GOA INSTITUTE OF MANAGEMENT

SANQUELIM

Financial Management - 2

Project

Maruti Suzuki India Ltd.

Submitted to: Submitted by:

Dr. Rajesh Pathak Divyanshu Chaturvedi
Associate Professor, GIM Roll No. 2018209
Section: D
MARUTI SUZUKI INDIA LTD.

BUSINESS STRUCTURE AND GOVERNANCE

OVERVIEW
Maruti Suzuki India Limited, formerly known as Maruti Udyog Limited, is an automobile
manufacturer in India. It is a 56.21% owned subsidiary of the Japanese car and motorcycle
manufacturer Suzuki Motor Corporation. The company was incorporated on 24th February
1981 with production starting in 1983.
Maruti is engaged in the manufacture, purchase and sales of motor vehicles, components and
spare parts. The other activities of the Maruti include facilitation of pre-owned car sales, fleet
management and car financing. Its geographical segments include the domestic segment,
which includes sales to customers located in India, and the overseas segment, which includes
sales to customers located outside India. The Company's product offerings include Alto 800,
Alto K10, Wagon R, Celerio, Ritz, Swift, DZire, Ertiga, Omni, Eeco, Gypsy and Ciaz. Its service
offerings include Maruti Finance, True Value, Maruti Genuine Parts, Maruti Genuine
Accessories, Maruti Suzuki Auto Card and Maruti Driving School.
Maruti has three manufacturing facilities in india, with plants situated in Gurgaon, Manesar
and Gujarat. The company has a combined production capacity of 1.7 million vehicles
annually. Maruti enjoys the position of a Market leader with an approximate share in excess
of 50%.

SHAREHOLDING PATTERN

Percentage Shareholding

8%
7%
Promoters
Mutual Funds
FIIs
23%
56% Other Institutions
Individuals

6%
MARUTI SUZUKI INDIA LTD.

Category No. of Percentage

shares
Promoters 169,788,440 56.21
Mutual Funds 17,862,021 5.91
Foreign Institutional Investors 68,489,706 22.67
Other institutes 22,184,148 7.51
Individuals 23,237,192 7.68

SHAREHOLDING TREND

From the above data it can be safely inferred that Maruti Suzuki India Ltd is a tightly run
organization. The Promoters of the company hold a major chunk of the total stake. The next
major holders are the Foreign Institutional Investors, however individually they hold very
small percentages in the company. The historical shareholding pattern also highlights that the
Promoter’s holding remains unchanged in the past years only to validate the above
mentioned inference.
BOARD OF DIRECTORS

Name Designation
R C Bhargava Chairman
T Hasuike Director
K Saito Director
K Ayabe Director
K Ayukawa MD & CEO
T Suzuki Director
O Suzuki Director
K Yamaguchi Director – Production
R P Singh Independent Director
MARUTI SUZUKI INDIA LTD.

D S Brar Independent Director

P Shroff Independent Director
R S Karnad Independent Director

The above table lists down all the existing directors on the Board of Maruti Suzuki India Ltd.
Suzuki Motor Corp. is the Promoter and the major stakeholder with 56.21%. It can be
understood that a major composition of the Board is dominated by executives of Suzuki
Motor Corp. with Mr. O Suzuki himself being a part of the board. There isn’t any conflict with
respect to the Agency Cost function, however the interest of the minority shareholders could
be a point of conflict. In order to avoid the same, Maruti has appointed Independent Directors
who have been industry leaders in various domains.

CORPORATE SOCIAL RESPONSIBILITY

CSR activities will primarily be in the areas of village development, road safety and skill
development. To create a visible and lasting impact, the Company will focus on a few CSR
programmes rather than spread resources thin over several projects. The Company will
undertake relevant and effective social projects to have a positive and meaningful impact on
the lives of communities around it. In the area of road safety, while the Company has set up
several driving schools in collaboration with its dealers, their number is far from sufficient
considering the needs of society and the low level of consciousness about road safety in India.
The Company will scale up the number of driving training schools, and take other initiatives
to expand quality driving training in the country. The Company will make efforts to involve
State Governments in its road safety efforts for a bigger impact. In line with this, the Company
will identify a Tier 2 city for a comprehensive road safety programme in partnership with the
State Government and municipality. The programme will cover all key areas of road safety,
including effective enforcement of the law. Efforts will be made to persuade State
Governments to treat certificates given by Maruti Driving Schools as sufficient and necessary
for driving licenses. The Company will enhance employability of underprivileged youth by
improving the quality of skill training in Industrial Training Institutes (ITIs) and designing
innovative business models that create livelihood for them. The Company will encourage and
recognise its employees for volunteering in the community by serving and sharing their
expertise and skill. The Company’s CSR projects will be implemented like any other business
activity, in a time-bound manner with clear objectives, plan, targets and robust monitoring
and evaluation parameters. Stakeholder engagement and shared value creation will be the
cornerstones of the CSR programmes of the Company.

CSR PROGRAMME AREAS

The Company will focus primarily on the following programmes:
MARUTI SUZUKI INDIA LTD.

Community Development: The Company is committed to improving the well-being of the

local community by implementing social projects in designated villages and local
communities.
a) Water and Sanitation: Depending on local needs and in consultation with the community,
the Company will undertake projects to improve availability of clean drinking water, upgrade
solid and liquid waste management facilities, create useful rural assets, and support
economically weaker households in construction of domestic toilets to minimise open
defecation. The Company will supplement these efforts with awareness campaigns and
community-led initiatives to manage these assets and sustain the benefits.
b) Education: In partnership with the local community and the government education
department, the Company will upgrade infrastructure of Government schools and focus on
improving the learning level and all-round development of students and youth in the
communities. The Company will offer scholarships to the meritorious students from
underprivileged and economically weaker communities to help them pursue higher education
and job oriented technical and vocational training. The Company will also offer scholarships
to children orphaned as a result of road accidents to support their education and training.
c) Health: The Company will assess the health care needs of the local community and
undertake projects to provide health care facilities.

Skill Development:
a) Upgradation of Government Vocational and Technical Training Institutes: The Company
will improve quality of training by upgrading infrastructure, facilitate overall development of
students and staff, provide industry exposure to students and staff and offer industry oriented
add-on courses in Government Industrial Training Institutes (ITIs) to make students industry
ready. The Company will also upgrade ITI Teacher’s Training Institute and Government
Polytechnics to provide better skill training for youth.
b) Skill enhancement in automobile trade: The Company will enhance skills of youth studying
automobile trade at Industrial Training Institutes (ITIs) and Polytechnic (government and
private) to enhance their employment opportunities in automobile service workshops. The
project will include upgradation of training facilities, training of trainers, provision of study
material and practical training.

Road Safety:
a) Driving Training: The Company will scale up the number of Maruti Driving Schools The focus
will also be on training the trainers to achieve higher impact in imparting quality driving
training. The Company will develop a low cost and scalable driving training and entrepreneur
development model in order to create a large pool of professionally trained drivers. The
Company will sponsor driving training of existing and new drivers from underprivileged and
economically weaker sections of society to enhance their employable skills. The Company will
MARUTI SUZUKI INDIA LTD.

provide refresher training course to commercial vehicle drivers (autorickshaw, truck, bus
drivers etc.) to enhance their driving skills, knowledge of traffic rules and to improve their
health and safety. The Company will especially focus on women and youth in improving their
driving skills. The Company will invest in content development, new methods of driving
training, construction and development of new training facilities, improvement in existing
facilities and introduction of new technologies with an objective of improve the quality of
training and reduce training cost.
b) Road Safety Education: The Company will promote road safety among people through
print, audio and visual media. The Company will design and initiate specific road safety
awareness programmes for the school children, women and youth.

CSR FINANCIAL DETAILS

Year 2015-16 2016-17 2017-18

Actual CSR 75.86 Cr 89.45 Cr 125.08
Cr
Prescribed CSR 65.40 Cr 89.24 Cr 120.83
Cr

CSR COMMITTEE

S. No. Name Designation/ Category CSR

Committee
1 Mr. R.C. Bhargava Chairman/ Non-executive Chairman
2 Mr. K. Ayukawa Managing Director & CEO/ Member
Executive
3 Mr. R.P. Singh Independent Director Member
MARUTI SUZUKI INDIA LTD.

FINANCING CHOICES
EQUITY SHARE CAPITAL
Authorised
3,751,000,000 Equity Shares of Rs. 5/- each
Issued, Subscribed and Fully Paid up
302,080,060 Equity Shares of Rs. 5/- each
Other Equity and Reserves (in Rs. Million)
Capital Reserve 2
General Reserve 29,309
Securities Premium Reserve 4,241
Reserve created on Amalgamation 9,153
Retained Earnings 371,027
Reserve for Equity Instruments 10,353
Total Equity attributable to Owners 425,594
DEBT INSTRUMENTS
Long Term Borrowings (in Rs. Million)
7.95% Unsecured Term loans from Banks 100

Current Borrowings (in Rs. Million)

Loans repayable on demand from Banks 1,108

Total Debt 1,208

MARUTI SUZUKI INDIA LTD.

CAPITAL STRUCTURE

 Maruti Suzuki India Ltd is an equity dominated company with the share of Debt being
virtually negligible.
 The above table shows that there have been four instances when the company has
increased its Authorized as well as its Issued share capital.
 One such event was in year 2003 when the company issued its IPO and got listed.
 It can also be analysed that company went for a Stock-split at the time of listing
wherein 1 share with a Face value of Rs. 100 was split into 20 shares with a Face value
of Rs. 5 each.
ADVANTAGES & TRADE-OFFS OF DEBT FINANCING
1) Advantages
 Maintaining Ownership: As the business owner, you don’t have to answer to
investors. Unlike equity financing, debt financing gives you complete control over your
business.
 Tax Deductions: Interest fees and charges on a business loan are Tax deductible.
 Retaining Profits: The only obligation of an organization towards its debt holders is to
make repayments within the time frame. They don’t have any share in the profits.
2) Trade-offs
 Repayments: The organization has to be sure of its capabilities to generate enough
cash to service the debt. If the business fails, you’re still obliged to furnish all
repayments.
 Bankruptcy: Until a business has a guaranteed way to repaying the loan, the business
using a debt financing is risking a potential bankruptcy. The stakes become higher
when you have pledged your personal assets to secure the debt.
MARUTI SUZUKI INDIA LTD.

 Cash flows: Committing to regular repayments can affect your cash flow. Start-up
businesses often experience cash flow shortages that make regular payments difficult.
Maruti has virtually Long-term debt of Rs. 100 Million and Current loans repayable on
demand of Rs. 1108 Million. The Cost of Debt is approximately 5.79% which is cheaper than
the Cost of Equity. The component of debt when compared to the magnitude of the
company is very minute which gives the company freedom to raise debts in future
expansion projects. Quantitatively the Tax benefits received from interest expenses is Rs.
96.90 Million.

COMPANY IPO
Maruti Suzuki India Ltd (then Maruti Udyog) got listed on the stock on 9th July 2003. The auto
leader's public issue was given a warm response by the market, getting oversubscribed by
nearly 10 per cent on the first day. The company's initial public offer (IPO), aimed at reducing
Government equity by 25 per cent. This also boosted hopes that subsequent IPOs by public
sector enterprises could be given an equally enthusiastic response back in the time. The floor
price of the shares with a face value of Rs. 5 was fixed at Rs. 115, but over 85 per cent bids
were at Rs. 120 per share or higher, according to data available from the stock exchanges.
The IPO made an offer of 7.2 crore shares but bids for Rs. 7.89 crores had been received on
the very first day itself. This was the eighth largest public issue in the country and represented
a major achievement for the public sector disinvestment process that appeared to have
slowed down at that time.

As planned up to 60 per cent was offered to qualified institutional buyers. In addition, at least
15 per cent of the offer was be given to wholesale bidders and 25 per cent to retail bidders.
Allocation for retail investors, however, was raised in view of the aim to make the company
more broad based.

The Japanese partner, Suzuki Motor Corporation (Now the foreign Promoter), had a fruitful
tie up with the Indian Government to make MUL the market leader in the country, had agreed
to underwrite the IPO at Rs. 2,300 per share of face value of Rs. 100. Instead, the company
opted to split each share into 20 of Rs. 5 each, bringing the floor price to Rs. 115 per share.

A Hindu special correspondent wrote in an article following the IPO:

“On the National Stock Exchange and the Bombay Stock Exchange together the total number
of bids received is at 10.56 crores. The BSE received a total number of 7.90 crore bids and the
NSE 2.66 crore bids. On the BSE, the number of bids received for Rs. 115 is 4.44 lakhs, for Rs.
116 (17.26 lakhs) for Rs. 118 (75.20 lakhs), for Rs. 120 (5.83 crores), for Rs. 122 (1.05 crores),
and for Rs. 125 (4.01 lakhs).”

The one year performance of the company’s equity share post listing can be showcased in the
graph given below.
MARUTI SUZUKI INDIA LTD.

Close Price
700
600
500
400
300
200
100
0

COMPUTATION OF WACC
Cost of Equity

Particulars Daily
Variance 0.000139
Standard Deviation 0.011778

Finding Beta using CAPM

Beta 1.043172053
Rf 7.46%
Market Risk Premium (Rm-Rf) 8.74%
Beta *(Rm-Rf) 9.12%
Cost of Equity (CAPM) 16.5809%

Cost of Debt
Cost of Debt = (Total Interest Cost/ Total Debts)*100
= ( 280/4836 )*100
= 5.79% (approx.)
WACC
WACC = Weight of Equity*Ke + Weight of Debt*Kd(1-Tax)
= 0.9972*16.58 + 0.0028*5.79(1-0.34608)
= 16.55% (Approx.)
MARUTI SUZUKI INDIA LTD.

LEVERAGE ANALYSIS

1) DEGREE OF OPERATING LEVERAGE (DOL)

• Percentage change in EBIT/ Percentage change in sales (Contribution/EBIT)
• The degree of operation leverage or DOL is a ratio that shows how well a company
manages its fixed costs to generate operating income or EBIT (Earnings before
Interest and Taxes). The ratio itself reflects the percentage change in operating
income to a 1% change in sales.
2) DEGREE OF FINANCIAL LEVERAGE (DFL)
• Percentage change in EBT/ Percentage change in EBIT (EBIT/EBT)
• Degree of Financial Leverage shows how sensitive are cash flows available to
owners to changes in operating income.
3) DEGREE OF TOTAL/COMBINED LEVERAGE (DTL/DCL)
• DOL*DFL
• DTL shows the sensitivity of cash flows to owners to changes in revenue.

(in Rs. Million)

2018 2017 %
Change
Sales 781,048 669,094 16.7
EBIT 93,036 77,496 20.1
EBT 110,034 99,063 10.5

DOL 1.20
DFL 0.52
DCL 0.63
MARUTI SUZUKI INDIA LTD.

PAY-OUT POLICY
Dividend Distribution Policy:
The company has adopted a dividend policy in accordance with the relevant provisions of the
Companies Act 2013, rules made thereunder and Listing Regulations as amended from time
to time.
The following shall be considered while declaring dividend:

 Consistency with the Dividend Guidelines as laid out by the Board

 Sustainability of dividend payout ratio in future
 Dividend payout ratio of previous years
 Macroeconomic factors and business conditions
The company intends to utilize its Retained earnings for:

 Investments for future growth of the business

 Dealing with any possible downturns in the business
 Strategic investment in new business opportunities
For the year ending March 2018, Maruti Suzuki India declared an equity dividend of 1600.00%,
i.e. a dividend of Rs. 80 per equity share of Rs. 5 each Rs 80 per share amounting to Rs. 29,134
million including Dividend distribution tax of Rs.4,968 million. At the current share price of Rs
7045.00 this results in a dividend yield of 1.14%.
The company has a good dividend track report and has consistently declared dividends for
the last 5 years.
MARUTI SUZUKI INDIA LTD.

Maruti Suzuki has neither issued Bonus shares to its shareholders nor made a Buyback call
for its equity shares since its listing.

50
45
40
35
30
25
20
15
10
5
0
Dividend Yield Dividend Yield 5 Dividend Growth
Year Avg. Rate
Maruti Industry

The above graph shows why Maruti Suzuki is such a highly valued stock in the market. The
same can be substantiated by comparing its performance with the industry performance on
the following grounds:

 Maruti Suzuki’s current Dividend yield of 1.15% is much higher than average industry
current dividend yield of 0.49%
 Maruti Suzuki has better 5-year Average Dividend yield of 0.94% than the Industry’s
which is 0.76%
 Maruti has outperformed the industry by maintaining a much higher Dividend Growth
rate (47.36% vs 2.66%)

A company’s overall financial performance can be reflected back upon its performance in the
stock market. Maruti has outperformed the industry in almost every domain only to depict its
firm grip on the Indian Automobile Sector and in the minds of its various stakeholders.

According the existing Dividend Policy, the company shall maintain a payout ratio between
30% to 40% which is much higher than the average Industry Payout Ratio. Hence, Maruti
should not make any changes to its existing dividend policy.
MARUTI SUZUKI INDIA LTD.

WORKING CAPITAL

Working Capital Management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter relationship that exist between
them. The goal of Working Capital Management is to manage the firm’s Current Assets and
current liabilities in such a way that the satisfactory level of working capital is maintained. It
focuses to ensure that the firm is able to continue its operations and that it has sufficient
cashflows to satisfy both maturing short-term debts as well as upcoming operational
expenses.
Gross Working capital refers to the firm’s investment in Current assets.
Net Working capital refers to the excess of Current Assets over Current Liabilities
Net Working capital = Current Assets – Current Liabilities
The following tables show the Working Capital trends and the number of days in Working
Capital of Maruti Suzuki respectively over the last five years.
Current Current Working
Year Assets Liabilities Capital
2018 16,964.70 17,552.10 -587.40
2017 13,914.70 14,386.40 -471.70
2016 11,603.50 12,017.70 -414.20
2015 8,163.70 9,816.00 -1,652.30
2014 7,164.10 8,037.50 -873.40

2018 2017 2016 2015 2014

-56.03 -50.37 -45.26 -21.61 -5.4

Efficient management of working capital is one of the pre-conditions for the success of an
enterprise. Efficient management of working capital means management of various
components of working capital in such a way that an adequate amount of working capital
is maintained for smooth running of a firm and for fulfilment of twin objectives of liquidity
and profitability.
It can be inferred from the above tables that Maruti Suzuki takes very less time to convert
working capital into sales. It shows the effective inventory management system where less
cash is required to finance the stock and also to convert the stock to liquid cash. And also, the
company maintained speedy and effective recovery system. The profitability of Maruti Suzuki
India Ltd. is significantly increasing during the study period.