MUL''s maiden IPO soon: Govt to go ahead with divestment

By Our Corporate Bureau | 31 May 2003

1
Mumbai: The long-awaited initial public offering (IPO) of Maruti Udyog (MUL), India's leading car manufacturer, will finally open on 12 June 2003 and close on 19 June 2003.

The Indian government will offer 72,243,300 equity shares of Rs 5 each for sale at a floor price of Rs 115 per share. This would constitute 25 per cent of the fully diluted post-offer paid-up capital of the company.

With an overall market share of 58.6 per cent, MUL is the single-largest passenger car manufacturer in India, with thrice the market-share of the second-largest manufacturer in 2002.

Maruti achieved consolidated sales of Rs 94.9 billion for the year ended 31 March 2003. The company's product range includes 10 basic models with more than 50 variants, making it one of the top 20 vehicle manufacturers globally on the basis of cars sold.

Suzuki Motor Corporation (SMC), the parent company, is the largest manufacturer of mini cars in Japan, in terms of sales volume, with a market-share of 31.6 per cent in Japan, in 2002. SMC, which currently holds a 54.2-per cent stake in the joint venture, has underwritten the entire issue at Rs 115 per share.

India's first quality small car, the Maruti 800, was launched in 1984 and was a runaway success. It is still the most popular small car in India, after 20 years, and very competitively priced at approximately Rs 2 lakh. The range of automobiles available from Maruti is priced between Rs 2 lakh and Rs 18 lakh, including a luxury mid-sized model.

MUL is the leading manufacturer of cars priced below Rs 5,00,000, comprising segments A and B. The small car segment constituted more than 86 per cent of the Indian passenger car market in fiscal 2002. The automobile range is supported by an extensive sales and service network of over 1,500 service stations across the country.

Maruti sold about 3,30,000 in the domestic market in 2002-03. It also exported over 32,000 vehicles during FY 2002-03, taking its cumulative total of exported vehicles to 2,80,000. A major export thrust is being planned.

L-R, Osama Suzuki, President, Suzuki Motor Corporation, Jagdish Khattar, Managing Director, Maruti Udyog Ltd, Disinvestment Minister, Arun Shourie

The company seems well positioned to maintain and enhance its leadership position in the small car segment, while continuing to introduce several new products in other segments of the Indian market due to its strong competitive strengths: its track record in small car technology, integrated manufacturing facilities, enormous product portfolio, brand dominance, powerful vendor base and very high rates of localisation.

The company has recently diversified into related service sectors such as pre-owned cars (TrueValue), lease and fleet management for corporates, Maruti Insurance and Maruti Finance. To consolidate its position, the company has announced three clear objectives:

  • To continue to expand the size of the Indian small car market by strengthening and expanding its dealer network and making automobile financing available at competitive rates.
  • To strengthen its leadership position in the small car segment of the Indian market.
  • To continue to benchmark itself against improving global manufacturing, marketing and other practices and standards, strive to increase customer satisfaction through quality products and new initiatives, and promote the financial strength of its sales network.

It plans to offer a "360-degree customer experience," continuing to launch new products and reduce costs to offer more competitive products. Says Jagdish Khattar, managing director, MUL: "We have not only maintained the Maruti 800's price at around Rs 2 lakh for over a decade, but if you consider the rising costs of inflation and the fact that the Indian rupee is today valued at close to Rs 47 against the US dollar as opposed to less than Rs 12 per dollar when the original model was launched in 1984, this particular model is today much cheaper than when it was launched. Over 43 per cent of our sales are generated by the Maruti 800. There is, as yet, no competition in the segment dominated by the Maruti 800."

However although its supremacy in the auto market in India is unquestioned, MUL seems unable to develop models with cutting-edge or innovative design like the Hyundai Santro or develop a line of popular diesel vehicles from the drawing-board stage like the Tata Indica, the Tata Indigo or the Mahindra Scorpio.

The Santro, the Indica and the Scorpio have captured huge chunks of the market in their respective segments. The recently launched Tata Indigo has also been well received and may eventually displace the Maruti Esteem from its midsize leadership position. With the exception of its recently launched but expensive sports utility vehicle, the Grand Vitara, all Maruti models look dated. But it has ranked No 1 in customer satisfaction surveys for three years in a row.

L-R, Uday Kotak, Chairman, Kotak Mahindra Capital Company Ltd, Disinvestment Minister, Arun Shourie and Jagdish Khattar, Managing Director, Maruti Udyog Ltd

Maruti vehicles are well made, require very little maintenance and are reasonably fuel-efficient. Spare parts are widely available at surprisingly low prices in even the smallest towns throughout the country. It is this amazing reach, reliability and low cost of maintenance that still encourages customers to emotionally bond with and purchase Maruti vehicles in spite of rival manufacturers offering much better looking cars in each segment.

Suzuki Japan will stop charging royalty for the Maruti 800, Omni, Gypsy, Esteem and Zen models. The total royalty expenses on these models paid to Suzuki in fiscal 2002 were Rs 779.5 million.

In addition, Suzuki has agreed for fiscal 2004 and fiscal 2005 to provide a 10-per cent discount on knocked-down components imported by Maruti, except for the Altos, which are also built for export. The value of purchases of components from Suzuki in fiscal 2002 and 2003 was Rs 7,804 million and Rs 7,902 million, respectively.

For the year ended 31 March 2003, MUL achieved a profit after tax of Rs 1,464 million, an increase of 40 per cent over the last year and has declared 30 per cent dividend for the fiscal year ended 2003.

Kotak Mahindra Capital Company is the book running lead manager to the IPO offer and ICICI Securities, JM Morgan Stanley and HSBC Securities and Capital Markets India are the co-book running lead managers to the offer. The shares are proposed to be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

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