| Maruti Suzuki India Limited | ||||||
| Ratings Reaffirmed | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of Maruti Suzuki India Limited (MSIL).
MSIL, on July 31, 2023, made an announcement stating it will acquire 100% shares of Suzuki Motors Gujarat Pvt Ltd (SMG) from Suzuki Motors Corporation, Japan (SMC). SMG is a 100% subsidiary of SMC having its manufacturing facility at Hansalpur, Gujarat. It has the capacity to produce 7.5 lakhs vehicles per annum and has three assembly lines. SMG has exclusive contract manufacturing agreement (CMA) with MSIL to produce the vehicles and sell at cost basis. Together with its own capacity of ~15 lakhs per annum, MSIL has the capacity to produce ~22.5 lakhs vehicles per annum. SMC is also the promoter company of MSIL holding 56.48% stake in the company as in July 2023. With the growth of Indian car market and export potential, MSIL management has indicated that managing this scale and complexity of production with multiple powertrains, under different management would pose several challenges to the vision of achieving 40 lakhs per annum of production capacity in the next 7-8 yrs. Considering this and for the purpose of efficiency in production and supply chain, MSIL’s Board of Directors approved termination of the contract manufacturing agreement with SMG. SMC is a technology provider for manufacturing CNG, hybrid, ethanol, and emerging electric vehicle technologies to MSIL. To stay ahead of competition in the rapidly evolving automobile industry, SMC will require more focus on research and development in emerging technologies. The current acquisition plan simplifies the holding structure, making the production process more efficient with multiple powertrains under single management of MSIL. This will also improve the focus of SMC towards innovation and development of cutting-edge latest automobile technologies. Also with the current acquisition plan, MSIL will terminate the exclusive contract manufacturing agreement with SMG subject to all regulatory and shareholders’ approval.
In its recent Board meeting, MSIL announced that it will be issuing fresh equity shares to SMC towards acquisition of 100% shares of SMG basis preferential allotment and there will be no cash outgo for this transaction. The number of shares to be issued and the terms and conditions have not been announced yet and will be announced in a future Board meeting which will then be put up for approval by the shareholders.
Business risk profile of MSIL remained robust in fiscal 2023 with company remained the largest automobile company in PV segment with 41.3% market share. Total volume in fiscal 2023 grew 19% YoY to 19.66 lakhs units (16.52 lakhs units in fiscal 2022). During the year the company’s revenue grew 33% on the back of increased volumes and better realizations. Operating profit margin also improved to 9.4% in fiscal 2023 compared to 6.5% in fiscal 2022 driven by better product mix and softening raw material cost. Total volume in Q1 of fiscal 2024 increased 6.4% to YoY to 498,030 units.
Financial risk profile of the company remained robust with interest coverage ratio improving to 62.07x in fiscal 2023 compared to 49.37x in fiscal 2022. Gearing stood at 0.02x as on March 31, 2023. Liquidity in the company remained superior with ~Rs 47,000 crores of cash and cash equivalents available as on March 31, 2023. Since the current acquisition transaction does not involve any cash outgo or debt, the financial risk profile of MSIL is expected to remain robust and liquidity will continue to remain superior. |
Analytical Approach For arriving at its rating, CRISIL Ratings has consolidated the business and financial risk profiles of MSIL along with its 100% owned subsidiaries, J.J Impex (Delhi) Private Limited and True Value Solutions Limited.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Dominant market position in the domestic passenger vehicle (PV) segment: MSIL dominates the PV segment, reflected in its market share of 41.3% in fiscal 2023 despite intense competition from Hyundai Motors India Ltd, Kia Motors and Tata Motors Ltd which have sizeable presence in the fast-growing sports utility vehicle segment market in India. The entry level segment where MSIL is dominant is seeing soft demand due to change in customer preference and availability of feature laden SUVs at attractive price points. Through their new offerings in utility vehicle segment especially Maruti Suzuki Brezza and Grand Vitara, the company increased its market share in the utility vehicle segment to 20% in fiscal 2023. Recently the company launched its premium SUV Maruti Suzuki Invicto, Fronx and Jimny which will further improve MSIL offering in the high end, high margin SUV segment.
In the recent past, the company successfully launched new models (Jimny, Fronx, Ignis, New Baleno, New Vitara Brezza, New Swift, New Ertiga, New WagonR, S-Cross, XL6 and S-Presso,) in the mid-to-premium segments, which has improved its product portfolio. Success of existing models, combined with expanding product portfolio primarily in CNG variants (which has been growing) has solidified its dominant market position. For instance, in fiscal 2023, MSIL had 7 models in the list of top 10 models sold during the year. Over the medium term, the company will continue to launch new models in the mid-to-premium segment, while focusing on the entry segment. CRISIL Ratings believes MSIL will maintain its market leadership over the medium term, due to its strong product portfolio and distribution network.
MSIL has effectively leveraged its association with its parent, SMC, which has extended product development support, shared technological expertise, and provided access to a broad product range. Besides manufacturing vehicles at its own plants in Gurgaon and Manesar in Haryana, it sources vehicles from SMC's wholly owned subsidiary SMG, under a contract manufacturing arrangement, wherein the vehicles are being sold to MSIL at cost. The project has been implemented with 3 plants of 250,000 units capacity each. MSIL is also expected to launch their EV vehicle portfolio by 2025.
High operating efficiencies engendering cost competitiveness: MSIL's operating efficiency is among the best in the industry, supported by continuous process improvement, high indigenization, established linkages with component suppliers, and flexible manufacturing processes, resulting in effective cost control. Although, the company’s operating margin had declined in the previous years on the account of increasing commodity prices and paucity of semiconductor, the operating margins improved to 9.4% in fiscal 2023 from 6.5% in fiscal 2022 driven by softening raw material cost, better availability of semiconductor chip and better product mix.
Strong financial risk profile: MSIL has maintained its strong financial risk profile with estimated large net worth and liquidity of ~Rs.61,000 crore and ~Rs.47,000 crore, respectively, as on March 31, 2023. The company has a strong cash generating ability and has only small working capital debt. CRISIL expects MSIL's key credit metrics to remain at robust levels, as the current 100% share purchase transaction of SMG from the parent SMC will not involve any cash outgo and will be done by issuance of equity shares basis preferential allotment to SMC. Also the annual net cash accruals (NCA) to upwards of Rs 11,000 cr. will be sufficient for annual capex of Rs 10,000-11,000 cr. without taking any debt in the near to medium term.
Weakness: Susceptibility of profitability and market share to intense competition and business cycles: The Indian PV market remains highly competitive, with existing and new players launching new models regularly, especially in the compact and mid-size utility vehicle segment. The number of players in this segment increased to 19 in fiscal 2021 from 7 in fiscal 2008. With more players and models vying for a share of the growing pie, competition in the domestic PV market will intensify. The domestic PV industry has experienced multiple headwinds in the past decade, with fiscals 2020 and 2021 witnessing steep fall in volumes. Also, MSIL’s peers have introduced higher number of SUV models earlier and also managed to arrange for semi-conductor chips, which resulted in a dip in overall marker share for MSIL as well. CRISIL Ratings believes that MSIL's market position and operating profitability will depend on its ability to launch successful new variants and models in the domestic market.
This does impact the return on investments made, with most automotive OEMs making heavy investments for complying with regulations. MSIL though appears better placed than most of its peers. |
Liquidity: Superior MSIL has superior liquidity, on account of healthy cash accrual and liquid surplus of over ~Rs 47,000 crore as on March 31, 2023. Cash accruals generated would suffice to meet the incremental capex plans and working capital requirements towards capacity expansion and regular maintenance capex. Financial flexibility is further enhanced by largely unutilized bank lines of Rs. 5000 crores. |
Outlook: Stable CRISIL Ratings believes that MSIL will maintain its dominant position in the domestic PV segment, supported by a large and successful product portfolio, new launches, strong distribution network, and access to SMC's technology. The company is likely to maintain its robust financial risk profile. Its liquidity position is also expected to remain superior. |
Rating Sensitivity factors Downward factors
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About the Company Incorporated in 1981, MSIL is the market leader in the domestic passenger car industry. In 1982, the Government of India (GoI) and SMC entered into a joint venture agreement, whereby SMC acquired a 26% stake in MSIL. SMC currently holds 56.48% stake in MSIL. By September 2007, GoI had offloaded its equity to Indian financial institutions, including banks and mutual funds.
MSIL currently has 18 models with over 150 variants across segments. These include (i) the mini segment: Alto K10, and S-Presso; (ii) the compact segment: Wagon R, Swift, Celerio, Ignis, Dzire, and Baleno; (iii) C (super compact) segment: Tour S; (iv) the mid-sized sedan segment: Ciaz; (v) the vans segment: Eeco; (vi) the UV segment: Ertiga, Brezza & XL6, Jimny, Fronx, Grand Vitara, Invicto ; and (vii) the LCV segment: Super Carry. The company has manufacturing facilities in Gurgaon and Manesar. Along with SMG's unit in Gujarat, total installed capacity is around ~2.25 million units per annum. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Including Interchangeable facilities with Letter of Credit, Bank Guarantee, Cash Credit or Overdraft facility |
Annexure - List of Entities Consolidated
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Criteria Details
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