Suzuki Motors the fourth biggest automaker in Japan is betting heavy on emerging markets especially India. Suzuki owns 56.1% of Maruti India and a controlling stake. Maruti pays royalty of around 5.5% to its parent Suzuki for patronage. In fact Maruti Suzuki`s revenues zoomed past its parent Suzuki`s revenue in 2017. Maruti India has 50% market share in Indian passenger car market which is a clear monopoly that no car maker in the world holds anywhere in the world. The competitive pricing, deeply entrenched Pan India distribution and service centers and easy adoption of home brand by people for buying and selling opportunities are the key factors enabling to maintain this market share. Company has four distinct retail channels: Maruti Suzuki ARENA, NEXA, Commercial and True Value, addressing needs of all customers in India
India is currently the fastest growing passenger car market at 9% selling roughly 3 Million units a year and is the 5th largest passenger car market by volume. Even Japan had a terrific growth of 8% selling 3.41 million cars in 2017. Maruti Swift new model received 100,000 cars booking within 2 months of launch which exudes the demand for the demand potential. Suzuki enjoys excellent profound market share in entire South Asian countries like Indonesia, Thailand and whole Asian market is growing at 35% which is substantial at a continental level. Shift to hybrid models in Japan market is another catchy trend that Suzuki is capitalizing. 52% of Suzuki sales in Japan was in Hybrid models which indicates the reason for Suzuki`s sales growing at record high 9%in Japan in 2017Am not sure how many of us knew the terrific Car sales growth in China looked like. China used to sell just under 2 Million new cars in 2003 which grew to a sales of 25 Million units as clocked in 2017. The sales trajectory indicates a growth of 12 times in 14 years which is stupendous by all means and really paves way for us to imagine what India and other emerging country markets can grow like.
Low cost SUV/ MUV trend in India: First mover advantage in India
Maruti really capitalized on the Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV) booming demand in India with its efficient and grandiose looking Brezza, Crossover, Ertiga and Baleno models. These SUVs and MUVs pricing points were set just right for the aspiring middle class in India and other South Asian markets. Compact SUVs craze in India took off with Renault Duster becoming immensely successful at affordable cost. Rising congestion in cities and technology empowerment are one of the key reasons for the rising demand for SUVs, which come equipped with latest technology such as automatic transmissions. Waiting period for Baleno, Vitara Brezza stands at 6 months and 4 months respectively
Motor Cycle entry to Asian markets especially India:
Suzuki made the right move at the right time launching Motor Cycles in India. Their willingness to take head on with incumbent Hero, Honda and TVS has paid off really well. Suzuki Motorcycle India which is a subsidiary has grown by 30% in FY18 over FY17 clocking a sales volume of 0.5 Million units in FY18 fiscal. Suzuki motorcycle is planning to achieve 1 Million volume sales by FY20 in next 2 years. India forms 35% of Suzuki Motorcycle volume contribution. Suzuki Motorcycle has around 7% marketshare in scooters categories and 10% in Motorcycle categories in India which is considerable in no time. They have recently launched a spate of new premium products. Growing Rural consumption and affordability will give the required impetus for growth for their Motor cycles and scooters
Electric vehicles (EV) entry in to the passenger car market pioneered by Tesla is a big threat to the Fuel cars market. Although Suzuki itself has embarked their research and development with EV vehicles, it needs to be waited out to see what differentiators they can bring to this challenge. Suzuki plans to spend 160 billion yen on R&D this year, from 139.4 billion yen last year, as it focuses on automated driving functions and electric vehicles (EV) to keep up with competition. To establish a presence in the local EV market, Suzuki and Toyota have been deepening a wide-ranging partnership which will enable Suzuki to leverage Toyota`s Research house.
Transition to aspirational MNC brands in emerging nations is another threat down the line. Urbanization and moving the value chain in premium products aspiration remains another risk though it will be gradient down in nature.
Commodity price increase can impact cyclically the gross margins but considering their pricing power, it can be passed through to the customers
Yen Currency risk related short term fluctuation always remains.
Financials & Valuation:
Suzuki`s total consolidated revenue in FY 2018 was $34 Bn and Maruti India `s revenue in FY18 was $11.5 Bn which makes it almost 1/3rd of total revenue. Maruti India`s revenue grew 28% yoy in FY18 and has been growing at 28% CAGR over past 5 years. Suzuki Motors had Operating income of $3.3 Bn growing by 40% over FY17 & a Free cash flow of $1 Bn in FY18 which would mean its valued at 23 times free cash flow. Net earnings for FY18 was $2 Bn. Valuation is really low in comparison to free cash flow as well as potential earnings. Its valued at 12 time earnings for the market cap of $23 Bn. Average return on equity over last 5 years is 10% which is on par for auto makers. New models, higher volume realizations and new consumers like working women, increasing urban population in new geographies will aid to the future growth of Suzuki Motors.