Rating Rationale
November 01, 2017 | Mumbai
Maruti Suzuki India Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.3000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's ratings on the bank facilities of Maruti Suzuki India Limited (MSIL) continue to reflect its dominant position in the domestic passenger car segment, healthy operating efficiencies, and robust financial risk profile because of minimal debt and strong liquidity. These strengths are partially offset by exposure to intense competition and to foreign exchange (forex) risk.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of MSIL and its subsidiaries.

Key Rating Drivers & Detailed Description
* Dominant market position in the domestic passenger vehicle (PV) segment
MSIL dominates the PV segment, reflected in its market share of 47.4% during fiscal 2017, against 46.8% in fiscal 2016. In fiscal 2017, domestic PV volume grew 9.5%, while MSIL registered 16.5% growth driven by the success of its new models, and continued healthy performance of earlier models, including Alto, Swift, and Dzire. In the recent past, the company successfully launched new models (Ignis, Baleno, and Vitara Brezza) in the mid-to-premium segments, which will improve product portfolio and increase presence in the premium segment. Success of existing models, combined with expanding product portfolio, leads to strong market position. For instance, in the recent past, MSIL had 5-7 models in the list of top 10 models sold on a monthly basis. Over the medium term, the company will continue to launch new models in the mid-to-premium segment, while focusing on the entry segment. Launch of its NEXA dealership, which is selling premium models, will also enhance its presence in the mid-to-premium segment. CRISIL 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, Suzuki Motor Corporation (SMC), which has extended product development support, shared technological expertise, and provided access to a broad product range. This has enabled MSIL to introduce at least one new model and several variants each year, over the past five years. In January 2014, MSIL announced that for its future expansion, it will not have any direct investment but will source vehicles from SMC's wholly owned subsidiary in Gujarat under a contract manufacturing arrangement, wherein the vehicles will be sold to MSIL at cost. The first phase of the plant became operational in fiscal 2017 and has a capacity of 250,000 vehicle per annum. SMC will invest further to open two new plants in Gujarat, which will increase the capacity available to MSIL.

* High operating efficiencies engendering cost competitiveness
MSIL's operating efficiency is among the best in the industry, supported by continuous process improvement, high indigenisation, established linkages with component suppliers, and flexible manufacturing processes, resulting in effective cost control. Operating margin improved to 15.3% in fiscal 2017 from 13.4% in fiscal 2015 because of higher average realisations, favourable commodity price movement, cost-reduction initiatives, lower discounts, and localisation efforts. While operating margin may moderate marginally due to shifting of production to the Gujarat plant, higher commodity prices, and volatile forex movements, it is expected to remain healthy. Furthermore, return on capital employed, estimated at 24% in fiscal 2017, is expected to remain robust over the medium term.

* Strong financial risk profile
MSIL has maintained its strong financial risk profile with large networth and liquidity of Rs 36,718 crore and Rs 27,643 crore, respectively, as on March 31, 2017. The company is almost debt-free due to its strong cash generating ability. CRISIL expects MSIL's key credit metrics to remain at robust levels, due to lower requirement of debt, and primarily funding its capital expenditure (capex) through internal cash accruals.

* Susceptibility of profitability and market share to intense competition
The Indian PV market remains highly competitive, with players launching new models in the compact car segment. The number of players in the compact car segment increased to 12 in fiscal 2016 from 7 in fiscal 2008, adding to competitive pressures. MSIL's presence in the premium PV segment, though improving, remains modest. This segment is witnessing higher growth than the entry and sedan segments. CRISIL 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.

* Exposure to forex risk
The company is also exposed to risks related to fluctuations in forex rates because of its large import, royalty payments, and export - direct and indirect raw material imports constituted 17% of net sales. Besides, MSIL has yen exposure for royalty expenditure, amounting to 5.7% of net sales. The company paid royalty in INR for its recent launch (Vitara Brezza), and is likely to pursue this strategy, thereby reducing exposure to forex fluctuations. Exports constituted 7.8% of total volume in fiscal 2017 and partly provide a natural hedge for forex exposure. While MSIL hedges its forex exposure, CRISIL believes that the company's operating margins will remain vulnerable to fluctuations in forex movements.
Outlook: Stable

CRISIL believes MSIL will maintain its dominant position in the domestic PV segment, with a large and successful product portfolio, strong distribution network, and access to SMC's technology. Financial risk profile is expected to remain healthy because of conservative gearing, surplus liquidity, and incremental capex funded entirely through internal cash accrual. The outlook may be revised to 'Negative' if market position weakens significantly or the company undertakes a sizeable debt-funded capex programme.

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 14 models with over 150 variants across segments. These include (i) the mini segment: , Alto, and Wagon R; (ii) the B (compact) segment: Swift, Celerio, Ignis, Dzire, and Baleno; (iii) C (super compact) segment: Dzire Tour; (iv) the D (mid-sized) segment: Ciaz; (v) the vans segment: Omni and Eeco; and (vi) the SUV segment: Gypsy, Ertiga, S-Cross and Brezza. The company has manufacturing facilities in Gurgaon (two plants), Manesar (three plants) and SMC's plant in Gujarat (one plant), with total installed capacity of 1.55 million unit per annum.

MSIL, on a consolidated basis, reported a net profit of Rs 7511 crore on an operating income of Rs 68,023 crore for fiscal 2017, against a net profit of Rs 5497 crore on operating income of Rs 57,549 crore for fiscal 2016. For the six months ended September 30, 2017, net profit was Rs 4040 crore on an total income of Rs 42,751 crore, against a net profit of Rs 3892 crore on an total income of Rs 38,610 crore for the corresponding period in the previous year.

Key Financial Indicators
As on / for the period ended March 31 Unit 2017 2016
Revenue Rs. Cr. 68,023 57,540
Profit After Tax (PAT) Rs. Cr. 7,511 5,497
PAT Margins % 11.0 9.5
Adjusted debt/adjusted networth Times 0.01 0.01
Interest coverage Times 119 112

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crs.) Rating Assigned with Outlook
NA Proposed Fund-
Based Bank Limits**
NA Proposed Non Fund
Based Limits
**Interchangeable with non-fund based facilities to the extent of Rs 2280 crore
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  2950  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable 
Non Fund-based Bank Facilities  LT/ST  50  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Fund-Based Bank Limits** 2950 CRISIL AAA/Stable Cash Credit* 2950 CRISIL AAA/Stable
Proposed Non Fund based limits 50 CRISIL A1+ Letter of Credit 50 CRISIL A1+
Total 3000 -- Total 3000 --
**Interchangeable with non-fund based facilities to the extent of Rs 2280 crore
*Interchangeable with non-fund based facilities to the extent of Rs 1920 crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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