50%
Factor
Rate

Market Premium 9% 15.81% NPV 3.02 3.03 3.04 3.04 3.05 3.06 3.08 3.09 3.10 3.12 3.13 3.15
Weight of Debt 0%
Weight of Equity 100% 13% NPV 5.01 5.02 5.04 5.06 5.08 5.10 5.13 5.15 5.18 5.21 5.25 5.29
WACC 15.8%
IRR 26% 13.500% NPV 4.58 4.60 4.61 4.63 4.65 4.67 4.69 4.71 4.73 4.76 4.79 4.83

Payback Period 6.2 years

14.000% NPV 4.19 4.20 4.22 4.23 4.25 4.26 4.28 4.30 4.33 4.35 4.38 4.41
NPV 3.08(‘000 crores)
14.500% NPV 3.83 3.84 3.85 3.87 3.88 3.90 3.91 3.93 3.95 3.97 3.99 4.02

15.000% NPV 3.50 3.51 3.52 3.53 3.54 3.56 3.57 3.59 3.60 3.62 3.64 3.67

15.500% NPV 3.20 3.20 3.21 3.22 3.23 3.25 3.26 3.27 3.29 3.30 3.32 3.34

16.000% NPV 2.91 2.92 2.93 2.94 2.95 2.96 2.97 2.98 2.99 3.01 3.02 3.04

16.500% NPV 2.65 2.66 2.67 2.68 2.68 2.69 2.70 2.71 2.72 2.74 2.75 2.77

17.000% NPV 2.41 2.42 2.42 2.43 2.44 2.45 2.45 2.46 2.47 2.48 2.50 2.51
 Our Learnings

 We understood how to forecast financial statements and the challenges involved in them based on % of Sales method.

 We were able to implement all the concepts taught in class

 Beta Estimation, WACC, NPV, Working Capital Estimation, Free Cash Flow estimation, Degree of Leverage, IRR,
Payback Period, Sensitivity Analysis and Dividend Policy

 Since, we didn’t have data for many line items such as Interest Expense, Depreciation etc, hence we learnt how to use
competitor’s and industry’s data to estimate them

 We also learnt how dividend payout ratios affect cash flows and market price
 References

• Indian Economy Overview - https://www.ibef.org/economy/indian-economy-overview

• Automobile Industry Overview - https://www.ibef.org/industry/india-automobiles.aspx
• Maruti Suzuki Company Overview –
https://marutistoragenew.blob.core.windows.net/msilintiwebpdf/Maruti_AR2016-17_Dlx_Medium.pdf
• Financial Statements – http://www.aceanalyser.com/Analyser.aspx?MenuTab=C;
http://www.moneycontrol.com/financials/maruti%20suzuki/consolidated-balance-sheetVI/MS24
• Competitor’s Data - http://www.moneycontrol.com/financials/tata motors/consolidated-balance-sheetVI/TM03;