Business IdeasMaruti cashes its chips with some care, to analysts' approval
Maruti Suzuki, the country’s largest manufacturer of cars, is also quite cash-healthy, markedly so in comparison to many of its competitors.
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Tata Motors’ debt as of March 2009 was 41 times its paid-up capital; Mahindra & Mahindra’s was 11 times. Maruti, say analysts, is almost debt-free. Piyush Parag, vice president (research) at Religare Capital Markets Ltd, says the company does not need to raise cash for buying other companies nor does it require additional funding for its capacity expansion plans at its new Manesar plant.
“All its funding requirements are met by cash generated internally,” says Parag. The company, though, does have a one-year foreign currency loan of Rs 698.8 crore from two Japanese banks.
Maruti’s healthy cash reserves come from its multiple business lines. “The surge in cash levels come from three sources — healthy profits every quarter, accelerated rate of depreciation on its machinery, and interest income earned from investing its surplus cash,” says S Ramnath, vice president of IDFC SSKI Securities.
For the full year ending March 2009, its consolidated revenues increased by 14.4 per cent to Rs 21,781 crore as compared to last year. However, net profit dipped by 31.4 per cent, to Rs 1,227.4 crore.
Its sales of car spare parts is the largest after-sales business in the domestic market. Revenues from this crossed the landmark Rs 1,000 crore last year. For the financial year 2008–09, turnover from the vehicle ancillary business grew by 13 per cent, to Rs 1,226.4 crore.
Then there are the additional streams of income from its vehicle insurance business: it is the largest vehicle insurance provider in the country. It has five insurance subsidiaries, which in association with insurance majors, provide cover for both new cars and policy renewals.
Next, Maruti’s True Value (used car business) sold 104,550 cars last year. Revenues from these two business lines are listed under income from services, which grew by 27 per cent to Rs 105.9 crore. And, revenue earned from four joint venture companies and 15 associate companies that supply car parts to the parent plant and the after-sales market increased by 21 per cent to Rs 222.5 crore for the year ending March 2009.
Finally, income from investments of surplus funds in fixed deposits or mutual funds increased by 19.3 per cent to Rs 1,117.3 crore for the year ending March.
For the current financial year, 2009–10, the company’s annual report states it will use its cash reserve to build stockyards, brand centres and further invest in research and development centres. It also says the company is close to acquiring a location for a stockyard near Bangalore. Earlier, CEO Shinzo Nakanishi said the objective of investing in stockyards across the country was to cut the time taken to ship its new cars from Gurgaon and Manesar to different dealerships.