17 September 2012
Ground
Reality
Petrol cars still under stress; Manesar diesel car supplies
at 50% of pre-lockout levels
Key takeaways from interactions with car dealers
We interacted with several passenger car dealers to get an update on the current trends with
respect to demand, inventories, discounts, waiting period, etc. Following are the key takeaways:
Petrol car demand continues to fall YoY despite low base
Demand for diesel cars remain strong but key competition models witnessing pressures
Diesel car supplies from Maruti's Manesar at ~50% of pre-lock out levels
Inventory though lower in August remains at high levels
MSIL raised discounts in September 2012 on key petrol models.
Maruti Suzuki
Petrol car demand continues to fall YoY despite low base
Demand for petrol cars continues to be under stress with lower enquiries and falling conversion rates. While
August witnessed better MoM retail sales for petrol cars with higher focus by dealers (due to supply-side issues
on diesel cars), the trend for September so far has not been encouraging.
Demand for diesel cars remain healthy but key competition models witnessing pressures
Enquiries and bookings for Maruti Suzuki's (MSIL) diesel car models (Swift, Dzire, Ertiga) remain healthy with YoY
growth. But key competing models like Hyundai i20, VW Polo and Ford Figo are facing demand pressures. Players
like Volkswagen, Skoda and Ford are offering incentives (worth INR15-20k per vehicle) on diesel variants as well.
Diesel car supplies from Manesar at ~50% of pre-lock out levels
Diesel car supplies from MSIL's Manesar plant have reached ~50% of pre-lockout levels. Dealers expect supplies
to increase further during next week and reach normal levels by October 2012. Waiting period for Swift, Dzire and
Ertiga (diesel models) is 2-4 months.
Inventory though lower in August remains at high levels
With better MoM sales and lower dispatches [Manesar lock-out, Alto F8 (800cc) phase out], inventory fell in
August but remains at high levels. Around 90% of the inventory with dealers is petrol models. While overall
inventory is around 4-5 weeks, inventory for petrol cars is around 6-8 weeks.
MSIL raised discounts in September on key petrol models
To bring down inventory to comfort levels of ~4 weeks, MSIL has further raised discounts by INR5,000/unit in the
second week of September on key petrol models. This increase in discounts would be largely borne by the
company (against normal practice of sharing with dealers). Previous increase in discounts was in mid-July 2012.
Valuation and view
The stock trades at 12.1x FY14E consol EPS of INR95.6 and 6.9x FY14E Cash EPS. Maintain
Buy
with price target of
INR1,668 (~10x FY14 CEPS/17.5x FY14 consol EPS).
Actual Equity Sh. (m)
302.1
Dil. Equity Sh. (m)
302.1
52-Wk Range (INR) 1,428/906
1,6,12 Rel.Perf.(%)
M.Cap. (INR b)
M.Cap. (USD b)
2/-14/5
380.9
6.8
Year Net Sales PAT Cons.EPS EPS Cons.P/E
End
(INR m) (INR m) (INR) Gr. (%)
(X)
3/11A 369,199 23,101
82.4
-9.2
-
3/12A 355,871 16,351
58.2
-29.4
19.9
3/13E 425,898 20,314
68.2
17.3
17.0
3/14E 503,067 28,469
95.6
40.1
12.1
SPIL merger w.e.f 1/Apr/2012
P/CE
(X)
-
12.1
9.0
6.9
P/BV
(X)
2.4
2.2
1.8
1.6
EV/
EBITDA
7.3
10.4
7.5
5.0
RoE
(%)
16.5
10.8
10.7
13.3
RoCE
(%)
22.1
13.2
12.6
16.0
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
Chirag Jain
(Chirag.Jain@MotilalOswal.com) + 91 22 3982 5418
Investors are advised to refer through disclosures made at the end of the Research Report.

Ground
Reality
Demand for petrol cars continues to remain under stress
From regional trend
perspective, Northern
markets have been
performing relatively
well due to higher share
of diesel sales followed
by Southern and then
Western markets
Our channel checks indicate persistent weakness in demand for petrol cars led by
(1) weak economic outlook, (2) higher ownership cost, and (3) poor consumer
sentiment resulting in delay of purchases.
Sentiments have been further impacted by the recent fuel price hike, and the
news floating in the media prior to the hike. Conversion levels on key models
have dropped sharply over the past few weeks. For instance, one of the Pune-
based MSIL dealer saw a conversion rate of 6-7% for Alto (v/s normal 18-20%) and
17-19% for Wagon R (v/s normal ~30%).
From a regional perspective, Northern markets have been performing relatively
well, followed by Southern and then Western markets.
North market is predominantly a diesel market due to relatively higher share
of upper segment cars and preference for diesel variants due to higher usage
(road travel over long distances).
Western markets have been impacted due to higher linkages with financial
markets.
MSIL's petrol only models remain under pressure due to weak
consumer sentiments on account of slow economic growth,
delays in monsoon, and increase in ownership cost (units)
Since June 2011, retail sales of petrol only models started
getting impacted with sharp increase in petrol prices - INR5/
litre in May 2011. However, despite lo w base, petrol model
continues to remain under pressure with YoY decline.
Total Petrol only models YoY (%)
Among key petrol models, Eeco is witnessing the maximum
stress due to (1) its predominant commercial applications,
and (2) supply-side issues during June & July (%)
However, with supply-side issues getting resolved, Eec o
volumes seem to be normalizing (units)
Sour ce: Company, MOSL
2
17 September 2012

Ground
Reality
Decline in Alto sales accelerated with expected launch of new
800cc car
Media images of new 800cc car
Source: AutoCar India
Dealers mentioned that MSIL's new 800cc car is expected to be launched during
the first week of October 2012 (with wholesale dispatches to dealers starting
from end-September).
This new car is expected to have higher mileage and better looks, and should replace
the existing Alto 800cc (Alto F8 model), which contributes ~40% of Alto sales.
Since August, production and supplies of the existing Alto F8 model have been
stopped; however, the existing stock remains with dealers which is expected to
be sold out by September-end.
Decline in Alto sales accelerated over July/Aug with expected launch of new 800cc small car in Oct, 2012
(%)
Sour ce: Company, MOSL
Discounts up further INR5,000 on key petrol models
In the second week of September, MSIL has further increased discounts on key
petrol models by INR5,000 per vehicle to INR35,000 for Wagon R and INR25,000 for
Alto K10 LXi.
Dealers also stated that the INR5,000 per vehicle increase in discounts done in
September 2012 would be borne largely by the company (against normal practice
of sharing with dealers).
While generally discounts are lowered with the onset of festive season, they
have been increased this year as the company plans to improve dealers' financial
health by lowering inventory (from current 4-5 weeks to ~4 weeks by end-
September).
Previous increase in discounts was done in mid-July 2012.
Discounts to increase in 2QFY13, reflecting higher discounts & lower diesel contribution
Sour ce: Compan y, MOSL
17 September 2012
3

Ground
Reality
MSIL's diesel car demand remains strong but key competing
models seeing pressures
With pressures building
up further in diesel
segment, Volkswagen has
also started offering free
accessories or free AMC
worth INR15k/INR19k
respectively
Our dealer interaction indicates continued traction in enquiries and bookings for
MSIL's diesel variants with YoY grow th. However, key competition models like
Hyundai's i20 and Volkswagen's Polo are seeing demand pressures over the last
few months. Players like Volkswagen, Skoda and Ford are also offering free
insurance (worth INR15-20,000 per vehicle) even on diesel variants. Volkswagen
has also started offering free accessories or free AMC worth INR15-19,000
respectively.
MSIL may not have lost meaningful market share in favor of competing models
during the Manesar lock-out. Our interaction indicates that around 65% of the
demand for Swift comprises of replacement/additional demand. Hyundai i20 &
Ford Figo seems to have been the major beneficiary of MSIL's supply side issues.
Diesel car supplies from Manesar at ~50% of pre-lock out levels
Diesel car supplies from MSIL's troubled Manesar plant have resumed and reached
~50% of the pre-lockout levels. Dealers expect supplies to further increase through
September and reach normal levels by October.
Waiting period for Swift, Dzire & Ertiga (diesel models) is 2-4 months across
markets. With supplies normalizing, dealers expect these models to be readily
available during the festive season.
Dealer interaction indicates limited cancellations for MSIL's diesel cars on account of Manesar
lock-out*
Manesar lockout impact
Indica, Indigo & Figo saw higher wholesale dispatches in July/August*
*Sales constitutes both of petrol and diesel variants
17 September 2012
Sour ce: Company, MOSL
4

Ground
Reality
Lukewarm customer response to new Ritz with facelift
Dealers indicated that customer response to the recently launched Ritz diesel
(facelift model) has not been very encouraging and different than towards the
previous model.
Price for the refreshed model is INR8,000 higher than its previous version.
While dispatches of older variant have been stopped, dealers are carrying
inventory (petrol variant) which is expected to be cleared by end-September/
early October.
Dealers expect the new petrol variant to be launched by October-end.
New look Ritz diesel launched in September
Key improvements over previous model
Fuel efficiency has improved by 10%
On the ex terior, the front de sign has been changed.
On the interiors, the car gets the red dual tone interiors on
the mid and top end variants, and improved rear seating
with additional lumbar support.
Pricing starts at INR0.53m (ex-showroom Delhi), INR8,000
higher than the previous variant.
Sour ce: Company, MOSL
Valuation and view
Apart from permanently resolving labor trouble, MSIL faces three key challenges/
headwinds in short term, viz, (1) pushing petrol vehicle sales without increasing
discounts, (2) increasing diesel engine availability beyond 400,000 units in FY13-
14 as diesel is the key volume driver, and (c) adverse JPY/INR movement
significantly impacting margins.
We expect MSIL to register volume growth of 5% in FY13 and 16% in FY14 (FY12-
14E CAGR of 10%, FY11-14E CAGR of 2.7%).
The stock trades at 12.1x FY14E consol EPS of INR95.6 and 6.9x FY14E Cash EPS.
Maintain
Buy
with price target of INR1,668 (~10x FY14 CEPS/17.5x FY14 consol
EPS).
17 September 2012
5

Ground
Reality
Financials and Valuation
17 September 2012
6

Ground
Reality
N O T E S
17 September 2012
7

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