| Maruti Suzuki India Limited | ||||||
| Rated amount enhanced | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Maruti Suzuki India Limited (MSIL) at 'CRISIL AAA/Stable/CRISIL A1+'.
After a difficult year in fiscal 2021 for the automobile industry, MSIL’s sale volumes increased by ~13% in fiscal 2022, supported by personal vehicle demand rising and on a low base of the previous year. Revenues could have been higher but for chip shortages, which continued to impact production. Net revenues increased by almost 25% over fiscal 2021, on the back of increased volumes and higher realization per vehicle. The company increased prices of their vehicle gradually during the year and reduced the discount offered. Higher commodity prices and shortage of semiconductors effected capacity utilization of the company. However, operating profitability was impacted in fiscal 2022, dropping to 6.5% from 8.6% in the previous year, due to high commodity prices. MSIL also registered their highest export in fiscal 2022, selling 238,376 units (96,139 units in fiscal 2021). The company is expected to remain committed towards higher exports. However, MSIL’s market share moderated to 43% in fiscal 2022 compared to 47% in fiscal 2021, due to semi-conductor shortage because of which the company has a bigger backlog of 320,000 units,.
The gradual easing of the semi-conductor chip shortages and continuing buoyant demand augur well for MSIL, which had an order back log of 320,000 vehicles at March 31, 2022. Sale volumes in fiscal 2023 are expected to register double digit growth, also supported by good orders for new launches in the SUV segment (new Brezza and Grand Vitara). Operating margins are also expected to benefit from softening commodity prices, increased sale of SUVs and savings due to forex on royalty payments to its parent, Suzuki Motor Corporation, Japan (SMC).
Financial risk profile and liquidity remain robust with negligible debt and cash surplus of over Rs. 42,000 crore as on March 31, 2022. Company is expected to undertake sizeable capex in the next 2-3 years (Rs.11000 crore for phase 1 of new plant being set up in Haryana (IMT Kharkhoda) – initial capacity – 250,000 nos,) and for routine modernisation and upgradation, as well as new product launches. The new plant is expected to be commissioned in 2025. No material debt raising is expected, resulting in sustained strong financial risk metrics and profile. |
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 43% in fiscal 2022 despite intense competition from Hyundai Motors India Ltd, Kia Motors and Tata Motors Ltd which have sizeable presence in the fast growing SUV 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. This too has contributed to moderation in market share for MSIL.
In the recent past, the company successfully launched new models (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 2022, MSIL had 8 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. Company dominates the small car segment with over 80% market share. 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 in Gujarat, Suzuki Motor Gujarat (SMG), under a contract manufacturing arrangement, wherein the vehicles is been sold to MSIL at cost. The project has been implemented with 3 units of 2,50,000 units capacity each. The company commenced operations in Plant I from February 2017. Plant II and powertrain plant from January 2019. Plant III operations has also begun from April 2021, taking total capacity of the Gujarat plant to 7.5 lac units annually and cumulative installed capacity of MSIL plus SMG to 20.5 lac units, which will add incremental revenue to the company. The parent along with Toyota Motors are also sharing the technology for manufacturing electric vehicles. Company is 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 declining in the recent years on the account of increasing commodity prices and paucity of semiconductor, it is expected to improve in the medium term with gradual decline in commodity prices and ramp up of semiconductor chips in the medium term. CRISIL expects the operating profitability margins to improve to ~7%-8% in the medium term.
Strong financial risk profile: MSIL has maintained its strong financial risk profile with estimated large net worth and liquidity of Rs.54,000 crore and Rs.42,000 crore, respectively, as on March 31, 2022. The company has a strong cash generating ability, and is almost debt-free. CRISIL expects MSIL's key credit metrics to remain at robust levels, due to low debt requirement, as accruals will more than suffice to fund its capital expenditure (capex) and working capital needs.
Weaknesses 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. MSIL's presence in the premium PV segment, though improving, remains modest. This segment is witnessing higher growth than the entry and sedan segments. 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.
The domestic PV industry has experience multiple headwinds in the past decade, with fiscals 2020 and 2021 witnessing steep fall in volumes. This does impact return on investments made, with most automotive OEMs making heavy investments for complying regulations. MSIL though appears better placed than most of its peers, given that a sizeable part of its investments were also made by SMG. |
Liquidity: Superior MSIL has superior liquidity, on account of healthy cash accrual and liquid surplus of over Rs 42000 crore as on March 31, 2022. Cash accruals generated would are more than suffice to meet incremental capex (non-capacity expansion related) plans and working capital requirements. Financial flexibility is further enhanced by largely unutilised bank lines of Rs. 3000 crore. |
Outlook: Stable CRISIL Ratings believes that despite the challenging market conditions, 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. The ownership structure changed in fiscal 2003, when SMC increased its equity stake to 54.21%, making MSIL its subsidiary; SMC currently holds 56.21% stake in MSIL. By September 2007, GoI had offloaded its equity to Indian financial institutions, including banks and mutual funds.
MSIL currently has 16 models with over 150 variants across segments. These include (i) the mini segment: Alto, 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 segment: Ciaz; (v) the vans segment: Eeco; (vi) the SUV segment: Ertiga, Brezza & XL6; and (vii) the LCV segment: Super Carry. The company has manufacturing facilities in Gurgaon (two plants) and Manesar (three plants). Along with SMC's unit in Gujarat (3 plants), total installed capacity is around 2.05 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: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Includes interchangeability with non-fund based facilities |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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