I did some Fundamental Analyis and sharing below on MSIL
Statutory Warning: This is NOT an investment advice to buy or sell shares. Please make your own decision, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. I do not own the stock, but my analysis can be biased, and wrong. The below is my personal analysis for Education purpose. I am not a SEBI registered research analyst.
Business Overview:
Maruti Suzuki India Itd’s: Principal activities of the Company are manufacturing, purchase and sale of motor vehicles, components and spare parts.
Automatives being a Cyclical business there’s seems to some decline in sales and MSIL has reduced its production. The company is partnering with Toyota in acquiring Battery technology and as part of the deals it’s sharing some of it top cars like Baleno, Brezza design with Toyota. Lately its planning to stop the production in Diesel cars by 2020.
Industry Wise (Porter’s) Analysis:
Competitive rivalry : Good Competitive Rivalry exists and MSIL stood on top but it needs to maintain the position.
Buyer Power : Overall there is not much control on buyers from Industry stand point.
Competitive rivalry, Buyer Power acts as Negatives.
New Entrants : It’s not easy for new players to establish very quickly. But Electric Cars and Automatic cars are one future technologies that needs to be looked carefully which MSIL has not yet ventured into. These can be disruptive technologies for existing companies.
Supplier Power : There seems to be not much of supplier power because most of the production is in-house. Engines is the only loophole as FIAT is the supplier
Threat of substitution : For people with a mindset of fuel economy, good service across India, After Sales there is not much of substitution exists
New Entrants, Supplier Power, Threat of substitution acts are Positives
Overall MSIL’s large service network, after sales and Fuel Economy are the main advantages. These cater to the Middle class needs and mind set of India. This acts as a MOAT (Narrow - because other players can replicate) for the business.
Observations from Annual Report
75% of cars sold in India are sub 4 Meters and less than Rs. 6.5 Lakhs at Factory level. Suzuki Motor Gujrat is ramping up capacity. Automobile business is cyclical in nature and capital intensive.
Automobile business is cyclical in nature and capital intensive.
Utility Vehicles Grew by 21%
Passenger Vehicles Grew by 3.3%
Passenger Vans Grew by 5.8%
Mini Cars declined by 2.1%
Diesel Models showed Weakness
Company is focusing on Localization of parts which is increase the Margins and production process.
Acquired 370 new Locations
It’s Partnering with Lithium Ion Battery companies for Electric Vehicles. It Partnered with Toshiba Corp., Denso and SIAM for EV’s.
It has great number of sales and service outlets in India
Balance Sheet Analysis:
Negatives:
Equity Share Capital was diluted in 2013.
Cash is less
Positives:
Long Term Debt/Overall Debt is negligible
Overall it’s a Healthy Balance Sheet
Profit and Loss Analysis:
Negatives:
Employee cost, selling and admin cost in increasing
Positives:
Top line sales growth has been good over the years.
Material Cost is reducing
Operating Profit Margins is Improving
Consistently paying dividends
Net profit improving
Overall it’s a Healthy P&L
Cash Flow Analysis :
Negatives :
In FY10, FY12 Cash required in Investing was more than Operating Cash.
Positives :
OCF in Increasing
Operating Activities is the major sources of CASH
Operating Cash Flow is Positive and Sufficient to cover CAPEX
OCF is higher than net income from FY10
Operating Activities are the major determinants of operating cash flow
OCF is consistent
Overall Cash Flow charts look good
Ratio Analysis :
Negatives:
Asset Turnover --> Decreasing
Positives:
Net Profit Margin --> Increasing
Financial Leverage --> Constant/Maintained
Overall the ROE average for 10 years is greater than 15% and key leverage component is maintained.
Valuation :
The DCF Value is Rs 4993 and with a Margin on Safety of 30% the ideal buying range is Rs 3495. So as per DCF the current CMP is not attractive
Reverse DCF: At the Current price of Rs. 7000 the Market is expecting a growth of 18% for the next 5 years and 13% after that.
Residual: With r at 12% and g of 9% the stock’s CMP of Rs. 7000 is less.
The EPV and APV combined is Rs. 4402 and the current stock price is 7000. So it doesn’t look attractive. But the additional Speculative Rs. 3000 must be for the MOAT existing with the company.
Overall the price does not look attractive at current CMP as per DCF and EPV Valuation methodologies. But as per Residual and EPV it looks attractive.
Management Analysis :
Positives:
Paying good Dividends
Shares are not Pledged
Remuneration of Management is much less than 1% of Net Profit.
Negatives:
The Equity Shares were diluted in FY13
Overall Management seems to have integrity and did not observe any frauds in my analysis.
Competitive Landscape:
The Competitive landscape includes a wide range of companies ranging from National, International Players. The Indian companies include Tata Motors, Mahindra. The foreign Players are Hyundai, Nissan, Renault, Toyota, Honda. Below picture shows a brief of the Market share in India
Peer Comparison:
Risks :
Employee Strikes
Employee cost increasing
Global Economic slow down
Investment Decision
POSITIVES :
Narrow MOAT Business
Healthy Balance Sheet
No Cover-up’s and Shenanigans
Management Seems to be good
NEGATIVES :
Not much power on Buyers
Competitive Landscape is high (International and National Players)
New Technologies like Electric Vehicles, New technologies of CARS can lead to disruption.
Price seems to be a little on the higher side because the market is accounting for Growth.
The ideal price Range is Rs. 4000-5500 as per DCF. But since it has some MOAT (especially of Scale and Brand) some price can be added to it. Since the industry seems be on downtrend and MSIL is preparing for future (Toyota partnership), I will wait for some more time and the stock in watchlist.