Government planning to come up with a vehicle scrappage policy in near future.

Government planning to come up with a vehicle scrappage policy in near future, And, a cursory view of Maruti-Suzuki’s stock.

It’s nature’s rule to get rid of the old and make way for the new. If we see this through the commercial lens, we observe that old products get replaced by the new ones based on the market’s demand. Sometimes, when the market is not ready for the new product (but that’s the need of the hour) then, the government has to step in and introduce the innovation, or rather impose it upon the market. We’re talking about this today because there’s one such situation on cards.

Road Transport and Highways Minister Nitin Gadkari has recently stated that the policy is drafted and needs clearance from the finance ministry and some other stakeholders. He also said that the policy implementation would be one of the steps to boost the industry as it would reduce production. The policy is aimed at boosting the demand by eliminating the fleet of old polluting vehicles.

What Does This Mean for the Auto Industry?

Since last few years, the Bharat Stage norms are being upgraded. It’s also essentially required to control pollution levels. But, due to the lack of a proper scrappage policy, not only the people are confused as to what to do with their grand old vehicles, but so are the automakers. The scrappage policy if implemented soon and effectively would help clear a lot of clutter. This in turn would boost the demand as well.

A boost in demand is severely required for the ailing auto industry. The lockdown has only made the situations worse. Hence, the policy is sincerely awaited by the automobile manufacturers. But, as the draft has still not been made public, nothing concrete can be said about its futuristic effect.

Snippets

Government plans to implement a vehicle scrappage policy in near future.

If implemented effectively, the policy might boost demand.

In today's stock brief, have a look at the stock of Maruti-Suzuki.

Today's Stock Brief - MSIL

Maruti Suzuki India Limited (MSIL), formerly known as Maruti Udyog Limited is a leading automobile manufacturer in India had revenue from Operations clocked a CAGR of close to 14.5% over the past 5 years. In FY2019, the Company’s revenues stood at INR 860 Billion, with a YOY growth of 7.9% and an Operating Profit Margin of nearly 9.6%. The contribution from the rural market accounts for nearly 40% of revenue which has shown a good YOY growth (19.04%) whereas the implementation of BS-VI norms compelled MSIL to announce its exit from the diesel segment due to its high costs. The company earlier had seen much success from diesel variants of Ciaz, Swift, and Baleno. Sales for Q3FY20 were at INR 207 Billion, with YOY growth of 5% and an OPM 6.01%.

MSIL has maintained its strong financial risk profile with large net worth Rs 46,141 crore and liquidity of Rs 42,264 crore and Rs 34,155 crore, respectively but it has experienced a decline of 44.1% in operating cash flow and 76.1% in free cash flow to the company. It is virtually debt-free and have a good interest coverage ratio of 139.07 with ROE and ROCE of the company stood at 17.07% and 23.91% respectively which are better than industry standards. MSIL is generating a constant dividend of Rs 80 annually with a dividend payout ratio of 38.8%.

 Strengths

• Company has been maintaining healthy ROCE of 22.64% over the past 3 years.
• Company is virtually debt-free.
• Company has a healthy interest coverage ratio of 54.16.
• The company has an efficient Cash Conversion Cycle of -18.73 days.
• The company has a high promoter holding of 56.28%.

Limitations

• The company has shown a poor profit growth of -8.39% for the past 3 years.
• The company has shown a poor revenue growth of 3.58% for the past 3 years.

Company News

• Maruti Suzuki reports a 26% rise in September production8 Oct, 9:37AM
• Maruti Suzuki sells 5.5 lakh units of Brezza in 4.5 years of launch6 Oct, 12:53PM
• Maruti Suzuki India posts total sales of 160,442 units in September 20205 Oct, 2:44PM
• Maruti Suzuki India''s S-Presso crosses 75,000 unit sales in the first year of launch3 Oct, 11:49AM
• Maruti Suzuki India revises prices of Super Carry BS-VI compliant variants

Maruti Suzuki Stock Price Analysis and Quick Research Report. Is Maruti Suzuki an attractive stock to invest in?

 

The Indian Auto Industry comes in the top 5 largest auto industries of the world. India is also a prominent auto exporter and has strong export growth expectations for the near future. The support from the government is providing the auto companies with a boost needed in their development. But will it sustain?

We can look into more details and dig a little deeper into the analysis of the stock of this sector. Let’s look at how Maruti Suzuki is performing and if it is the right time to buy the stock of Maruti Suzuki with detailed analysis.

The mainstream of revenue for Auto Sector is their sales, Maruti Suzuki has reported poor sales growth of -12.10 % and in the latest quarter sales was Rs 4,106.50 Cr. To judge whether the company’s inventory is being sold or not and the sales picture is true, the inventory turnover ratio plays a major role, which is 23.12 times for Maruti Suzuki. It is managing its inventory efficiently. 

 

The company reported Profit loss of -24.66 % over the year, where the latest year profit is Rs 5,650.60 Cr compared to the previous year of Rs 7,500.60 Cr. The new permits by governments and increasing demand will lead to an increase in profits in the coming year.

 

The operating profit of the company in the latest quarter is Rs 454.90 Cr. It helps in measuring the company’s operating performance which is used to make financing decisions.

 

Maruti Suzuki has an average ROE of 11.95 %. The ROE is an important financial parameter because Auto companies work with high equity investments. Also, they have to take huge debt to incur the research and manufacturing work so their Debt to Equity ratio should be evaluated. Maruti Suzuki has a low Debt to Equity ratio of 0.00.

 

Maruti Suzuki pays a dividend of 60 Rs per share. It tells us that a company dislikes to share profits with its shareholders. The dividend yield is low at 0.85 %.

 

The share of the promoter in the company is high at 56.28 %, where the pledging is 0 %.

 

What the market is willing to pay for the company for its earnings can be determined by PE multiple. Current PE of Maruti Suzuki is 54.09 compared to the 5-year average PE of 26.03.

Brief about Maruti Suzuki

Maruti Suzuki India Limited (MSIL),  formerly known as Maruti Udyog Limited,  a subsidiary of Suzuki Motor Corporation of Japan,  is India''s largest passenger car company,  accounting for over 50 per cent of the domestic car market. Maruti Udyog Limited was incorporated in 1981 under the provisions of Indian Companies Act 1956 and the government of India selected Suzuki Motor Corporation as the joint venture partner for the company. In 1982 a JV was signed between Government of India and Suzuki Motor Corporation.

It was in 1983 that India’s first affordable car,  Maruti 800,  a 796 cc hatchback was launched as the company went into production in a record time of 13 months.

More than half the number of cars sold in India wear a Maruti Suzuki badge. They are a subsidiary of Suzuki Motor Corporation Japan.  The company offer full range of cars- from entry-level Maruti 800 & Alto to stylish hatchback Ritz,  A star,  Swift,  Wagon R,  Estillo and sedans DZire,  SX4 and Sports Utility vehicle Grand Vitara.

Since its inception,  the company has produced and sold over 7.5 million vehicles in India and exported over 500, 000 units to Europe and other countries.

They were born as a government company,  with Suzuki as a minor partner,  to make a people''s car for middle-class India. Over the years,  its product range has widened,  ownership has changed hands and the customer has evolved. What remains unchanged,  then and now,  is their mission to motorise India.      MSIL’s parent company,  Suzuki Motor Corporation,  has been a global leader in mini and compact cars for three decades. Suzuki''s technical superiority lies in its ability to pack power and performance into a compact,  lightweight engine that is clean and fuel-efficient.   The same characteristics make their cars extremely relevant to Indian customers and Indian conditions. Product quality,  safety and cost consciousness are embedded into their manufacturing process,  which they have inherited from their parent company.

Right from inception,  Maruti brought to India,  a very simple yet powerful Japanese philosophy ''smaller,  fewer,  lighter,  shorter and neater''

From the Japanese work culture, they imbibed simple practices like an open office,  a common uniform and common canteen for everyone from the Managing Director to the workman,  daily morning exercise,  and quality circle teams.

Maruti Suzuki exports entry-level models across the globe to over 100 countries and the focus has been to identify new markets. Some important markets include Latin America,  Africa and South-East Asia. Interestingly with a brand new offering A-star,  Maruti Suzuki is ready to take on European markets. Maruti Suzuki sold 53, 024 units during 2007-08. This is the highest ever export volume in a year for the company and marked a growth of 35 per cent over the previous year. Maruti Suzuki has exported over 552, 000 units cumulatively with about 280, 000 units to Europe and Israel.

Maruti Suzuki has two state-of-the-art manufacturing facilities in India. The first facility is at Gurgaon spread over 300 acres and the other facility is at Manesar,  spread over 600 acres in North India.         The Gurgaon facility - Maruti Suzuki''s facility in Gurgoan houses three fully integrated plants. While the three plants have a total installed capacity of 350, 000 cars per year,  several productivity improvements or shop floor Kaizens over the years have enabled the company to manufacture nearly 700, 000 cars/ annum at the Gurgaon facilities.

The Manesar facility - Its Manesar facility has been made to suit Suzuki Motor Corporation (SMC) and Maruti Suzuki India Limited''s (MSIL) global ambitions. The plant was inaugurated in February 2007. At present, the plant rolls out World Strategic Models Swift,  A-star & SX4 and DZire.The plant has several in-built systems and mechanisms.

Diesel Engine Plant- Suzuki Powertrain India Limited - Suzuki Powertrain India Limited the diesel engine plant at Manesar is SMC''s & Maruti''s first and perhaps the only plant designed to produce world-class diesel engine and transmissions for cars. The plant is under a joint venture company,  called Suzuki Powertrain India Limited (SPIL) in which SMC holds 70 per cent equity the rest is held by MSIL. This facility has an initial capacity to manufacture 100, 000 diesel engines a year. This will be scaled up to 300, 000 engines/annum by 2010.

In 2012 Senior management members were injured as workers resort to violence at Maruti Suzuki’s Manesar plant.

The product range of the company includes:

It offer full range of cars- from entry-level Maruti 800 & Alto to stylish hatchback Ritz,  A star,  Swift,  Wagon R,  Estillo and sedans DZire,  SX4 and Sports Utility vehicle Grand Vitara.

Maruti Alto 800

Omni

Gypsy

Zen Estilo

Wagon R

Versa

A- Star

Ritz

SX4

Dzire

Grand Vitara

Ertiga

Celerio

(SOURCE- TICKER FINOLOGY)

Conclusion

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