ppt company analysis maruti

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COMPANY ANALYSIS

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Part-I (Business Analysis)

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Agenda

Business Analysis1. Product & Services2. Business Model & Strategies3. Key Business Drivers

– Growth – Value

4. Segment Analysis

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Business Analysis

1. Product & Services

2. Business Model & Strategies

3. Key Business Drivers

4. Segment Analysis

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Let’s discuss the concepts –taking example of MUL

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1. Product & ServicesMaruti’s presence in market segments

Brand Segment Capacity (CC) Launched in

M800 A1 796 Dec-83

Omni MPV 796 Nov-84

Alto A2 796/1061 Sep-00

WagonR A2 1061 Dec-99

Zen A2 993 May-93

Zen Estio A2  1061  Dec-06

Swift A2  1298  May-05

Swift- Diesel A2  1298  Jan-07

Baleno A3 1590 Dec-99

Esteem A3 1298 Nov-94

M1000 A3 1000 Apr-92

Versa MPV 1298 Oct-01

Gypsy UV 1298 Dec-85

Vitara UV 2700 Apr-03

Source: Maruti web site

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2. Business Model

Basic Revenue generation through– Direct selling of vehicle in show room – After sales service & maintenance– Sale of spare parts– Fleet management for corporate (N2N)– Financing option– Vehicle Insurance– True Value stores, which buy, sell and

exchange used cars

n.b. The points in italics are operated through subsidiaries

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2. Key Strategies

• Offering Passenger vehicle to most of the segments

• Services Business offers synergistic value

• Cross selling of allied products and services

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3. Key Business Drivers

Revenue (Growth) Divers– Strong sales & service network– Enjoys higher customer satisfaction– Global hub for Compact cars

Value (Profit) Drivers– Efficient operational practices

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4. Segment AnalysisA2 segment zoomsdue to followingreasons:• Higher disposable

income with middle class people which constitute larger portion of total Indian population.

• These models are highly acclaimed by customers.

Segmental Revenue Performance for J FM-07

0

10000

20000

30000

40000

50000

J an-07 Feb-07 Mar-07

Num

ber

of u

nits

A1 MPV A2 A3 UV

Source: Company Report

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4. Segment Analysis

Enhancing all customer related services in a transparent manner under one roof.

Services Revenue on a growth trajectory

0

50

100

150

200

AMJ 05 JAS 05 OND 05 JFM 06 AMJ 06 JAS 06 OND 06

Rs in

Mill

ion

-50%

0%

50%

100%

Service Revenue YoY g,%

Source: BSE

Service Business

• During 2005-06 the company reported growth of 26% in their spare & accessories business.

Spares & Accessories Business

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Thank You

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Part-II (Financials & Projections)

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AgendaFinancials & Projections

1. Profit & Loss Account2. Balance Sheet3. Cash Flow Statement4. Financial Ratios

i) Profitabilityii) Liquidityiii) Efficiencyiv) Valuation

5. Key Assumptions

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1. Profit & Loss Account

Hyperlinked File: Profit & Loss Account-MUL

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2. Balance Sheet

Hyperlinked File: Balance Sheet-MUL

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3. Cash Flow Statement

Hyperlinked File: Cash Flow Statement-MUL

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4. Financial Ratios

i) Profitability

ii)Liquidity

iii)Efficiency

iv)Valuation

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i) Profitability Ratios

ROA EBIT / Total Asset

ROE PAT (after Pref. Div.) / Net Worth

ROCE EBIT / Capital Employed

DuPont Analysis-ROE Decomposition (1*2*3*4*5)

1. PAT/PBT (Tax Efficiency)

2. PBT/EBIT (Interest Burden)

3. EBIT/Sales (Operating Profit Margin)

4. Sales/Total Assets (Asset Turnover)

5. TA/NW (Financial Leverage)

Hyperlinked File: Profitability Ratios -MUL

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ii) Liquidity Ratios

Current Ratio Current Assets / Current Liabilities

Acid Test Ratio

Quick Assets / Current Liabilities(Quick Asset= Current Asset-Inventory)

Debt Equity Ratio

Total Debt / Owners’ fund

Hyperlinked File: Liquidity Ratios - MUL

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iii) Efficiency Ratios

Activity Ratios

Asset Turnover Ratio

Turnover / Total Assets

Working capital Turnover Ratio

Turnover / Net working capital

FA Turnover Ratio Turnover / Total Fixed Assets

CA Turnover Ratio Turnover / Total Current Assets

Debtor Velocity Credit Sales / Avg. A/c Receivable

Hyperlinked File: Efficiency Ratios - MUL

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Margin RatiosEBITDA Margin EBITDA / SalesPre-Tax Margin PBT / SalesNet Profit Margin

PAT / Sales

iii) Efficiency Ratios

Hyperlinked File: Efficiency Ratios - MUL

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iv) Valuation Ratios

Adj. EPS PAT (excluding minority interest) / Total Number of outstanding shares

Cash EPS (PAT+ Depreciation) / Total Number of Outstanding shares

Dividend Per Share Total Dividend declared / Total Number of Outstanding shares

Book Value Per Share Net Worth / Total Number of Outstanding shares

Hyperlinked File: Valuation Ratios - MUL

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5. Key Assumptions

Hyperlinked File: Key Assumptions-MUL

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Thank You

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Part-III: Company Valuation

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Agenda

1. Valuation– Valuation Methodology– DCF– Relative Valuation

2. Key Risks3. Valuation Perspectives

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i) Valuation Methodology

ii) Discounted Cash Flow

iii) Relative Valuation

1. Company Valuation

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i) Valuation Methodologies

VALUATION METHODOLOGI

ES

MARKET CAPITALIZATION

APPROACH

DISCOUNTED CASH FLOW APPROACH

ADJUSTED BOOK VALUE APPROACH

MULTIPLES

LEVERED

UN-LEVERED

P/EP/CFP/BV

EV/EBITDAEV/EBITEV/REVENUE

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ii) Discounted Cash Flow (DCF)Discounts the anticipated future cash flow

DPV= FV/ (1+K)n

Where,DPV= Discounted Present ValueFV= Future Valuen= Number of yearsK= Cost of Capital

WACCCost of Capital - From which point of view?- What model?- Normalization of data

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ii) Discounted Cash Flow (DCF)

Where, E= equity V= Value of the firm (i.e. total market value of equity + total market value of

debt)D= total debt component

Ke= cost of equity Kd= cost of debt t= corporate tax rate

Cost of Capital

WACC=(E/V)*Ke+ (D/V)*Kd*(1-t)

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ii) Discounted Cash Flow (DCF)

Different type of DDM

•Zero Growth Model•Constant Growth Model•Two-stage Model•H-Model (n.b. For detail refer Annexure-V attached to the Report)

Dividend Discount Model

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ii) Discounted Cash Flow (DCF)

FCFF= NOPLAT+ Amortization/ Depreciation- Inc /(Dec) in working capital- Capital Expenditure+Inc /(Dec) Deferred Taxes

Free Cash Flow to Firm

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ii) Discounted Cash Flow (DCF)

FCFE =

FCFF- Interest (1-t)+ Net Borrowing (from long term

perspective)

Free Cash Flow to Equity holder

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iii) Relative Valuation

• The value of an asset is arrived by– Compared to the values of similar asset in the market

• Steps

1. Identify comparable assets and obtain market values of these

2. Convert these market values into standardized values• since the absolute prices cannot be compared.

3. Compare the subject asset with standardized value or multiple

4. Take suitable multiples for the differences5. Mention clearly the assumptions used

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2. Key Risks

a. Nature & types

b. Gravity

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a. Nature & types

• Over dependence on domestic market • Competition hotting up in the growth

engine of compact cars • Maruti does not own diesel engine

technology • Soaring metal Market may cast its spell

on margins • Rising Bank interest rates will impact

the demand and operational cost

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b. Gravity

• Launch of newer models on a continuous basis is a big challenge

• Fuel efficiency, Maintenance and Safety rank very high in the buyers’ decision-making matrix.

• Vendor development is crucial

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3. Valuation Perspectives

a. Challenges

b. Applicability to different industries

c. Preparing a valuation Report

d. Case Discussions

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a. Challenges• DCF model is very sensitive to

– Growth rate projection and – Weighted average cost of capital

(WACC).• Comparative Multiple:

No two companies have – Same product profile and target

segment. – Same capital structure – Similar management practices

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a. Challenges ...contd

• Cyclical Business• Private Company• Spin offs/ Selling of a division• Firm with Negative Earnings• Young & Start-up firm• Financial Services Companies

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b. Applicability to different industries

i) Pharmaceutical Industryii) Sugar Industryiii) Information & Technologyiv) Logistics

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i) Pharmaceutical Industry

• Product Pipe line and patents• R&D cost as a % of Sales• Size and growth of therapeutic

segment• Contract manufacturing opportunity• Generics opportunity• Access to distribution networks

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ii) Sugar Industry• Production capacity• Cogen unit• Flexible manufacturing system to

produce ethanol, alcohol• Availability of raw material• Governmental policies about levy

sugar, subsidies, minimum prices for farmers

• World scenario of sugar supply, consumption and balance.

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iii) Information & Technology• Revenue by geography

• Customer’s Industry Vertical/ Domain • Revenue generated from various contract like

fixed price contract type or fixed time contract • Services offering like application development

maintenance, enterprise solution & others.• Revenue from repeat business & new business• Business generation from off shore and onsite

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iv) Logistics

• Occupancy Rate• Frequency of congestion free air traffic • Income generated per passenger per seat• ATF as a % of total sale (prime operating

expense)• Size & growth of the sector• Competition among players• Government regulation towards civil

aviation

- Airways

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• Load factor (cargo handling)• Bunker cost as a % of total sales (prime

operating expense)• Cargo handling expenses as a % total sales• Size & growth of the sector• Government regulation towards the sector• Export/ Import Factor of the country• Aging factor of ships

- Shipping

Logistics

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3(iii) Preparing a Valuation Report

• How to Write a Valuation Report?

• Process for preparing a Valuation Report

• Data Sources for Valuation Reports

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How to Write a Valuation Report?Don’ts

– Never start Valuation before understanding the business– Never Start with Financials– Don’t give too much focus on the past – leave that to the

historiansDo’s

– Be Brief and Concise– Put Relevant Information form the point of view of

Investment– Should contain Graphs/Tables/Charts– The Graphs/Tables/Charts should be analyzed and not

described in text– Analyses should facilitate/enable in investment decision

making– Assumptions should be stated after being validated

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Process for Valuation Reports• Follow the Deductive Logic Path to

Understand the Business of the company by going through– Industry Reports– Company Website– Equity Research Reports

• Prepare a Plan on the Research Objective and Approach

• Identify Time Schedules and Milestones

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Process for Valuation Reports

…Contd• Identify the parameters to be taken

• Segmental Analysis• Competitive Evaluation• Future Prospects• Earnings Outlook

• Decide the Valuation Methodology taking into account the Industry in which the company is operating

• Study the Capital Structure of the Firm and Notes to Accounts

• Arrive at the Growth Rates and Discount Rates• Calculate the Value of the company• Validate the Values • Prepare the report

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Data Sources for Equity Research• SEC Filings – 10K, 10Q, 8 K

• News Items• Company Website• Annual Reports

– Chairman’s Speech– MD&A– Balance Sheet – P/l Account– Cash Flow Statement– Notes to Accounts

• Research Reports• Company Press Releases• Industry Associations/Forums• Government Sources

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Process for Reports

Understanding Business

Identifying Time schedule & MilestonesPlan of Action

Deciding on Valuation Model

Predicting Growth Rates

Identifying Key Parameters

PROCESS CYCLE

Content & Quality Check (Levels 3)

Report Preparati

on

Delivery

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3(iv) Case Discussions on• Sell side: Maruti Udyog

• Buy side : Valuation Attractive ( Gammon India)

• Changing Gear in Auto

• ICRA valuation

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