Sanjay Shetty Intership Report

ANALYSIS OF AUTO & AUTO ANCILLARY SECTOR
N L DALMIA INSTITUTE OF MANAGE MENT STUDIES AND RESEARCH
A REPORT ON
“ANALYSIS OF AUTO & AUTO ANCILLARY SECTOR”
SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF

“POST GRADUATE DIPLOMA IN BUISNESS MANAGEMENT”
UNDER THE GUIDANCE OF

MR. SIDDHARTH PUROHIT
RESEARCH ANALYST
RESEARCH DEPARTMENT
LATIN MANHARLAL SECURITIES
SUBMITTED BY
SANJAY.SHETTY
P.G.D.B.M-FINANCE
SESSION 2009-10
N.L.DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

MIRA ROAD (E), MUMBAI-401104
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ACKNOWLEDGEMENT
Working on the Project with the LATIN MANHARLAL SECURITIES has been a wonderful
experience over a period of the last two months. It was a great privilege working with the Firm
and getting a first hand knowledge of some of the functions performed by them.
I am grateful to Prof. P. L. Arya, Director, N L Dalmia Institute of Management Studies and

Research for giving me this opportunity.
I acknowledge with special thanks the help of my project guide Mr. SIDDHARTH PUROHIT
for his valuable guidance and assisting me in completion of the project. I also thank him for
sharing lots of his knowledge and ideas, which were useful for my project.
I am thankful to all the officials of LATIN MANHARLAL SECURITIES, who were forthcoming
and enthusiastic to answer all my queries. I would like to take this opportunity to thank them for
their kind cooperation and patience.
SANJAY JAYA SHETTY

N. L. Dalmia Institue of Management Studies and Research
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EXECUTIVE SUMMARY
This project gives an in-depth analysis and understanding of the current status of the Auto &
Auto Ancillary Sector in the country with a focus on the performances of major players like
Maruti Suzuki, M & M, Bharat Forge Ltd.,Sona Koyo.
The report gives a brief overview of the global scenario in the Auto Industry and also explains
the evolution of Indian automobile and auto ancillary industry. Over the last decade and a
half automobile industry has witnessed major changes and is now among the fastest
growing sectors in the Indian economy. Automobile Sector holds tremendous growth
potential with production, domestic performance and the exports showing strong growth.
The Indian automobile success story has paved the way for foreign investments, making India
an attractive destination for global players like Japanese, Korean, European, and American.
The Indian automotive component industry has grown significantly in size over the last 10
years, supported by a robust economic growth, strong automobile demand, and the cost
advantage offered by Indian manufacturers.
The report gives a brief overview of the impact of union budget 2009-10 on these two sectors as
well as the emergence of low-cost family cars such as Nano.
It also tells about the production trends, domestic sales trends and export sales trends of auto
Industry.
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INDEX
Sr. no Topic Page No.

1 Evolution Of Indian Automobile Industry 5
2 Introduction- 7-19
A. Indian Auto Sector 8-14
B. Indian Auto Ancillary Sector 15-19
3. Impact Of Budget 20-24
4. Trends- Production, Domestic Sales, Exports 25-28
5. Valuation 29-59
A. Maruti Suzuki India Ltd. 29-38
B. Mahindra and Mahindra 39-46
C. Bharat Forge Ltd. 47-52
D. Sona Koyo Steering Systems Ltd. 53-59
6 Conclusion 60
7 Bibliography 62
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EVOLUTION OF INDIAN AUTOMOBILE INDUSTRY

While the genesis of Indian Automotive Industry can be traced to the 1940s, distinct growth
decades started in the 1970s.
Between 1970 and 1984 cars were considered a luxury product; manufacturing was licensed,
expansion was restricted; there were quantitative restriction (QR) on imports and a tariff
structure designed to restrict the market. The market was dominated by six manufacturers -
Telco (now Tata Motors), Ashok Leyland, Mahindra &Mahindra, Hindustan Motors, Premier
Automobiles and Bajaj Auto. The decade of 1985 to 1995 saw the entry of Maruti Udyog in the
passenger car segment and Japanese manufacturers in the two wheelers and light commercial
vehicle segments. Economic liberalization, started in 1991, led to the delicensing of the
passenger car segment in 1993. QR on imports continued. This decade witnessed the emergence
of Hero Honda as a major player in the two-wheeler segment and Maruti Udyog as the market
leader in the passenger car segment
Between 1995 and 2000 several international players entered the market. Advanced technology
was introduced to meet competitive pressures and environmental and safety imperatives.
Automobile companies started investing in service network to support
maintenance of on-road vehicles. Auto financing started emerging as an important driver for
demand.
Starting in 2000, several landmark policy changes like removal of quantitative restrictions (QR)
and 100 percent FDI through automatic route were introduced. Indigenously developed (Made
in India) Vehicles were introduced in the domestic market and exports were given a thrust. Auto
companies started collaboration with financial firms to provide auto financing and insurance
services to customers. Manufacturers also introduced systems to improve capacity utilization
and adopted quality and environmental management systems.
In 1953, the Tariff Commission in its report to Government had stressed the need for a balanced
and integrated development of the Automotive Industry by promoting the emergence of a strong
auto-component sector. As a result of this recommendation the leading entrepreneurs were
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invited by Government to establish an auto component manufacturing industry. The Auto

component Industry manufactures a wide range of products in India for both domestic
consumption and exports.
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Introduction
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INTRODUCTION- INDIAN AUTO SECTOR

In India there are 100 people per vehicle, while this figure is 82 in China. It is expected that
Indian automobile industry will achieve mass motorization status by 2014.
Indian Automobile Industry

 Largest three wheeler market in the world
 2nd largest two wheeler market in the world
 4th largest passenger vehicle market in Asia
 4th largest tractor market in the world
 11th largest passenger cars producing countries in the world
 Fifth-largest bus and truck market in the world (by volume)
 Envisaged to be the 7th largest automobile market by 2016, and world's 3rd largest by
2030 (behind only China and the US)
The Indian automotive industry has witnessed an unprecedented boom in recent years, owing to
the improvement in living standards of the middle class, and a significant increase in their
disposable incomes. The size of the Indian automotive industry is estimated between US$
120.09 billion and US$ 155.12 billion by 2016. The industry is expected to touch the 10 million
mark, to which the Commercial Vehicle Segment will be a major contributor. Industry experts
peg the Indian Automobile sales growth at a compounded annual growth rate (CAGR) of 9.5
per cent - 13008 million vehicles - by 2010.
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The cumulative production data for April 2008 – March 2009 shows a growth of 2.96 percent
over April 2007 – March 2008. Overall production in March 2009 grew by 5.17 percent over
the same month last year.
In 2008-09, production of Passenger Vehicles segment and Two Wheelers segment recorded
single digit growth with the growth rates being 3.44 percent and 4.88 percent respectively.
Three Wheelers segment registered marginal growth in production at 0.07 percent. However,
production of Commercial Vehicles fell drastically at (-) 24.02 percent.
Domestic Sales
Passenger Vehicles segment registered growth with 0.13 percent growth during 2008-09 over
2007-08. Passenger Cars and Multi Purpose Vehicles grew by 1.31 percent and 5.69 percent
respectively during this period. However, sales of Utility Vehicles fell by (-) 7.94 percent. The
sales in March 2009 for passenger vehicles declined at (-) 1.15 percent over March 2008.
The sales of Commercial Vehicles declined by (-) 21.69 percent during 2008-09 over same
period last year. Medium & Heavy Commercial Vehicles declined by (-) 33.16 percent and
Light Commercial Vehicles recorded de-growth at (-) 7.10 percent. In March 2009, Commercial
vehicles sales fell by 26.22 percent compared to March 2008. M&HCV fell by 43.40 percent
and LCV fell by 0.17 percent. Also, buses (M&HCV) grew marginally at 0.57 percent and
smaller buses declined by 6.72 percent.
Three Wheelers sales registered a decline of (-) 4.13 percent in 2008-09. While Passenger
Carriers grew by 14.36 percent during 2008-09, Goods Carriers declined at (-) 37.52 percent. In
March 2009, three wheelers sales grew by 11.40 percent over same month last year.
Two Wheelers registered marginal growth of 2.60 percent during 2008-09. Mopeds and
Scooters grew by 4.22 percent and 9.11 percent. Motorcycles also grew marginally at 1.16
percent. Electric two wheelers segment grew by 49.48 percent. Two Wheelers sales grew at a
growth rate of 3.65 percent in March 2009 over same month last year.
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Exports
The year 2008-09 saw automobile exports registering a growth of 23.61 percent with all
segments except Commercial Vehicles, registering positive growth.
Passenger Vehicles and Two Wheelers segment grew by 53.73 percent and 22.50 percent
respectively. Three Wheelers exports grew by 4.85 percent. However, exports of Commercial
Vehicles declined at (-) 27.67 percent during this period.
 Maruti Suzuki India, the country’s biggest car maker, recorded its highest ever annual
sales (7,92,167 vehicles), registering a growth of 3.57 per cent in 2008-09 over 2007-08
 M&M’s YTD domestic volumes for the period upto March 2009 stand at 220215 units,
as against 218977 units for the same period last year.
 On an annual basis, cumulative sales of HSCI (Honda Siel Car India) in financial year
2008-09 dropped 16.53 per cent at 52,420 units compared to 62,802 units sold in
financial year April 2007-March 2008.
 HMIL’s total sales for March, 2009 stood at 46,160 units against 47,001 units in March,
2008. The domestic market accounted for 24,754 units compared to 29,401 units for the
same month last year while the exports totaled 21,406 units in March, 2009 against
17,600 units of March, 2008, a growth rate of 14.06 per cent.
 Tata motors cumulative domestic sales of commercial vehicles dropped to 265,012
units, in the financial year April 2008-March 2009, from 313,360 units in financial year
April 2007-March 2008, registering a decline of 15 per cent.
 , Hero Honda, the largest manufacturer of two-wheelers in the world, registered a
growth of 10% selling 3,53,342 units in March 2009 compared to 3,20,594 units in
March
 TVS Motor Company also did well clocking 4% growth in sales during March 2009.
The company sold 1,21,988 units compared to 1,17,045 units in the same month, in
2008.
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FDI in the automobile sector
The Indian automobile success story has paved the way for foreign investments, making India
an attractive destination for global players like Japanese, Korean, European, and American
OEMs which made a foray in the Indian market and added over 1 million four-wheelers during
2005-06. International carmakers are now shifting focus to India, from China, to establish their
manufacturing plants and units:
 Suzuki Motor Corp will make India a production hub and build a new 'world car' in the
country, and is beefing up its vehicle line-up and dealer network in a bid to retain its
market-share of at least 50 per cent. With a capacity to make 1 million units by 2010-11,
it is investing US$ 1.75 billion in R&D. MSI MD SHINZO NAKASHINI has said they
would increase the capacity from 9lakh to 12 Lakh by investing 1800cr .This investment
is being made in addition to Rs 9000cr to set up new R&D center and the new engine
plant touted as the largest facility outside JAPAN to develop new cars and to expand the
manesar plant.
 GM Plans to invest around 1Billion in India even as it is close to commissioning its second
Greenfield plant in the country next month at Talegaon in Maharashtra with an outlay of $300
million. The company has also zeroed in on a $200-million power train and transmission system
assembly line GM has invested $300 million in its Gujarat plant where the existing facility of
60,000 units had been increased to 85,000 units
 HMIL is also looking at exporting 50 per cent of its car production in India. By 2008,
the company plans to produce 6,00,000 units at its Chennai plant, half of which will be
exported. India will account for 30 per cent of its international production by next year.
 Harley Davidson may finally hit the Indian roads. In an effort to ease import of all bikes
with over 800cc engine capacity, as India has now allowed import of all such bikes
which have been tested and approved (read homologated) by any certified agency from
the European Union.
 Yamaha Motor India has already launched its two super bikes - 1,000 cc YZF R1 and
1,680 cc MT01 - in India.
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 Audi AG has started production on its midsize A6 luxury sedan, with the aim of
producing more than 2,000 cars a year by 2015 at the plant in Aurangabad, Maharashtra.
It will invest US$ 29.37 million by 2015 in India, and also begin assembly of its A4
model aiming for a bigger share of the fast-growing market.
 Volkswagen may make India a base to make cars exclusively for the world market. It is
setting up a US$ 601.6 million production plant in Pune to manufacture B/B Plus
segment car specifically designed for India, and expects to sell about 4,00,000 cars in 10
years in India.
 SkodaAuto plans to make India its regional manufacturing hub. It will start producing
cars in India by 2010 with a manufacturing target of 50,000 units.
 Piaggio will step up production in India and launch scooters in a market that is set to
play a greater role in the Italian firm's global operations. It has also entered a new
agreement with India's Greaves Cotton for diesel engines for three-wheelers.
 Fiat India is looking to invest US$ 585.78 million more at its existing Ranjangaon
facility in Pune to ramp up its capacity, this investment will take its overall investment
in Pune to US$ 1.005 billion from US$ 420.09 million.
THE NANO REVOLUTION
Tata Motors has introduced the global auto industry to a whole new consumer segment, with the
'Nano' also shedding light on how to leverage emerging markets as innovation hubs. The Nano
promises to be a potentially revolutionary innovation, delivering a car to huge segments of the
market hitherto unable to afford one. This Tata small car is a landmark event in India as well as
the world's automobile history. The Nano has the potential to become the largest selling model
in India. The first truly original automobile product from India, Nano is powered by a 623 cc,
four-speed manual transmission engine. Despite the small size it is a modern car capable of
meeting Bharat-III and Euro-4 emission norms and safety standards
MERGER AND ACQUISTION AND PE DEALS
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Tata Motors' acquisition of Jaguar-Land Rover inflated the mergers & acquisition basket of the
domestic automobile industry during January-June 2008, with the sector witnessing fewer, but
high value deals. The number of M&A deals struck by the domestic automobile companies
stood at nine, with a combined value at $2,390 million. This is almost half the number of deals
that were clocked in the same period last year. In 2007, the sector witnessed 18 deals worth
$515.51 million, according to a Grant Thornton report. While Tata Motors emerged the front
runner in terms of value, Mahindra & Mahindra with its three Italian acquisitions - G R Grafica
Ricerca, Metalcastello and Engines Engineering - scored higher in number of deals. J K Tyres
and Industries’ acquisition of Mexican company, Tornel for $67 million, Daimler AG’s 26 per
cent stake in Sutlej Motors and Carburettors increasing its stake in the same proportion in
UCAL Fuel System boosted the M&A kitty in January-June 2008 “There has been a shift in the
automotive industry’s strategy from pursuing the organic route to globe trotting for acquisitions
to penetrate the newer market and leverage its cost advantage,” said Ms C.G. Srividya, Partner,
Specialist Advisory Services, Grant Thornton
PE Deals
A similar trend persisted in private equity deals, with the first six months of 2008 seeing four
deals for $ 221 million as against an equal number of deals at $ 75 million in the same period
last year.
The prominent PE deals during the first half of 2008 include Goldman Sach's arm, Golbot
Holding 3.68 per cent stake in M&M for $175 million, AIG Global Investment's $20 million in
Uniparts, AIG's 14.50 per cent in Kinetic Engineering and Phi Advisors' 10 per cent in M&M's
subsidiary First Choice.
Testing and Certification
Indian expertise in the automotive sector is coming handy for global car companies like
Japanese manufacturers Nissan, Toyota and Honda and the German luxury car makers like
BMW and Volkswagen to test their vehicle performance and get international certification.
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These car makers are negotiating with the National Automotive Testing and R&D Infrastructure
Project (NATRIP) to take on the rigorous robustness and performance tests of their future
vehicles intended for both overseas as well as the Indian market.
Funded by the Union Government, NATRIP's centre at Manesar, in Haryana, began operations
recently to carry out homologation tests. It also has centres at Oragadam near Chennai, and
Vehicle Research & Development Establishment near Pune. Going forward, the organisation
plans to open three more centres in Silchar, Rai Bareily and Indore.
Global car makers such as BMW, Nissan, Toyota, and Honda are in talks with NATRIP, to avail
themselves of its facilities for testing the durability and performance of their vehicles for the
global market.
Auto-makers like Maruti Suzuki India and Hyundai Motors India, which together produce over
70 per cent of the cars manufactured in India, have also shown keen interest to get their vehicles
tested and homologated.
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INTRODUCTION- INDIAN AUTO ANCILLARY SECTOR

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The Indian auto ancillary industry manufactures a wide range of parts including castings,
forging, finished and semi-finished components, assemblies and subassemblies. Its
development has been aided by the arrival of OEMs to India in the 1990s and the increasing
exposure of Indian companies to international competition and best practices.
India's automotive components industry is being urged by the government to partner with
overseas firms with the aim of making India a platform for outsourcing as well as a global R&D
hub. As the Indian vehicle production industry has grown, so has the domestic supplier industry.
But the global auto industry's search for lower cost and more international outsourcing has led
to a sharp growth in component output and exports in recent years.
Factors such as superior engineering skills, modest domestic market growth, the sophistication
of its IT industry and increasing free trade agreements in addition to low cost, are expected to
boost India's auto-component sector growth over other countries in the environment of off-
shoring to low-cost countries.
The Indian auto parts industry is significantly fragmented with a large number of players having
a turnover of an US$10 million per year. The industry directly employs about 2,50,000 people
and has an annual turnover over US$ 56.3 billion.
 Estimated market size - US$ 10 bn
 Estimated market size by 2012 - US$ 17 bn
 Projected CAGR - 15%
Nearly two-thirds of the auto component production is consumed directly by Original

Equipment Manufacturers (OEMs).
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The Indian auto components industry has an estimated production of US$ 10 billion. The
spiraling demand from domestic and international auto companies has seen this sector emerging
as one of the fastest growing manufacturing sectors in India and globally.
The Auto components industry is predominantly divided into six segments: (with production
range)
 Electrical Parts - 9%
 Equipments - 10%
 Suspension & Braking Parts - 12%
 Body & Chassis - 12%
 Drive Transmission & Steering Parts - 19%
 Engine Parts - 31%
 Others - 7%
According to the ACMA (Auto Components Manufacturers Association of India), the sector is
set to grow at a CAGR of 15 per cent till fiscal 2012. This sector is now working towards an
open market. A large number of joint ventures with leading global manufacturers have already
been set up in the auto-components sector. And with India estimated to have the potential to
become one of the top five auto component economies by 2025, the pace is expected to pick up
even further.
Moreover the automotive components industry is perceived as a lucrative sector with

tremendous potential for foreign direct investments. The year 2006-07 saw the auto components
sector soar with exports touching the US$ 3 billion mark and investments continuing unabated.
The ACMA estimates the global sourcing of components from the country to double from US$
2.95 billion to US$ 5.9 billion in 2008-09, and touch US$ 20 billion in seven years owing to the
huge and growing markets both within India, and overseas.
Destination India
The ACMA-McKinsey Vision 2015 document forecasts the potential for the Indian auto
component industry to be US$ 40-45 billion by 2015. Investments and exports in this segment
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are witnessing continuous growth. Global automobile manufactures see India as a

manufacturing hub for auto components and are rapidly ramping up the value of components
they source from India due to:
 The cost competitiveness in terms of labor and raw material

 Its established manufacturing base
 Fine quality of components manufactured in India (used as original components for
vehicles made by General Motors, Mercedes, IVECO and Daewoo among others).
As a result Japanese and British component manufacturers are seeking joint-ventures in India.
Delphi, the auto component division of General Motors is planning to set up plants in India.
Robert Bosch, auto parts maker of Germany has relocated manufacture of certain products to
MICO, India. Crosslink International Wheels, Malaysia's leading automobile security provider
has set up its manufacturing unit at Baddi to make India the export hub for the SAARC region.
Foreign auto makers, including Ford Motor Co., General Motors Corp., Honda Motor Co.,
Toyota Motor Corp., DaimlerChrysler AG and Hyundai Motor Co., are all looking to increase
their presence in India and use it as an export hub.
The Indian automotive export industry has made a global mark. Both the automobile industry
along with the component industry is contributing to India’s overall export effort. According to
ACMA, more than a third (36 per cent) of Indian auto component exports head for Europe, with
North America featuring
a close second at 26 per cent.
Foreign Investments
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in
India are 25 to 30 percent lower than their western counterparts. Seeing the growing popularity
of India in the automotive component sector (a whopping US$ 530 million in terms of foreign
direct investment), the Investment Commission has set a target of attracting foreign investment
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worth US$ 5 billion for the next five years to increase India's share in the global auto
components market from the existing 0.4 per cent to 3-4 per cent.
 Chrysler is setting up a local sourcing unit in Chennai and is expected to start sourcing
for its global plant by next year.
 Palfinger AG, the Austrian hydraulic lifting, loading and handling systems
manufacturer, has joined hands with Western Auto LLC, Dubai, the vehicle dealership
arm of ETA Star group, have invested US$ 1.7 million to set base in India.
 IFCI Venture Capital Funds Limited is launching a private equity fund in association
with German consultancy UBF-B worth US$ 144.67 million focussed entirely on
domestic automotive components industry.
 Auto parts maker Robert Bosch of Germany will invest US$ 201.4 million in its Indian
subsidiaries over the next two years.
 Japan’s Omron Corporation, the leading manufacturers of automation components has
set up the company's first production base on the subcontinent.
 Swiss company Rieter Automotive India aims to increase its production capacity in
India and extend its product range to heat shields
 Fiat is setting up a group purchasing office in India as part of its strategy to cut costs by
buying more components from low-cost centres such as India and China.
 Daimler, Hero joint venture will invest US$ 1.1 billion in 5 years to manufacture light
and medium CVs initially, and heavy-duty vehicles by 2012.
Domestic Investments
The market is so large and diverse that a large number of players can be absorbed to
accommodate buyer needs. The sector not only has global players looking to invest and expand
but leading domestic component companies are also pumping in huge sums into expanding
operations:
 Bharat Forge invested US$ 135 million in its Pune plant for increasing domestic
capacity to 240,000 tonnes.
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 Amtek Auto is expanding capacity of its castings unit to 70,000 tonnes per annum (tpa)
from 30,000 tpa.
 Sona Koyo plans to have capacity of three million pieces of manual steering gears,
500,000 units of hydraulic power steering and 250,000 units of electronic power
steering (EPS), apart from doubling the capacity of steering columns from one million
parts.
 Rico Auto is investing US$ 23 million to expand capacity.
 Apollo Tyres plans to invest US$ 469.58 million in the next three years to increase its
production capacity both in India and abroad.
 Kesoram Industries is planning to set up three new tyre units in the northern state of
Uttaranchal to take its tyre-making capacity to 734 metric tonnes per day.
With such accelerating interest by both domestic and foreign investors, the Indian auto
component industry is set to growth exponentially.
Market Advantage
 Fast paced urbanisation to rise from 28% to 40% by 2020.
 Upward migration of household income levels.
 Middle class expanding by 30-40 million every year.
 Growing working population.
IMPACT OF BUDGET
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The underlying theme of Union Budget 2008-2009 has been to address three key macro
economic factors that have a bearing on the Indian economy.
The first is emphasis on consumption-driven growth - the budget seeks to encourage
consumption by raising consumer's disposable income. The second is the policy on inclusive
growth, keeping in line with the allocations that have been made to welfare schemes. The third
key issue is the attempt to address farmer's woes. Of these three factors, proposals aiming to
increase the consumption expenditure of consumers and the betterment of the farming
community have a direct and indirect impact on the automotive sector.
Pre-budget Demands of the Automotive Industry
The Indian Automotive Industry was going through a rough period as the demand for
automobiles were diminishing. Consequently, the pre-budget demands of the Automotive
Industry were like a catalyst to the soaring demand for automobiles in the country.
 The adoption of a uniform excise structure of 16 percent across all passenger cars and
utility vehicles
 The reduction of excise duty on two-wheelers and three-wheelers from 16 percent to
8 percent to offset declining sales
 The provision of benefits for the development of hybrid technology
 The offer of liberal credit to the agricultural sector to encourage the purchase of
tractors
Budget Proposals Directly Impacting the Indian Automotive Industry
Budget proposals on the Indian Automotive Industry give a clear picture of creating a gap
between the small and big cars. However, budget failed to concentrate on exports and an excise
duty cut for big cars could have been considered.
 Excise duty on small cars reduced to 14 percent

 Excise cut on two and three wheelers to 12 percent
 Excise duty on buses and chassis cut from 16 percent to 12 percent
 Excise duty on hybrid cars cut from 24 percent to 14percent
 Custom duty on steel reduced from 5 percent to nil
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Automotive Industry: Positive Impact of the Budget on the Indian Automotive Industry (India),
2008-2009
Timely Relief for Tapering Sales
Two-wheeler sales have reduced over the last nine months, by 12 percent year on year. This is
despite the fact that macro economic factors such as economic growth and consumer spending
remained more or less conducive. A slowdown was also witnessed in the
commercial_vehicle segment. The budget has provided the much-needed impetus at the right
time, to elevate the falling demand. India has a large market for two wheelers, at a time when
defaults in two-wheeler loans are being reported; passing on the duty cut to customers will help
boost sales.
Small cars is the most popular car segment in India, and the duty cut from the previous budget
benefited the segment. The present duty cut will increase consumption demand for small cars,
as this goes concurrently with the raising of the personal income tax limit.
Tata Motors new small car, the Nano, is to be launched in September 2008. It is priced at Rs. 1
lakh, and will benefit from the excise duty cut, which will attract more customers from the two-
wheeler segment. For tyre companies, there has been a reduction of duty on tyre chord fabric.
Revision of Tax Slabs Affecting Affordability
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Raising the limits on taxable income will increase the disposable income of consumers. The
amount that could be around Rs. 5,000 per month is equivalent to the amount needed to pay off
Equated Monthly Installments on car loans. This is anticipated to encourage car purchases.
Green Technology Booster
The excise duty reduction on hybrid cars is from 24 percent to 14 percent. The domestic
companies that will be benefited from this move are Tata Motors and Mahindra and Mahindra,
which are planning to launch hybrid vehicles soon. Honda will be another beneficiary, as the
company is planning to launch the Civic Hybrid in the Indian market. The reduction in
countervailing duty from 114 percent to 104 percent will benefit this launch.
With regard to electric cars, there has been full exemption of excise duty, but this might not
have a decrease on the price of these cars, as the customs duty on imported inputs is still at 16.0
percent.
The proposal to allow a 125.0 percent weighted deduction for outsourced R&D will help gain
access to the latest technologies and develop advanced products.
Unfinished Agenda
Even as duty reduction is seen as a measure to help revive the manufacturing sector, there has
been no announcement of vehicle retirement policy.
The budget did not take any specific measures to promote automotive exports. Exporters'
supplication to exempt export profits from taxation in view of the appreciating rupee were not
accepted by the Finance Minister. The provision under Section 80HHC in the income tax law,
which exempts export profits from taxation, cannot be restored at this stage, as this would go
against WTO regulations.
Two-wheeler manufacturers have asked for a further cut in excise duty - to 8 percent from 12
percent. Excise duty has been reduced at the same level for two wheelers and small cars; hence,
the rate of reduction has also been the same.
Budget Aftermath
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75 percent of the total car sales in India happen in the compact car segment. Following the
reduction in excise duty, Hyundai Motor Company has reduced prices in the range of Rs. 8,700
to Rs. 20,000. Maruti Suzuki India Limited small cars will see a price reduction in the range of
Rs.6,500 to Rs. 18,000. General_Motors Corporation is likely to offer a reduction of Rs. 7,500
to Rs. 14,000 on its small car - the Spark U-VA. Tata Motors is expected to lower the prices of
its small cars and commercial vehicles, including buses, bus chassis, and bus body.
Following the budget announcement, the Sensex and the Nifty closed with a marginal loss of 1
percent. The Sensex suddenly declined more than 500 points in during the course of that
session. At the same time, the BSE auto index has been performing well, and scrips of
Mahindra and Mahindra and Maruti Suzuki India Limited's have recorded gains in the bourses.
GM has announced that it plans to launch a sub 1 liter car in India. The expanding small
car market has received a boost with the budget proposals, and with the launch of new models,
the segment is moving toward more competition, which augurs well for the consumer.
An Egalitarian Budget
The budget has targeted a layman's need. As the article's title states, significant importance is
given to the small cars in the automotive industry. The consumer composition especially of the
middle income group of the two-wheeler segment will witness a drastic change toward the
small cars segment as the budget is providing an excise duty cut and affordable prices of the
small cars.
Agriculture is an important sector in the Indian economy. Flexible consumer credit will help in
the purchase of tractors, equalizing with the motor vehicle segment as people employed directly
and indirectly in the agricultural sector in India is huge.
Overall, the Indian budget has focused on the manufacturing segment of the automotive
industry, leaving the exporters and the R&D sector behind. In addition, the budget has provided
a number of excise and custom duty cuts, which would create robust automotive production in
India in the future.
23
TRENDS-PRODUCTION, DOMESTIC SALES, EXPORTS
Domestic Market Share for 2008-09

CVs 3.95%
Total Passenger Vehicles 15.96%
24
Total Two Wheelers 76.49%
Three Wheelers 3.6%
Segment Major Players

Tata Motors, Ashok Leyland, Swaraj Mazda, M&M, Eicher
Commercial Vehicles Motors.
Tata Motors, Maruti Udyog, Hyundai Motors, Toyota, M&M,
Daimler Chrysler, Hindustan Motors.
Passenger Vehicles
Hero Honda, Honda Motors, Bajaj Auto, TVS Motors, Yamaha,

Two Wheelers Kinetic Engineering.
25
Three Wheelers Bajaj Auto, Piaggio India.
The Indian automobile industry is highly competitive with a large number of players in each
industry segment. Most of the global majors are present in the passenger vehicle and two
wheeler segments. The presence of global competition has led to an overall increase in
capabilities and the quality of the Indian auto sector. Increase in competition has led to a
pressure on margins and players have become increasingly cost efficient. Quality levels have
gone up and there is an increasing focus on compliance to Total Productivity Management
(TPM), Total Quality Management (TQM) and Six Sigma processes. This has led to an
increased confidence among domestic players, who are now focusing on opportunities abroad.
Key players in the components sector like Bharat Forge and Sundaram Fasteners have become
key global suppliers in their categories.
Growth Potential
India offers a huge growth opportunity for the automobile sector – the domestic market is large
and has the potential to grow further in the future due to positive demographic trends and the
current low penetration levels. India houses to a population of 1.2 billion of which nearly 350
million are in the middle class and is one of the most attractive consumer markets in the world
today. Income levels across population segments have been growing in India. In addition, a
large proportion of the Indian population is relatively young - in the age group of 20-59 years.
This is expected to further boost the automotive domestic market as a younger population has a
higher consumption index. The rise in income levels of the Indians and the emergence of the
consuming class offers great opportunities for companies to grow.
Production Trend
One of the largest industries in India, automobile industry has been witnessing impressive
growth during the last two decades. Abolition of licensing in 1993, permitting automatic
approval and successive liberalization of the sector over the years have led to all round
26
development of this industry. Freeing of the industry from restrictive environment has, on the
one hand, helped it to restructure, absorb newer technologies, align itself to the global
developments and realize its potential and on the other hand, this has significantly increased
industry's contribution to overall industrial growth in the country. The Automobile
Manufacturers have put up a robust Production of 111 lacs plus vehicles per annum in 2008-09.
With the arrival of global players, the sector has become highly competitive.A supplier driven
market, having no more than a handful of vehicular models two decades ago, now offers more
than 150 models and variants by way of customer options.
Automobile Production Trends (Number of

Vehicles)
Category 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Passenger
723,330 989,560 1,209,876 1309,300 1,545,223 1,777,583 1,838,697
Vehicles
Commercial
203,697 275,040 353,703 391,083 519,982 549,006 417,126
Vehicles
Three
276,719 356,223 374,445 434,423 556,126 500,660 501,030
Wheelers
Two
5,076,221 5,622,741 6,529,829 7608,697 8,466,666 8,026,681 8,418,626
Wheelers
Grand Total 6,279,967 7,243,564 8,467,853 9743503 11,087,997 10,853,930 11,175,479
Domestic Sales
The production and domestic sales of the automobiles in India have been growing strongly.
While production increased from 6,279,967 units in 2002-03 to units 1,11,75,479 in 2008-09,
domestic sales during the same period have gone up from 5,941,535 units in 2002-03 to
9,723,391 units in 2008-09
Automobile Domestic Sales Trends (Number

of Vehicles)
Category 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Passenger
707,198 902,0961,061,5721,143,076 1,379,9791,549,882 1,551,880
Vehicles
Commercial
190,682 260,114 318,430 351,041 467,765 490,494 384,122
Vehicles
27
Three Wheelers 231,529 284,078 307,862 359,920 403,910 364,781 349,719

Two Wheelers 4812126 53642496,209,7657,052,391 7,872,3347,249,278 7,437,670
Grand Total 5941535 68105377,897,6298,906,428 10,123,9889,654,435 9,723,391
Exports
Automotive industry of India is now finding increasing recognition worldwide and a beginning
has been made in exports of vehicles as well as components. The automobile industry along
with the component industry is also contributing to the export effort of the country. The exports
of automobiles from India have been growing at a CAGR of 34.15 per cent for the past five
years
Automobile Exports Trends (Number of

Vehicles)
Category 2002-032003-042004-052005-06 2006-07 2007-08 2008-09
Passenger
72,005 129,291 166,402 175,572 198,452 218,401 335739
Vehicles
Commercial
12,255 17,432 29,940 40,600 49,537 58,994 42673
Vehicles
Three Wheelers 43,366 68,144 66,795 76,881 143,896 141,225 148074
Two Wheelers 179,682 265,052 366,407 513,169 619,644 819,713 1004174
Grand Total 307308 479,919 629,544 806,222 1,011,529 1,238,333 1,530,660
Europe is the biggest importer of cars from the country while predominantly African nations
import buses and trucks. The Association of South East Asian Nations (ASEAN) region is the
prime destination for Indian two wheelers
VALUATION
MARUTI SUZUKI INDIA LTD.
Maruti Udyog Limited (MUL) was established in Feb1981 to meet the growing demand of a
personal mode of transport caused by the lack of an efficient public transport system.
28
Maruti Udyog was started as a Joint Venture between the Government of India and the Suzuki
Motor Company. But after its maiden IPO in June 2003, the Government sold its stake and it
became a subsidiary of the SMC.
Highlights:
 Equity Structure 54.2% Suzuki, Japan, balance with Other Financial Institution and
Public
 Employee Strength 7720 of Financial year 2008-09
 Facilities Gurgaon: 3 vehicle assembly plants
Manesar: 1 vehicle assembly plant
Head Office in New Delhi, India
Regional offices: 16
 Diesel Powertrain Plant Suzuki Powertrain India Limited (SPIL), Joint Venture between
Suzuki Motor Corporation 70% Equity the rest is with Maruti Suzuki India Limited.
Global hub for Diesel engines and transmissions for Suzuki worldwide.
 Joint Venture 15 Joint Venture companies, including Suzuki Powertrain India Limited
for component supply.
 Subsidiary Companies True Value: for sale and purchase of preowned cars
Maruti Insurance: for insurance of Maruti vehicles (four companies)
Maruti Finance: for financing Maruti vehicles
 Product Portfolio 11 models with around 100 variants including:
Maruti 800, Omni, Alto, WagonR, Swift, Zen, Gypsy, DZire, Versa, SX4, Grand Vitara ,
Ritz .
 Proposed Investments till 2010 INR 9000 Crores i.e. INR 90 Billion
The objectives of MUL at its incorporation are as follows, which to a large extent has been
fulfilled:
 Modernization of the Indian Automobile Industry.

 Production of fuel-efficient vehicles to conserve scarce resources.
 Production of large number of motor vehicles, which was necessary for economic
growth
The sales figures for May 2009 are given below:
29
In May Till May

April'08 -
Segment Models % %
2009 2008 2009-10 2008-09 March'09
Change Change
A1 M800 2336 6830 -65.8% 4681 11288 -58.5% 49383
C Omni, Versa 7619 6092 25.1% 15343 13797 11.2% 77948
Alto, Wagon-R,
A2 Zen, Swift, A- 53760 44539 20.7% 100577 87660 14.7% 511396
star
A3 SX4, Dzire 6782 5946 14.1% 13848 10133 36.7% 75928
Total Passenger Cars 70497 63407 11.2% 134449 122878 9.4% 714655
Grand Vitara *,
MUV 288 736 -60.9% 1193 804 48.4% 7489
Gypsy
Domestic 70785 64143 10.4% 135642 123682 9.7% 722144
Export 9087 4858 87.1% 15978 7655 108.7% 70023
Total Sales 79872 69001 15.8% 151620 131337 15.4% 792167
Business Overview
Maruti Suzuki India Ltd is one of India's leading automobile manufacturers and the market
leader in the car segment, both in terms of volume of vehicles sold and revenue earned. It sold
record 722144 vehicles in the domestic market during FY08-09, the highest since inception. In
all, the company sold 792167 units including export of 70023 units. Its FY08-09 market share
was over 54% in the passenger cars sector. The company was able to sustain a high market
share despite a negligible presence in the growing diesel car segment, which is estimated to be
nearly 20 per cent of the total passenger car market.
One of the key drivers of growth in the Indian car market will be the large population upgrading
from two wheelers, notably from motorcycles, to cars.
30
Key Positives
 Strong Customer Base: Maruti Udyog currently leads the passenger vehicles segment
with over 46% market share in FY08-09 including multi utility vehicle whereas in the
passenger car segment it is upto 52%. As the Indian market is dominated by small cars
and Maruti Udyog being a leader in this segment, is well positioned to take a lead. India
being a populous country, which is experiencing an increase in the disposable income,
will add up to the performance of the company.Rural areas contribute to 8% of sales
and Govt employee contribute to around 15% of sales and with 6 th pay commission
being implemented this no is only going to improve . We expanded our network to
cover 454 cities through our 681 sales outlets and 1314 cities with our 2767 Service
outlets.
 New Models Arriving: As a commitment to bring the world's latest & best to the
Indian markets, the company launched 6 new models (including Ritz & Maruti 800
Duo) in last 30 months. Maruti800 Duo is model available in petrol and L.P.G . Indian
engineers played an important role right from the design stage. Duo version in Omni
and Wagon R contributes to almost 23% of its sales. Therefore taking cue from this
remarkable performance maruti has launched Duo version in Maruti 800model also.
Ritz will further help to strengthen its leadership in A2 segment it is already market
leader with 58% market share in the segment.The heart of the Ritz are the brand new 1.2
Litre K12M Petrol engine and the 1.3 DDiS Diesel power-plant, each offering optimum
performance and fuel efficiency. Alongside this, the transmission system has been
optimized for the Ritz to match Indian driving habits. With this the Ritz offers the best-
in-class combination of fuel efficiency and drivability.
 R&D Facility: Investment in R&D in full swing .Second best R&D facility outside
Japan. Over 80 Engineers trained in Japan . Gurgaon palnt will have full body change
capability by 2010 .Transforming models to new engines. Complete test course facility.
They have strengthened their R&D team from 460 engineers to 730 this year.
31
 Expansion Plans: Maruti & Suzuki had announced an investment of USD 2.25 Bn in
the new car plant, diesel engine facility, launch of new models & upgradation of the
Gurgaon plant. The project is on schedule and the investments are being made as
planned. Landmark production capacity of one million per year .They have also started
work on a world class test track and crash test facility in Haryana. To support their
export logistics, they have commissioned a Roll on – Roll off sea terminal at Mundra in
Gujarat. they are also working on a direct railway line from inside our Manesar plant to
this sea terminal at Mundra .Suzuki is already started to transform its Indian plant into
Export hub. Maruti Suzuki has exported over 552,000 units cumulatively with about
280,000 units to Europe and Israel. In the current fiscal, Maruti Suzuki has exported
close to 44,870 units, growing 18 percent over previous fiscal.
Model wise Break up of Sales

In the A1 category comprising of Maruti 800 the downward journey continued with a 29% slide
in the sales numbers, however the A2 segment comprising of Alto, Wagon R Zen & Swift
showed a marginal growth of 2.4% YoY. However the biggest breakthrough in the year was the
sales numbers of A3 segment which due to the advent of SX4, cloaked a growth of almost
53.9% on YoY basis. The C segment comprising Omni &
Versa saw a 13.1% YoY decline, where as in the current year in the MUV segment the sales in
this segment went up by 91% YoY. Exports grew 32.1% in the current year recording the
highest ever export sales of 70023 units of cars mainly driven by the export of A‐ star which
alone recorded the sale of 19000 units in Europe including United Kingdom, France, Germany,
Italy, Netherlands, Denmark and Switzerland.
Product Apr‐Mar‐09 Apr‐Mar‐08 Y‐o‐Y
Domestic Sales (a)
A1 (Maruti 800) 49383 69553 ‐29.0%
A2(Alto,wagonR,Zen,swift) 511396 499280 2.4%
A3 (SX4, Swift Dezire) 75928 49335 53.9%
C (Omni,Versa) 77948 89729 ‐13.1%
MUV (Gypsy, Vitara) 7489 3921 91.0%
32
722144 711818 1.5%

Export Sales (b) 70023 53024 32.1%
TOTAL(a+b) 792167 764842
Highlights of the annual sales conference call
Maruti Suzuki conducted an annual sales conference call to discuss its sales outlook and share
other ground realities.
We present an update below.
_ The management of Maruti Suzuki was pleased with itsperformance of the past three months,
as the company recorded an overall sales growth of 17% in the last quarter of the fiscal. Though
it found this growth very encouraging, themanagement stressed that it is not getting carried
away by the same and shall continue to monitor the situation closely. It underlined that the
recent growth is not a definitive indicator of any kind of change in trend. The performance of
the company as well as the industry in Q1FY2010 is likely to present a clearer picture of the
outlook for the industry.
On the financing side, there are positive signals as the availability of finance improved over the
last couple of months, with credit penetration going up from 61% in Q3 to about 64-65% levels.
Moreover, the company is in the process of tying up with a number of public sector banks, who
are increasingly showing interest Idoling out car loans. The benefits of easing of raw material
prices in the recent times are likely to be felt from Q1FY2010 onwards. Going forward too, the
company would be concerned about its margins and would try to ensure a profitable growth in
the days ahead. Maruti Suzuki has been offering attractive discounts inthe recent months in
order to fuel its growth. It hasbeen offering a discount of about Rs25,000 on Wagon R and SX4,
and that of about Rs30,000-35,000 on Zen Estillo.
As a result, the overall marketing expenses have risen from about 6% as a percentage of sales to
about 6.7%. The discounts are likely to be continued, though the same would depend on the
market demand and similar activities carried out by the competitors. Going forward, Maruti
Suzuki would look to launch Ritz in Q1FY2010 while it is also looking to introduce the K-
33
Series engine during the course of the year. The network expansion continues for the company
as it increased the number of its sales outlets from 600 (in 393 cities) last year to 681 (in 454
cities). The number of service outlets has been raised from 2,628 (1,220)
Key investments risks

 Intense competition faced by Maruti in the various segments:
Concerns however remain on Maruti’s entry-level models such as Maruti 800 and
Alto. Preferred by the urban middle-class, these cars may face challenges in 11 cities,
including Delhi, Mumbai Kolkata and Chennai, after a change in emission norms to
Bharat Stage IV mandated by October 2009. The company may have to either re-
engineer these versions or phase them out in these cities to meet the new norms. As of
now, there is not much clarity about what it plans to do in this regard. The Tata’s Rs 1
lakh car, the Nano, has also been perceived as a threat to Maruti’s entry level models.
About 50 per cent of the bookings for the Nano are estimated to be for its high-end
variants which are relatively close to Maruti 800 and Alto in terms of performance.
 Higher commodity prices, appreciating Yen may impact margins negatively.(

forex Exposure : Direct : Import of components, Steel , Royalty payments ~ 12 %
of Net Sales . Indirect : vendor imports ~ 10 % of Net Sales)
 Recession in Europe and U.S may impact its exports.
 Difficulty in availability of car finance.
Capex Plans :
•Vehicle Production Capacity of 1 million achieved
•Manesar Plant Capex done
•Going forward Capex major areas
oKB Engine Expansion,
oGurgaon plant modernization
oR&D
oMarketing –Brand Centres& StockYards
34
oNew Model development

•Total Plan
oFY10 Rs 24 billiono
FY11 Rs 13 billiono
FY12Rs4 billion
•Cash Position Rs 32 billion (31stDec-08)
VALUATIONS AND RECOMMENDATION

At the CMP of Rs 1059.8, MSL is quoting at a PE of 8.78x AND 11.06x FY10E and FY11E
earnings. Its FY10E and FY11E of EPS Rs.120.73 and Rs.95.84. MSL is an attractive play on
the growing car market with its models placed favorably on the price-value matrix supported by
a strong dealer & service network. Also, the cost of ownership continues to be lower and resale
value higher for MSL’s models. We expect growth backed by new launches & surge in exports.
Hence, we recommend ‘BUY’ on the stock with a Target Price of Rs.1165 which discounts its
FY10E by 12.16x.
FINANCE -BALANCE SHEET -

Maruti Suzuki India Ltd (Curr:
Rs in Cr.)
2007 2008 2009E 2010E 2011E

SOURCES OF FUNDS :
Share Capital 144.5 144.5 144.5 144.5 144.5
Reserves Total 6709.4 8270.9 10173.207 12513.04461 15391.0449
Total Shareholders Funds 6853.9 8415.4 10317.707 12657.54461 15535.5449
Secured Loans 63.5 0.1 0 0 0
Unsecured Loans 567.3 900.1 990.11 1089.121 1198.0331
Total Debt 630.8 900.2 990.11 1089.121 1198.0331
Total Liabilities 7484.7 9315.6 11307.817 13746.66561 16733.578
APPLICATION OF FUNDS :
Gross Block 6146.8 7285.3 8742.36 10490.832 12588.9984
Less : Accumulated
Depreciation 3487.1 3988.8 4387.68 4826.448 5309.0928
0 0 0 0 0
Net Block 2659.7 3296.5 4354.68 5664.384 7279.9056
35
0 0 0 0 0
Capital Work in Progress 250.7 736.3 883.56 1060.272 1272.3264
Investments 3409.2 5180.7 6216.84 7460.208 8952.2496
Current Assets, Loans &
Advances
Inventories 701.4 1038 1245.6 1494.72 1793.664
Sundry Debtors 747.4 655.5 786.6 943.92 1132.704
Cash and Bank 1422.8 324 388.8 466.56 559.872
Loans and Advances 1533.4 1820.4 2184.48 2621.376 3145.6512
Total Current Assets 4405 3837.9 4605.48 5526.576 6631.8912
Less : Current Liabilities and
Provisions
Current Liabilities 2011 2449.2 2939.04 3526.848 4232.2176
Provisions 1061.4 1116.5 1339.8 1607.76 1929.312
Total Current Liabilities 3072.4 3565.7 4278.84 5134.608 6161.5296
Net Current Assets 1332.6 272.2 326.64 391.968 470.3616
Miscellaneous Expenses not
written off 0 0 0 0 0
Deferred Tax Assets 110.1 99.6 99.6 99.6 99.6
Deferred Tax Liability 277.6 269.7 269.7 269.7 269.7
Net Deferred Tax -167.5 -170.1 -170.1 -170.1 -170.1
Total Assets 7484.7 9315.6 11611.62 14406.732 17804.7432
FINANCE -PROFIT AND LOSS

- Maruti Suzuki India Ltd
(Curr: Rs in Cr.)
2007 2008 2009E 2010E 2011E
INCOME :
Sales Turnover 17205.90 21025.20 25650.74 31293.91 38178.57
Excise Duty 2509.60 3133.60 3822.99 4664.05 5690.14
Net Sales 14696.30 17891.60 21827.75 26629.86 32488.43
Other Income 598.40 887.60 887.60 887.60 887.60
Stock Adjustments -243.10 336.30 336.30 336.30 336.30
Total Income 15051.60 19115.50 23051.65 27853.76 33712.33
36
EXPENDITURE :
Raw Materials 10739.00 13791.50 15170.65 19418.43 24855.59
Power & Fuel Cost 97.40 147.30 162.03 243.05 364.57
Employee Cost 266.29 346.83 381.51 495.97 644.76
Other Manufacturing
Expenses 153.50 197.80 217.58 278.50 356.48
Selling and Administration Exp 941.67 1145.35 1259.89 1537.06 1875.21
Miscellaneous Expenses 264.94 355.92 391.51 524.63 703.00
0.00 0.00 0.00 0.00 0.00
Total Expenditure 12462.80 15984.70 17583.17 22497.63 28799.61
Operating Profit 2588.80 3130.80 5468.48 5356.13 4912.71

Interest 37.60 59.60 65.57 72.13 79.34
Gross Profit 2551.20 3071.20 5402.91 5284.00 4833.37
Depreciation 271.40 568.20 750.81 976.62 1255.16
Profit Before Tax 2279.80 2503.00 4652.10 4307.38 3578.22
Tax 621.40 759.80 835.78 919.36 1011.29
Fringe Benefit tax 6.70 9.80 9.80 9.80 9.80
Deferred Tax 89.70 2.60 2.60 2.60 2.60
Reported Net Profit 1562.00 1730.80 3803.92 3375.62 2554.52
26.71 25.79 28.37 31.21 34.33
Adjusted Net Profit 1535.29 1705.01 3775.56 3344.42 2520.20
Adjst. below Net Profit -8.80 0.00 0.00 0.00 0.00

P & L Balance brought
forward 4393.90 5637.30 7328.49 9527.04 12385.15
Statutory Appropriations 0.00 0.00 0.00 0.00 0.00
Appropriations 309.80 342.40 376.64 414.30 455.73
P & L Balance carried down 5637.30 7025.70 7728.27 8501.10 9351.21
Dividend 130.00 144.50 144.50 144.50 144.50

Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend % 90.00 100.00 100.00 100.00 100.00
Key Ratios
2007 2008 2009E 2010E 2011E
EBITDA% 17.62% 17.50% 25.05% 20.11% 15.12%
PBT% 15.51% 13.99% 21.31% 16.18% 11.01%
PAT% 10.45% 9.53% 17.30% 12.56% 7.76%
CMP(24-JUNE-2009) 1059.8 1059.8 1059.8 1059.8 1059.8
37
(IN Rs.)
P/E 19.95 17.96 7.98 8.78 11.06
EPS(IN Rs.) 53.12 59.00 132.82 120.73 95.84
EV(IN Rs. CRORES) 29826.68 31194.88 31219.99 31241.24 31256.84
ROE 22.40% 20.26% 36.59% 26.42% 16.22%
EV/EBITDA 11.52 9.96 5.71 5.83 6.36
NO.OF SHARES 288910060 288910060 288910060 288910060 288910060
MAHINDRA & MAHINDRA
The Mahindra brothers joined hands with a distinguished gentleman called Ghulam Mohammed
and to make the birth of Mahindra & Mahindra in October 2nd, 1945 as Mahindra &
Mohammed, a franchise for assembling jeeps from Willys, USA. Two years later, India became
an independent nation and in 1948 Mahindra & Mohammed changed its name to Mahindra &
Mahindra (M & M). Mahindra Group is among the top 10 industrial houses in India. Its
products and services is grouped into seven groups, such as Automotive, Farm Equipment,
Trade & Financial Services, Information Technology, Infrastructure Development, Systech and
Speciality Business.
38
The company's major milestone was happened in the year 1963, the International Tractor
Company of India established - a joint venture with International Harvester Company, USA and
now the thing is Mahindra & Mahindra is the only Indian company among the top three tractor
manufacturers in the world. The company entered into light commercial vehicles segment also,
the manufacture of light commercial vehicles was commenced in the year 1965.
In the year 1977, the International Tractor Company of India merged with Mahindra &
Mahindra to become its Tractor Division and within two years Mahindra brand of tractors was
launched.
During the year 1996 the company made prestigious actions, the USA's Ford Motor Company
was joined with the company and established Mahindra Ford India Limited to manufacture
passenger cars.
During the year 2007, the company's Farm Equipment Sector (FES) showcased India's first bio-
diesel tractor at the Kisan Mela in Pune on December 14, 2007
M & M launched the Scorpio V-series, a new line-up of India's leading SUV, with the
introduction of the Scorpio VLX. A wholly owned affiliate of Navistar International
Corporation (Other OTC: NAVZ), signed a joint venture agreement with the company to
produce diesel engines for medium and heavy commercial trucks and buses in India.
The company has been awarded the ISO/IEC 27001:2005 certificate. This completes the
company's successful migration from BS 7799 to ISO 27001. Mahindra inaugurated its state
-of-the-art Blanking Line facility in Nashik backed by German technology. Mahindra &
Mahindra Auto Sector's Zaheerabad plant has won the First Prize in the National Energy
Conservation Awards - 2007.
Mahindra launched new After-Market Business Vertical, Inaugurates first multi-brand car
service centre in Mumbai on April 2008. As on May 2008, the company launched the Mahindra
Pik Up Double Cab in Paraguay, in partnership with the Rieder Group.
Key highlights from management meeting
1) Financing in rural areas has improved: M&M derives more than 75of itsstandalone
revenues from rural India. Rural India accounts for 95% of M&M’s tractor sales (which in turn
39
accounts for ~30% of M&M’s total revenues). In the UV segment, more than 65% of M&M’s
UVs (excluding the Xylo and Scorpio) are sold in rural India. Management said that financing
for M&M vehicles has improved significantly in the last sixmonths.Mahindra Finance has been
able to raise funds at very attractive rates and finances 30-35% of M&M volumes (the rest is
financed by public sector banks). Management said State Bank of India, which had a few
months ago decided to withdraw from the segment, is now aggressively financing vehicles.
2) Improved tractor outlook: Management is sanguine on the outlook for the tractor
business. Tractor volumes did not grow in the last two years in spite of strong growth in the
rural economy. There are two key reasons for this: 1) high base (tractor volumes had grown by
19% from FY03-07); 2) and unavailability of finance (tractor volumes grew by 12% in 1HFY09
before the credit crisis hit the industry in Oct 09). Over the next few years, management expects
the industry to grow at 5-6% pa and M&M to outperform the industry.
3)Strengthening its stranglehold on the UV market: M&M’s UV market share has gone up
from 51% in FY08 to 57% in FY09; a large part of the gains coming in 4QFY09. In the last two
months M&M’s UV volumes have grown by 15%, compared to a 15% decline for the rest of
the industry. This growth was driven mainly by the Xylo and the refurbished Scorpio. Whilst
UV volumes in the past few months have been aided by elections and pent-up demand,
management believes that June-July will provide the real indicator for market volumes.
4)Focus on new product development to continue: Auto makers who have done really well in the
last year have done so on the back of new product launches. M&M too has done well on the back of
the launch of the Xylo and the refurbished Scorpio. Over the next two years, thecompany plans to
launch products in almost all automotive segments—a 25-tonne M&HCV truck in3QFY10; a sub-1-
tonne LCV by 4QFY10; a successor to the Scorpio in 3QFY11; variants of Xylo in the next 2-3
quarters; and two-wheeler products in entry, executive executive and premium segment
5)Taking its UVs to the world’s largest UV market: M&M will enter the US market with the
launch of diesel pick-up trucks in the last quarter of 2009. The company also plans to launch the
Scorpio SUV truck some time next year. The company will launch vehicles assembled
40
from India and may later set up an assembling plant in the US to avoid additional taxes.
The company is looking to have around 325 dealers by the end of the year—a task made easier
by GM and Chrysler announcing closure of several dealerships. Media reports indicate M&M is
taking over 300 Chyrsler dealerships. Mahindra hopes to sell around 45,000 units per year; the
competing Chevrolet Colorado and Ford Ranger sold around 55,000 and 65,000 units in 2008.
Outlook remains challenging for both utility vehicles

and tractors
Automotive
The sales of utility vehicles (UV) declined by 7.9% in the year till date (YTD) in the domestic
market in FY2009 while the market leader M&M outperformed the industry, reporting
a marginal decline of 0.9% during the same period. Consequently, the overall market share in
the UV segment for M&M has also increased from 43% last year to 46.3%. This has been
possible due to the continued good performance of its stronghold product, Scorpio, during the
year (particularly after its relaunch with added features) and the recent launch of Xylo, which
has also picked up well. The company would continue to work on new variants with plans to
launch a successor to Scorpio towards the end of FY2010. This launch might be followed by the
roll-out of another global SUV. The product roll-out from its joint venture with Navistar is
expected to start from FY2010 in the medium and heavy commercial vehicles segment. On the
other hand, the company is looking to launch a like commercial transport vehicle by the end of
this calendar year.
Lack of finance remains a key issue, but industry likely to pick up by Q2FY2010 The major
issue affecting the growth of the segment as well as the entire industry has been the availability
of finance. As can be seen from the overall economic figures, the non-food credit growth
moderated further to 18.7% year on year (yoy) vs the 19.4% y-o-y growth seen a month ago.
Besides the slowing economic growth, the cautious approach adopted by the banks on
incremental lending has been affecting the overall credit growth. However, now certain positive
signals have started to emerge from the financing side, with bankers willing to disburse loans.
This is likely to drive the industry growth going forward. A pick-up in the industry is expected
41
from Q2FY2010, with the company expecting the industry to record a growth of about 6-8% in
FY2010. Being the industry leader with strong products in the segment, M&M is likely to
outperform the segment. We may see a short demand spurt on account of the general election,
as during electionsthe demand for utility vehicles usually get a boost due to increased activity
relating to election campaigns.
Farm equipment
On the tractor front, the segment’s performance continued to be subdued and the company is
expected to close FY2009 with a flattish growth in its tractor business. The performance of the
business is dependent on the performance of the rural economy and agriculture. The recentgross
domestic product (GDP) data showed a 2.2% decline in agriculture sector, though part of the
declinecould be attributed to the large base of the previous year.Recently, Central Statistical
Organisation (CSO) released its FY2009 GDP forecast at 7.1%. Dissecting its estimates,
the agriculture sector is expected to grow at a rate of 2.6% yoy, ie almost half the 4.9% growth
seen in FY2008. Though the disappointing performance of the agriculture sector remains a
cause for concern, there would be demand accruing from the non-agricultural segment (with
tractors also finding usage in other activities, such as road construction, haulage and mining).
M&M’s stand-alone tractor sales have declined by about 2% in the YTD period while PTL has
outperformed the tractor industry with its volumes growing by about 14% in the year till date,
regainingsome of its lost ground. The growth of rural economy and the availability of credit
remain the key to the future performance of the tractor segment. There are already positive
feelers from the credit industry and the tractor industry is expected to report a growth of about
3-5% in FY2010 on a low base of last year, as the growth has been subdued for the last two
years.
Capex Plans :
Overall, M&M has chalked out an expenditure plan of about Rs8,500 crore for four years
(FY2009-12). The capex plan has been reduced from about Rs9,000 crore estimated earlier. Out
of this Rs5,000 crore shall be spent on the automobile side for setting up a new greenfield
42
facility, capacity expansions and launch of new products. The remaining amount of about
Rs3,000-3,500 crore has been set aside for its various investments in joint ventures, tractors,
logisitics, defence and other acquisitions. Of the total planned capex about Rs1,500 crore has
already been spent in FY2009; the balance will be spent over the next three years. The bulk
(Rs2,500 crore) of the capex earmarked for the automobile business shall be utilised to set up
the Chakan facility. The remaining amount will go towards the new product launches. Further,
constant negotiations are taking place with equipment suppliers with a view to reducing the
capex further.
Outlook and valuations
The good pick-up displayed by Xylo is aiding the company to gain some market share in the
UV segment, though there has been a bit of cannibalisation of Scorpio sales which is
unavoidable. The company has pruned its capex a bit to a total of Rs8,500 crore for FY2009-12.
The volumes have shown an improvement as against the previous quarter and the company is
unlikely to experience again the heavy forex losses incurred in the last quarter. As far as its
consolidated performance is concerned, most of its other businesses (information technology,
finance, real estate, forgings and leisure) are facing rough times. Uncertainty looms large in a
lot of these businesses and this is going to affect the stock’s performance in the next couple of
years.
At the CMP of Rs 709.3, M&M is quoting at a PE of 15.35.x AND 14.15x FY10E and FY11E
earnings. Its FY10E and FY11E of EPS Rs.46.21 and Rs.50.14. MSL is an attractive play on the
growing car market with its models placed favorably on the price-value matrix supported by a
strong dealer & service network. We expect growth backed by new launches & surge in exports.
Hence, we recommend ‘BUY’ on the stock with a Target Price of Rs.784 which discounts its
FY10E by 15.64x.
43

Mahindra & Mahindra Ltd (Curr:
Rs in Cr.)
2007 2008 2009E 2010E 2011E

SOURCES OF FUNDS :
Share Capital 238.03 239.07 239.07 239.07 239.07
Reserves Total 3314.88 4111.00 4933.20 5919.84 7103.81
Secured Loans 106.65 617.26 740.71 888.85 1066.63
Unsecured Loans 1529.35 1969.80 2166.78 2383.46 2621.80
Total Debt 1636.00 2587.06 2907.49 3272.31 3688.43
Gross Block 3229.69 3656.13 4387.36 5264.83 6317.79
Less : Accumulated
Depreciation 1639.12 1841.68 2025.85 2228.43 2451.28
Less:Impairment of Assets 0.00 0.00 0.00 0.00 0.00
Net Block 1590.57 1814.45 2361.51 3036.39 3866.52
Lease Adjustment 0.00 0.00 0.00 0.00 0.00
Investments 2237.46 4215.06 4636.57 5100.22 5610.24
Advances
Inventories 878.48 1084.11 1192.52 1311.77 1442.95
Sundry Debtors 700.89 1004.88 1105.37 1215.90 1337.50
Cash and Bank 1326.07 861.23 947.35 1042.09 1146.30
Total Current Assets 3748.17 3655.37 4091.42 4585.18 5145.24
Provisions
Current Liabilities 1950.22 2307.55 2538.31 2792.14 3071.35
Provisions 715.43 943.46 1132.15 1358.58 1630.30
written off 17.55 13.53 13.53 13.53 13.53
Net Deferred Tax -19.79 -56.72 -56.72 -56.72 -56.72
44
Total Assets 5188.91 6937.13 8031.59 9314.78 10821.43
FINANCE -PROFIT AND LOSS -

Mahindra & Mahindra Ltd (Curr: Rs
in Cr.)
2007 2008 2009E 2010E 2011E
INCOME :
Sales Turnover 11183.50 12866.30 15439.56 18527.47 22232.97
Excise Duty 1334.64 1584.57 1743.03 1917.33 2109.06
Net Sales 9848.86 11281.73 13696.53 16610.14 20123.90
Other Income 590.13 638.54 638.54 638.54 638.54
Stock Adjustments 6.41 149.11 149.11 149.11 149.11
Total Income 10445.40 12069.38 14484.18 17397.79 20911.55
EXPENDITURE :
Raw Materials 6834.34 7875.02 8662.52 9528.77 10481.65
Power & Fuel Cost 65.19 91.33 100.46 110.51 121.56
Employee Cost 660.10 845.77 930.35 1023.38 1125.72
Other Manufacturing Expenses 186.86 208.61 229.47 252.42 277.66
Selling and Administration
Expenses 844.28 1076.73 1184.40 1302.84 1433.13
Less: Pre-operative Expenses
Capitalised 47.10 46.49 46.49 46.49 46.49

Interest 19.80 87.59 98.43 110.78 124.86
Gross Profit 1628.08 1645.43 3039.65 4830.19 7108.07
Depreciation 209.59 238.66 310.72 399.53 508.75
Tax 365.73 278.75 306.63 337.29 371.02
Deferred Tax -15.63 24.65 24.65 24.65 24.65
Extraordinary IteMs 93.42 150.06 150.06 150.06 150.06
Adjst. below Net Profit 0.00 0.00 0.00 0.00 0.00

P & L Balance brought forward 1475.75 2125.08 3060.12 4406.57 6345.45
Statutory Appropriations 0.00 0.00 0.00 0.00 0.00
45
Appropriations 419.06 452.97 498.27 548.09 602.90

Dividend 282.23 282.61 282.61 282.61 282.61

Equity Dividend % 115.00 115.00 115.00 115.00 115.00
Key Ratios
2007 2008 2009E 2010E 2011E
EBITDA% 16.73% 15.36% 22.91% 29.75% 35.94%
PBT% 14.40% 12.47% 19.92% 26.67% 32.79%
PAT% 9.90% 8.45% 16.41% 23.59% 30.08%
CMP(24-JUNE-2009)
(IN Rs.) 709.3 709.3 709.3 709.3 709.3
P/E 17.88 18.30 16.72 15.35 14.15
EPS(IN Rs.) 39.68 38.77 42.41 46.21 50.14
EV(IN Rs. CRORES) 17737.43 19153.33 19387.64 19657.73 19969.63
EV/EBITDA 10.76 11.05 6.18 3.98 2.76
R.O,E 27.44% 21.91% 43.45% 63.63% 82.44%
NO.OF SHARES 245700065 245700065 245700065 245700065 245700065
BHARAT FORGE LIMITED (BFL)
Bharat Forge Limited (BFL), a wing of the Kalyani group of companies. The Company was
incorporated in June 1961 and promoted by Neelkanth A Kalyani. BFL's principal activities are
to manufacture and sell closed and open die forgings, machined components and aggregates.
The Company operates in two segments namely Steel Forging and General Engineering. The
products of the Company include front axle assembly and components, general engineering
equipment, hydraulic and mechanical presses, bandsaw machines for cutting metallic rounds,
couplings and material handling equipment. The BFL caters to the medium and heavy
commercial vehicle segments. The manufacturing plants are located at Pune, Satara and Jalgaon
districts of Maharashtra. The Company's operations are carried out through its German
subsidiary, Carl Dan Peddinghus GmbH. BFL has embarked on setting up of a Centre for
46
Advanced Manufacturing at Baramati in Maharashtra along with machining for such high-end
forged components. In addition, as on March 2008, the company is also setting up an open die-
forging unit at its existing facilities in Mundhwa. The total estimated cost of these projects is
Rs. 3.5 billion. The company is planning to invest Rs 65 billion through Kalyani Steel, the
Group Company. In the same year and in same month the company inked a MoU with the West
Bengal Government to set up a one million-ton per annum steel plant in the State and planning
to invest Rs 65 billion through Kalyani Steel, the Group Company. The project involves a
captive Rs 20 billion (out of the total investment) 500-MW power plant besides a downstream
unit. In April 2008, the company entering into the French automotive sector with help of
acquisition of 89% stake in French forgings company Groupe Sifcor (Society of Industrial and
Financial Courcelles).
Industry slowdown hurts performance

� Sharp decline in topline: Bharat Forge (BFL) reported a sharp 49.7% YoY degrowth
in topline to Rs2.9bn, on account of a 48.3% YoY decline in the domestic revenues at Rs1.7bn.
The company also witnessed a slowdown in their exports; exports declined by a whopping
51.6% YoY at Rs1.2bn. The general economicslowdown across the globe as well as production
cuts, especially in the commercial vehicle (CV) segment, led to a severe decline in the revenues
on a standalone basis. Operating profits declined by 70% YoY at Rs427m, whereas operating
margins declined by 10% YoY to stand at 14.6%. The company reported a forex gain of
Rs987m on account of adoption of the revised AS 11 accounting norms. As a result, the decline
in PAT was restricted at 26.2% YoY (Rs611m). However, excluding the forex gain, BFL
reported a loss of Rs377m.
� Consolidated performance: On a consolidated basis, BFL reported a decline of 46.8% YoY

in net sales at Rs6.1bn, while reported PAT was down 68% at Rs203m. EBITDA for the quarter
stood at Rs176m, a decline of 90.5% YoY.
� Increasing focus on the non–auto business: The facilities at the Baramati plant and the
open die forge facility in Pune have commenced operations. These plants have an annual
forging capacity of 125,000 tpa and are expected to generate arevenue of Rs10bn-11bn at their
47
full capacity utilization. However, in the medium term, the utilization of the new capacity might
be impacted due to a slowdown in the user industries (construction, mining and marine).
Conference call highlights

� During January – March 2009, domestic M&HCV production dropped by 61% YoY.
European CV registration declined by 9%, whereas the US M&HCV market declined by
19.3%.
� Production for FY09 declined by 28.8% to 133,755 tonnes. However, the standalone
revenues in FY09 declined by only 6.3% to Rs20.5bn on account of a price increase undertaken
during the year.
� According to the company, at least the next few quarters will continue to be challenging as
there is an inventory pile-up of both the raw materials and finished products at their customers’
end which will take time to correct.
� The new non-auto capacities have commenced operations at Pune and Baramati. However,
the subsequent ramp-up might be impacted due to the slowdown prevailing in sectors such as
construction, mining and marine diesel engines.
� On a standalone basis, the debt on the books is ~Rs18bn, whereas cash position is at
~Rs5.5bn. Major capacity expansion has already taken place in the last three years, as a result
of which the company will not be incurring any major capex in next one to two years.
Actions taken to counter the downturn
Various actions have already been taken to counter the effects of the downturn.These have been
summarized below:
• Right-sizing the operations globally to reflect lower demand levels. Actions taken include
reduction of manpower, rationalization of production, salarycuts, and reducing the levels of
administrative overheads.
• Sharp focus on Working capital reduction and conservation of cash.
• Capex holiday for 2009-10.
• Emphasis on improving operational efficiencies like Yield, Scrap reduction, energy cost,
outsourcing reduction etc.
48
• Focus on training to build skill levels

• On the marketing side, BFL is following a multi-pronged strategy:
o Continuous interaction with the customers to get increased share of business for
existing and new parts.
o Acquiring new Customers
o Diversifying the product portfolio in both auto and non-auto
With the auto industry in US and India facing tough times, we expect the non–auto business to
be the key growth driver for BFL in the long term. However, we believe that the non-auto
business will start contributing significantly to the revenues post FY10E
At the CMP of Rs.151.75, BFL is quoting at a PE of 4.49x AND 3.05x FY10E and FY11E
earnings. It’s FY10E and FY11E of EPS Rs.33.77 and Rs.49.79. We believe BFL is well
positioned on the global front to benefit from scale, product diversification and productivity
gains. Hence, we recommend BUY on the stock with a Target price of Rs.210 which
discounts its FY10E by 4.22x.

Bharat Forge Ltd (Curr: Rs in
Cr.)
2007 2008 2009E 2010E 2011E
SOURCES OF FUNDS :
Share Capital 54.54 44.54 44.54 44.54 44.54
Reserves Total 1272.26 1428.74 1857.36 2414.57 3138.94
Secured Loans 373.57 461.58 507.74 558.51 614.36
Unsecured Loans 1028.04 825.91 908.50 999.35 1099.29
Total Debt 1401.61 1287.49 1416.24 1557.86 1713.65
Gross Block 1735.06 2029.64 2435.57 2922.68 3507.22
49
Less : Accumulated
Depreciation 583.13 711.77 854.12 1024.95 1229.94
Net Block 1151.93 1317.87 1581.44 1897.73 2277.28
Investments 450.71 593.67 599.61 605.60 611.66
Advances
Inventories 302.79 338.12 405.74 486.89 584.27
Sundry Debtors 253.95 356.29 427.55 513.06 615.67
Cash and Bank 736.28 164.99 197.99 237.59 285.10
Provisions
Provisions 309.80 451.33 455.84 460.40 465.01
written off 0.23 0.00 0.00 0.00 0.00
Net Deferred Tax -112.78 -118.24 -118.24 -118.24 -118.24
Total Assets 2728.41 2760.77 3387.34 4135.88 5030.38

Bharat Forge Ltd (Curr: Rs in Cr.)
2007 2008 2009E 2010E 2011E
INCOME :
Sales Turnover 1990.84 2314.37 2777.244 3332.6928 3999.23136
Excise Duty 155.8 172.54 207.048 248.4576 298.14912
Net Sales 1835.04 2141.83 2570.196 3084.2352 3701.08224
Other Income 110.49 173.49 173.49 173.49 173.49
Stock Adjustments 22.47 20.64 20.64 20.64 20.64
Total Income 1968 2335.96 2764.326 3278.3652 3895.21224
50
EXPENDITURE :
Raw Materials 832.47 979.2 1077.12 1184.832 1303.3152
Power & Fuel Cost 156.76 178.4 196.24 215.864 237.4504
Employee Cost 107.67 144.88 159.368 175.3048 192.83528
Expenses 64.67 81.71 89.881 98.8691 108.75601
Less:Pre-operative
ExpensesCapitalised 0.11 0.13 0.13 0.13 0.13

Interest 82.11 104.99 115.51705 127.06875 139.775627
Gross Profit 459.11 535.92 792.08195 1116.7247 1525.23574
Depreciation 99.8 138.94 166.6432 199.97184 239.966213
Tax 100.23 98.2 108.02 118.822 130.7042
Fringe Benefit tax 2 6.8 6.8 6.8 6.8
Deferred Tax 16.13 18.39 18.39 18.39 18.39
Extraordinary Items -4.28 21.09 21.09 21.09 21.09
Adjst. below Net Profit 4.14 0 0 0 0

Statutory Appropriations 0 0 0 0 0
Appropriations 117.1 130.01 143.011 157.3121 173.04331
Dividend 77.93 77.93 77.93 77.93 77.93

Equity Dividend % 175 175 175 175 175
KEY RATIOS
2007 2008 2009E 2010E 2011E
EBITDA% 29.49% 29.92% 35.31% 40.33% 44.99%
PBT% 19.58% 18.53% 24.33% 29.72% 34.73%
PAT% 13.36% 11.79% 18.33% 24.37% 29.94%
CMP(24-JUNE-2009)
(IN Rs.) 151.75 151.75 151.75 151.75 151.75
51
P/E 13.77 13.38 7.17 4.49 3.05

EPS(IN Rs.) 11.02 11.34 21.17 33.77 49.79
EV(IN Rs. CRORES) 4044.08 4501.25 4597.00 4699.03 4807.29
ROE 18.48% 17.14% 24.77% 30.57% 34.81%
EV/EBITDA 7.47 7.02 5.07 3.78 2.89
NO.OF SHARES 222652271 222652271 222652271 222652271 222652271
SONA KOYO STEERING SYSTEMS LTD.
Sona Koya Steering Systems Ltd, with a Market Share of 50% is the largest manufacturer of
Steering gears in India and a leading supplier of Hydraulic Power Steering Systems, Manual
Rack & Pinion Steering Systems, Collapsible, Tilt and Rigid Steering Columns for Passenger
Vans and MUVs. In addtion to this the Companies product also includes Rear Axle Assemblies
and Propeller Shafts.The Company is a Technical and financial Joint Venture Company of Koyo
Seiko Company, Japan, a global technology leader in Steering Systems.
The company has technical Collaboration from Koyo Seiko Company, Japan and Mando
Machinery Corp of Korea. Koyo Seiko Company hold 20.47% Equity Stake of the company.
The Companies Plants are located at Chengalpattu, Tamilnadu and Gurgaon, Harayana
Some of the companies Customers are Brakes India, Denso India, Eicher (Tractors), Hindustan
Motors Ltd, Hyundai Motors, Keihin Panalfa (Honda Siel), Koyo Steering Thailand, Mahindra
& Mahindra, Koyo Steering, USA, Maruti Udyog, Maval Manufacturing Inc, Punjab Tractors
Ltd, San Motors, Sona Somic Lemforder, Tata Motors, Toyota Kirloskar Motors,TVS-Suzuki.
Sona Steering Systems, incorporated in June1984, commenced business in September 1985 as a
52
key supplier to Maruti Udyog ltd. The company commenced commercial production in 1st
October 1987 after completion of project for manufacture of Rack & Pinion Steering Gears and
Steering columns with a capacity of 125000 Nos. Sona Koya is the Market Leader in the Indian
Steering systems category in volume terms with over 50% share and in value terms it is second
largest player with over 30% share. This imbalance is mainly due to sona's product mix, still the
low value manufacturing steering systems contributes more to sales than power steering
systems.
Financial Analysis
Financial analysis:
Net sales declined marginally by 0.40% during the current quarter March 2009 to Rs. 193.55 cr
from Rs. 194.32 cr in the same period last year. EBIDTA hiked by 79.85% during Q4FY 09 to
Rs. 14.10 cr against Rs. 7.84 cr in Q4 FY08. The EBIDTA marginwas up 300bps at 7% during
the quarter. The Operating Profit increased 173.68% to Rs. 7.28 cr during the current quarter
March 09 against Rs. 2.66 cr. during the corresponding quarter last year. The interest cost hiked
tremendously to Rs. 14.80 cr during Q4 FY09 to from Rs. 0.60 cr in Q4 FY08 due to which
the company booked net loss of Rs. 4.83.cr, a 535.14% decline in net profit Q‐o‐Q basis.
The EBIDTA for the FY09 reduced 81.12% to Rs. 11.54 cr from Rs. 61.13 cr in FY 08 and
there was operating loss of Rs. 13.54 cr during the year ended Mar 2009.
Conference call highlights

We recently met the management of Sona Koyo Steering Systems Ltd (SKSSL). We
came back postive on (1) focus on the domestic market (90% of revenues) as compared to
export market till recent past, (2) improvement in operating margins (by 510 bps to 7.3%) due
to combination of benefits of decline in metal price and cost reduction initiatives during past six
months. (3) improvement in DE ratio (current DE is 1.4x due to lower capex/investment
requirements. However, we are still concerned about (1) the probable loss in subsidairy/JV Jtek
Sona Automotive India Ltd (JSAIL) and Sona Fuji Kiko Automotive Ltd (SFKAL) in the initial
phase of operations from 4QFY10 (2) the forex fluctuations as company raw material imports
accounts for 30% of sales and (3) high interst and depreciation expense that will consume most
of the operating profits. A strong volume growth by Maruti, Hyundai and M&M (the top three
customers of SKSSL accounting for 80% of revenues) and subsidizing cost pressures, does
53
indicate adequate scope for positive surprises by SKSSL in FY10. However, a strong 1QFY10
operating performance is a pre-requisite to bring back the investor confidence as SKSSL has
not delivered the desired performance in the recent past. At Rs 10, the stock trades at PER, Cash
PER and EV/EBIDTA of 39.5x, 6.5x and 4.7x ourFY10 estimates.
Key extracts of the meeting are as follows

Revenue mix
Company reported sales of Rs 7 bn with steering system group accounting for 65% of the
revenues and driveline group accounting for 35% of the revenue
Key Customers
Maruti is the largest customer with 55% share. However, an important change in the customer
profile is increasing share of domestic customers as compared to exports.Management has
indicated that exports are likely to register a decline of 7% to 10% in FY10. More importantly,
SKSSL will be able to divert the capacity created initially for the export markets to the
domestic market.
Capex and Investments

In last three years, SKSSL has invested around 3.0 bn in creating capacity (directly as well as
through subsidiaries – JSAIL, SFKAL, AAM Sona Stampings and Arjan Stampings) with a
focus on export markets. As a result currently, SKSSL is operating at around 60%. capacity
Further capex plans have been put on hold. Company expects a capex and investments of
not more than Rs 200 mn, of which Rs 50 mn would be maintenance capex.
Leverage position
Currently, it has a debt of Rs 2.4 bn in form of term loans. The effective interest rate is around
11.5% linked to PLR. The current DE is around 1.4 and SKSSL expects the same to improve,
considering free cash flow generation in standalone business and the key subsidiaries JSAIL
and SKFAL commencing operations in 3QFY10/4QFY10.
EBIDTA margins improvement
54
In FY09, the company was affected by cost increases (metal prices and currency fluctuations)
as well as inability to pass on the cost increases to the OEMs. In FY10, the company expects to
benefit from lower metal prices and compensation from OEMs for not sharing the costpressures
in FY09. For instance, Maruti has already agreed to forgo the annual price reduction of 2% to
3%. Similarly, benefits are likely to materialize from other customers. Also, company is
discussing with OEMs the manner in which the metal cost fluctuations (price movements as
well as currency movements) can be settled in a structured manner. Apart from raw materials,
SKSSL has undertaken rigorous cost reduction initiatives under various cost head over last 6
months. A large part of the cost reduction efforts are permanent in nature and the benefits of the
same will start reflecting in FY10, there by aiding EBIDTA margins improvement.
Localization of Column – EPS

Localization of CEPS is on track amd expects localization to reach around 70% by January
2010 as compared to current level of localization of 40%. This should significantly reduce
the import bill (currently 30% of sales).
Overview
Sona Koya Steering Systems Ltd, is the largest manufacturer of Steering gears in India and a
leading supplier of Hydraulic Power Steering Systems, Manual Rack & PinionSteeringSystems,
Collapsible, Tilt and Rigid Steering Columns for Passenger Vans and MUVs with a totalMarket
Share of 50%. In addition to this the Companies product also includes Rear AxleAssembliesand
Propeller Shafts. The Company is a Technical and financial Joint Venture CompanofKoyoSeiko
Company, Japan, a global technology leader in Steering Systems. The company isalsosupplying
case differential assembly for new models of Fiat India and MarutiSuzuki; manual steering
gears for Toyota and Maruti Suzuki and new column for Tata.

Sona Koyo’s prospects are derived from demand arising in the Auto industry. Currently,
industry valuation is subdued as Earnings are under pressure due to the sluggish demand and
high raw material cost pressures. We expect the company’s Margin to remain under pressure
going ahead due to the high raw material costs and could impact its Bottom-line.
55
However, incremental orders from existing and new clients and increasing localization would
help the company, to some extent, mitigate effects of slow down in growth and margin pressure.
At the CMP of Rs.10.59, Sona Koyo is quoting at a PE of 4.07x AND 4.21x FY10E and FY11E
earnings. It’s FY10E and FY11E of EPS Rs.0.24 and Rs.0.22.Hence, we recommend BUY on
the stock with a Target price of Rs.15 which discounts its FY10E by 6x.

Sona Koyo Steering Systems Ltd
(Curr: Rs in Cr.)
2007 2008 2009E 2010E 2011E

SOURCES OF FUNDS :
Share Capital 18.47 19.39 19.39 19.39 19.39
Reserves Total 114.94 162.06 178.27 196.09 215.70
Secured Loans 95.53 115.05 126.56 139.21 153.13
Unsecured Loans 0.38 70.00 77.00 84.70 93.17
Total Debt 95.91 185.05 203.56 223.91 246.30
Gross Block 231.46 374.57 449.48 539.38 647.26
Less : Accumulated
Depreciation 93.87 110.42 121.46 133.61 146.97
Net Block 137.59 264.15 328.02 405.77 500.29
Investments 29.87 51.35 51.35 51.35 51.35
56
Advances
Inventories 30.45 25.35 27.89 30.67 33.74
Sundry Debtors 81.10 70.59 77.65 85.41 93.96
Cash and Bank 1.54 14.87 16.36 17.99 19.79
Provisions
Provisions 9.82 10.60 11.66 12.83 14.11
written off 4.51 3.02 3.02 3.02 3.02
Net Deferred Tax -20.95 -26.69 -26.69 -26.69 -26.69
Total Assets 229.32 366.50 437.84 523.80 627.35

Sona Koyo Steering Systems Ltd
(Curr: Rs in Cr.)
2007 2008 2009E 2010E 2011E
INCOME :
Sales Turnover 704.16 827.29 910.02 1001.02 1101.12
Excise Duty 99.29 114.73 126.20 138.82 152.71
Net Sales 604.87 712.56 783.82 862.20 948.42
Other Income 3.81 6.93 6.93 6.93 6.93
Stock Adjustments 1.05 -1.1 -1.10 -1.10 -1.10
Total Income 609.73 718.39 789.65 868.03 954.25
EXPENDITURE :
Raw Materials 425.43 503.94 554.33 609.77 670.74
Power & Fuel Cost 7.99 9.65 10.62 11.68 12.84
Employee Cost 36.35 46.95 51.65 56.81 62.49
Expenses 51.31 60.84 66.92 73.62 80.98
57
Less: Pre-operative Expenses

Capitalised 0 0 0.00 0.00 0.00

Interest 9.31 12.68 13.95 15.35 16.88
Gross Profit 54.01 56.22 61.26 66.80 72.89
Depreciation 12.43 16.78 20.84 25.78 31.78
Tax 11.75 7.55 8.31 9.14 10.05
Deferred Tax 1.6 5.74 5.74 5.74 5.74
Extraordinary Items 0.23 -0.02 -0.02 -0.02 -0.02
Adjst. below Net Profit 0 0 0.00 0.00 0.00

Statutory Appropriations 0 0 0.00 0.00 0.00
Appropriations 17.94 18.13 19.94 21.94 24.13
Dividend 6.79 6.95 6.95 6.95 6.95

Preference Dividend 0 0 0.00 0.00 0.00
Equity Dividend % 35 35 35.00 35.00 35.00
KEY RATIOS
2007 2008 2009E 2010E 2011E
EBITDA% 10.47% 9.67% 9.59% 9.53% 9.47%
PBT% 6.87% 5.53% 5.16% 4.76% 4.33%
PAT% 4.54% 3.54% 3.24% 2.92% 2.57%
CMP(24-JUNE-2009)
(IN Rs.) 10.59 10.59 10.59 10.59 10.59
P/E 3.73 4.07 4.04 4.07 4.21
EPS(IN Rs.) 2.84 2.60 2.62 2.60 2.52
EV(IN Rs. CRORES) 197.04 272.85 289.87 308.58 329.18
ROE 20.60% 13.89% 12.87% 11.70% 10.37%
EV/EBITDA 3.11 3.96 3.85 3.76 3.67
NO.OF SHARES 96947235 96947235 96947235 96947235 96947235
58
CONCLUSION
The Indian auto sector had one of the longest and strongest positive market cycles in its history
between fiscal 2003 and fiscal 2007, achieving a compounded annual growth rate (CAGR) of
18% for cars and 26% for commercial vehicles. However, the growth rate during the current
fiscal slowed markedly due to various factors such U.S and Europe demand slowdown , tighter
liquidity and higher interest rates. The low growth environment will continue through the
remainder of the current fiscal due to poor consumer sentiment.
Passenger car market will exhibit slower growth over the remainder of fiscal 2009 but will
grow with the number of new launches scheduled later in the year.
The passenger car industry will grow at around 10% to 12% over the medium term due to
expected credit availability, soft discounts and new launches.
The continued growth of the Indian economy, reflected in increased consumer spending, and
the growing disposable incomes of a vibrant and an aspirational middle-class is the key
drivers of the Indian market potential also implementation of 6th pay commission .
Major worry is that while the number of vehicles will grow rapidly, the related road
infrastructure will face added pressure to sustain the increased vehicular movement, particularly
in the major metros.
59
Volatile raw material and input costs, especially oil and steel, will continue to have a pervasive
impact on the operating profitability.
The presence of global competition has led to an overall increase in capabilities and the quality
of the Indian automobile sector. Increase in competition has led to a pressure on margins and
players have become increasingly cost efficient. Quality levels have gone up and there is an
increasing focus on compliance to Total Productivity Management (TPM), Total Quality
Management (TQM).
The auto ancillary industry, directly related to the automobile industry, produce various
components from gearboxes to fuel injection equipments to pumps. The industry has been
expanding to match and take advantage of the expanding domestic market. Also it has
broadened its reach into international market with overseas acquisitions, joint ventures etc.
The future of Indian Automobile market is bright as it looks forward to manufacturing and
implementing new innovations such as electric cars as provided by Reva, alternate fuels like
CNG and LPG, and probably customized Internet automobile orders.
60
BIBLIOGRAPHY
 Website of Society Of Indian Automobile Manufacturers (SIAM)
 www.siamindia.com
 Company Websites
 www.marutiudyog.com
 www.bharatforge.com
 www.sonagroup.com
 www.mahindra.com
 Capitaline
 www.latinmanharlal.com
 www.automobileindia.com
 www.automonitor.co.in/
 www.bseindia.com
 www.nseindia.com
 www.indiaearnings.moneycontrol.com
 Auto Components Manufacturers Association of India
61

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ANALYSIS OF AUTO & AUTO ANCILLARY SECTOR

N L DALMIA INSTITUTE OF MANAGE MENT STUDIES AND RESEARCH

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF

UNDER THE GUIDANCE OF

N.L.DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

I am grateful to Prof. P. L. Arya, Director, N L Dalmia Institute of Management Studies and

SANJAY JAYA SHETTY

Sr. no Topic Page No.

A. Indian Auto Sector 8-14

B. Indian Auto Ancillary Sector 15-19

3. Impact Of Budget 20-24

4. Trends- Production, Domestic Sales, Exports 25-28

A. Maruti Suzuki India Ltd. 29-38

B. Mahindra and Mahindra 39-46

C. Bharat Forge Ltd. 47-52

D. Sona Koyo Steering Systems Ltd. 53-59

EVOLUTION OF INDIAN AUTOMOBILE INDUSTRY

invited by Government to establish an auto component manufacturing industry. The Auto

INTRODUCTION- INDIAN AUTO SECTOR

Indian Automobile Industry

FDI in the automobile sector

THE NANO REVOLUTION

MERGER AND ACQUISTION AND PE DEALS

Testing and Certification

INTRODUCTION- INDIAN AUTO ANCILLARY SECTOR

Nearly two-thirds of the auto component production is consumed directly by Original

Moreover the automotive components industry is perceived as a lucrative sector with

are witnessing continuous growth. Global automobile manufactures see India as a

 The cost competitiveness in terms of labor and raw material

a close second at 26 per cent.

Pre-budget Demands of the Automotive Industry

Budget Proposals Directly Impacting the Indian Automotive Industry

 Excise duty on small cars reduced to 14 percent

Timely Relief for Tapering Sales

Revision of Tax Slabs Affecting Affordability

Green Technology Booster

TRENDS-PRODUCTION, DOMESTIC SALES, EXPORTS

Domestic Market Share for 2008-09

Total Passenger Vehicles 15.96%

Total Two Wheelers 76.49%

Three Wheelers 3.6%

Segment Major Players

Hero Honda, Honda Motors, Bajaj Auto, TVS Motors, Yamaha,

Three Wheelers Bajaj Auto, Piaggio India.

Automobile Production Trends (Number of

Automobile Domestic Sales Trends (Number

Three Wheelers 231,529 284,078 307,862 359,920 403,910 364,781 349,719

Automobile Exports Trends (Number of

MARUTI SUZUKI INDIA LTD.

 Modernization of the Indian Automobile Industry.

The sales figures for May 2009 are given below:

In May Till May

Model wise Break up of Sales

722144 711818 1.5%

Highlights of the annual sales conference call

Key investments risks

 Higher commodity prices, appreciating Yen may impact margins negatively.(