Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank loan facilities of Maruti Suzuki India Ltd (MSIL).

 

The reaffirmation reflects the strong business risk profile of MSIL, backed by its market leadership position in the domestic passenger vehicles (PV) industry. MSIL held 40.58% share in the domestic market and 39.04% share in the export segment during the first half of fiscal 2025. In terms of volume, share in the domestic segment fell by 3.2% during the same period, due to elevated inventory and industry volume at peak levels. This compares with 11.8% growth in the export segment, with better demand leading to increase in share of exports to 14.8% (13.1% in the first half of fiscal 2024).

 

Revenue has grown 4.8% in the first half of fiscal 2025, driven by strong volume, supported by higher realisations and price hikes taken by the company, and a shift in the product mix in favour of utility vehicles (UVs). Besides, festive season sales during October and November 2024, have aided overall volume growth of 0.2% (year-to-date as of November 2024) as compared to a drop in volume by 1.3% (year-to-date as of September 2024). For fiscal 2025, CRISIL Ratings expects MSIL  to register 1-2% volume growth, while overall revenue is expected to grow by 7-9%, supported by higher realisations, proposed price hikes and an enhanced product mix. In the domestic market, UVs contributed 40.7% of sales for MSIL in the first half of fiscal 2025 while the remaining 59.3% of sales was contributed by passenger car segment. However, in the overall domestic market, UVs contribute ~64% during first half of fiscal 2025, thus indicating MSIL’s scope to further improve its product mix in line with the industry levels. Revenue grew by 20.6% in fiscal 2024, driven by 9.5% growth in overall volume, including exports and remaining growth through increase in realisations, driven by an improved product mix in favour of UVs, which fetch higher realisations.

 

Operating margin has improved to around 13.9% in the first half of fiscal 2025 from around 11% in the first half of fiscal 2024, led by better operating leverage, improved product mix and moderation in raw material prices and CRISIL Ratings expects that operating margin is likely to sustain at 13-14% over the medium term. While the company is operating its plants at nearly 90% capacity at present, commissioning of fresh capacity, currently under implementation, will further bolster MSIL’s market leadership position.

 

The financial risk profile was robust with strong cash generation, sizeable networth and negligible debt levels. Interest coverage and debt/earnings before interest, tax, depreciation and amortisation (Ebitda) ratios were healthy at around 100 times and 0.01 time, respectively, in fiscal 2024 (vis-à-vis 62 times and 0.11 time, respectively, in fiscal 2023). Liquidity was superior with cash and cash equivalents of around Rs 58,364 crore available as on September 30, 2024.

 

MSIL is also expanding its production capacity by 1 million units at its new greenfield plant at Kharkhoda, Haryana. Construction of the new plant should be completed in four phases, with phase-1 likely to be completed in fiscal 2025 (capex of around ~Rs 10,000 crore). In each phase, MSIL plans to augment its yearly production capacity by 2,50,000 units. Completion of the Kharkhoda plant will take MSIL’s total capacity, including Suzuki Motors Gujarat Pvt Ltd (SMG), from 2.35 million units per annum to 3.35 million units per annum. Besides, MSIL also has plans to further enhance its capacity by 1 million units by 2030. The entire capex is expected to be funded through a mix of cash accrual and surplus, aiding sustenance of strong debt metrics.

 

The reaffirmation of ratings also reflects the strong business risk profile of MSIL in the domestic PV segment, driven by its market leadership position, the largest distribution network and improving operating efficiency. Besides, the ratings are also supported by the robust financial risk profile and superior liquidity position. These strengths are partially offset by susceptibility of operating margin to volatility in raw material prices, intense competition and decline in sale of small cars in the domestic market, where MSIL remains the market leader.

Analytical Approach

CRISIL Ratings has consolidated the business and financial risk profiles of MSIL along with its subsidiaries, J.J Impex (Delhi) Private Limited and True Value Solutions Limited due to significant business and financial linkages between these companies. Suzuki Motors Gujarat Pvt Ltd (SMG) is consolidated from fiscal 2024 onwards subsequent to MSIL acquisition.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Dominant market position in the domestic PV segment: MSIL dominates the PV segment, with a market share of around 40.58% in the first half of fiscal 2025, despite facing intense competition from peers such as Hyundai Motors India Ltd (HMIL, rated ‘CRISIL AAA/Stable/CRISIL A1+’), Kia Motors Ltd, Mahindra & Mahindra Ltd (M&M, rated ‘CRISIL AAA/Stable/CRISIL A1+’) and Tata Motors Passenger Vehicles Pvt Ltd (TMPVL, rated ‘CRISIL AA+/Stable/CRISIL A1+’) which have sizeable presence in the fast-growing UV segment market in India. The entry level segment where MSIL has a dominant position, is seeing soft demand due to increase in prices of small cars, owing to higher inflation and compliance cost. Through offerings such as Brezza, Grand Vitara, Jimny and Fronx, the company increased its market share in the UV segment to 25.5% in the first half of fiscal 2025, as compared to 17% in fiscal 2023. The company plans to launch six new models before 2030, which will also include battery electric vehicle (BEV) variants.

 

In addition, the company successfully launched refreshes of its models (New Dzire, New Baleno, New Swift, New Ertiga, New Wagon R) in the mid-to-premium segments, which has improved its product portfolio. Success of existing models, combined with the expanding product portfolio primarily CNG variants (which has been growing), has solidified its dominant market position. For instance, seven of the top 10 models sold during the year belonged to MSIL. Over the medium term, the company will continue to launch new models in the mid-to-premium segment.

 

MSIL has effectively leveraged its association with its parent, Suzuki Motor Corp (SMC), which has extended product development support, shared technological expertise, and provided access to a broad product range. Besides manufacturing vehicles at its own plants in Gurgaon and Manesar in Haryana, MSIL also procures from SMG which has become its wholly-owned subsidiary during fiscal 2024.

 

• High operating efficiency, aiding cost competitiveness: Operating efficiency of MSIL is among the best in the industry, with continuous process enhancement, high indigenisation, established linkages with component suppliers and flexible manufacturing processes, resulting in effective cost control. Rising commodity prices and shortage of semiconductors led to a decline in the operating margin in the past. However, the margin has improved to 13.1% in fiscal 2024, as compared to 9.4% and 6.5% in fiscals 2023 and 2022, respectively, driven by softening raw material cost, easier access to semiconductor chips and an improved product mix. CRISIL Ratings expects the operating margin of MSIL to likely sustain at 13-14%  over the medium term.

 

• Robust financial risk profile: MSIL reported a large networth of ~Rs 84,952 crore as on March 31, 2024, and liquidity of around Rs 58,364 crore as on September 30, 2024. Strong cash generating ability and modest working capital debt have translated into healthy debt protection metrics. CRISIL Ratings expects key debt metrics to remain comfortable, as net cash accrual of over Rs13,000 crore, expected per fiscal, along with cash surplus, should help MSIL fund its sizeable capex plans, including the new plant at Kharkhoda, Haryana. Hence debt metrics are expected to remain minimal.

 

Weaknesses:

• Susceptibility of profitability and market share to intense competition and business cycles: Operating margin of MSIL has fluctuated sharply in the past, amid steep rise in raw material cost and cost of compliance with regulations. Considering the price-sensitive nature of certain segments like entry-level PVs, the company either absorbs any hike in cost partially or passes on the same with a lag, which impacts the margin adversely. Besides, continuous spends incurred towards complying with regulatory requirements impact the return on investment. MSIL seems to be well-positioned compared to most of its peers, as its margin rose to 13.1% in fiscal 2024, from 9.4% in fiscal 2023.

 

The Indian PV market is highly competitive, with existing and new players launching new models regularly, especially in the compact and mid-sized UV segments. The number of players in this segment increased to 19 in fiscal 2021, from 7 in fiscal 2008. With more players and models vying for a share of the growing pie, competition is intensifying. The industry has also experienced multiple headwinds in the past decade, with fiscals 2020 and 2021 witnessing a steep fall in volume. Also, with peers launching a higher number of UV models in the past, and having access to semi-conductor chips, MSIL lost market share till fiscal 2021 and for a part of fiscal 2022. However, new product launches in the UV segment, has helped the company regain its lost share. CRISIL Ratings believes that MSIL’s ability to sustain and grow its market share will be driven by its ability to launch new variants and models successfully in the domestic market.

 

• Declining sales of small cars in the domestic market: MSIL continues to dominate the mini cars segment, with around 94% market share in the first half of fiscal 2025, through Alto and S-Presso models. Besides this, MSIL held around 66% market share in the compact car segment, resulting in overall market share of nearly 65% in the passenger car segment. The company has maintained a steady market share as most peers have exited the market in the last two fiscals and share of small cars in the overall domestic PV market has been reducing since 2020. The total PV volume has risen to around  42.2 lakh units in fiscal 2024 (up from around 33.7 lakh units in fiscal 2019), and to 20.8 lakh units in first half of fiscal 2025. However, the share of passenger cars has fallen to 37% in fiscal 2024 from 66% in fiscal 2019 and around 32% in the first half of fiscal 2025. This is mainly due to increase in prices of small cars at the entry level, led by higher inflation and compliance cost in lieu of stringent government regulations.

 

The cost of small cars may increase further with implementation of the latest government regulations. Also, the pace at which prices of small cars have risen, exceeds that at which household income has grown since the pandemic. Combined with increased preference for feature-laden UVs, the share of small cars in the overall domestic PV market may decline further in the medium term. Also, MSIL has aligned its production schedule in line with changing consumer preferences, which may result in share of small cars in its domestic volume to decline further. Nevertheless, the company will continue to dominate the small car segment, albeit sluggish volume growth and revival largely dependent on recovery in domestic household income.

Liquidity: Superior

MSIL has superior liquidity, on account of healthy cash accrual and liquid surplus of over Rs 58,364 crore as on September 30, 2024. Cash accrual generated would suffice to cover the working capital, and incremental capex towards capacity expansion and maintenance. Bank limit of Rs 5,000 crore has been sparsely utilised on average of 15% for the six months ended November 30, 2024.

 

Environment, social and governance (ESG) profile:

CRISIL Ratings believes the ESG profile of MSIL supports its already strong credit risk profile. The company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence.

 

The automobile industry has a moderate impact on the environment given the extent of emissions, water consumption and waste generation. Effect of operational activities on employees does have an impact on society. The company is focusing on mitigating environmental and social risks.

 

Key highlights:

• The absolute level company’s greenhouse gas emissions (Scope 1 and 2) has decreased by ~4% owing to an increase in share of renewable energy to 6.07% in FY24 from 2.66% in FY23.
• Further, the company has steady share of green vehicles (vehicle running on CNG/LPG or use hybrid technologies), which has also resulted in a lower than peer average Scope 3 emission intensity (from the material category use of sold products)
• MSIL has seen a healthy safety track record with low lost time injury frequency rate (nil for employees, and 0.016 for workers) and nil fatalities reported during fiscal 2024. Also, customer complaints were lower than the peer average.
• As of September 30, 2024, MSIL governance structure is characterized by 33% of its board comprising of independent directors, 25%-woman board directors, dedicated investor grievance redressal system, 100% investor complaint redressal rate and extensive financial disclosures.

 

There is growing importance of ESG among investors and lenders. MSIL’s commitment to these principles will play a key role in enhancing stakeholder confidence, given the high shareholding with financial institutions and access to domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes MSIL will maintain its dominant position in the domestic PV segment, supported by a large and successful product portfolio, new launches, strong distribution network, and access to SMC's technology. The company is likely to maintain its robust financial risk profile and superior liquidity position.

Rating sensitivity factors

Downward factors:

• Significant MSIL’s market position (market share reduces below 30-35%) due to increasing competitive intensity.
• Material increases in external debt, in the event of a large capex, denting key debt metrics.
• Sizeable increase in pay-out by way of buy-back, dividend and royalty to SMC, resulting in significant decline in cash surplus.

About the Company

Incorporated in 1981, MSIL is the market leader in the domestic passenger car industry. In 1982, the Government of India and SMC entered into a joint venture agreement, whereby SMC acquired a 26% stake in MSIL. By September 2007, the government had offloaded its equity to Indian financial institutions, including banks and mutual funds. The company has manufacturing facilities in Gurgaon and Manesar. Along with SMG's unit in Gujarat, total installed capacity is around 2.35 million units per annum.

Key Financial Indicators(consolidated)*

As on/for the period ended March 31	Unit	2024	2023
Revenue	Rs crore	140822	117551
Profit after tax (PAT)	Rs crore	13488	8211
PAT margin	%	9.6	7.0
Adjusted debt/adjusted networth	Times	0.01	0.02
Interest coverage	Times	99.55	62.07

*CRISIL Adjusted numbers; fiscal 2023 consolidated financials do not include SMG

Any other information: Not Applicable