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How does Maruti fare against Hyundai? - Views on News from Equitymaster

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How does Maruti fare against Hyundai?

Jul 17, 2013

Incorporated in 1981, Maruti Suzuki is India's largest passenger vehicle manufacturer. The company has a domestic market share of about 40%. It offers around 14 models with over 200 variants across various segments such as passenger cars, utility vehicles and vans. It has five plants located in Gurgaon and Manesar. The company has the capability to produce over 1.5 m cars per annum.

Hyundai Motor is a South Korean based company that manufactures, sells and exports passenger cars, trucks and commercial vehicles. The company also sells various auto parts and operates auto repair service centers throughout South Korea. In addition to this it provides financial services through its subsidiaries.

Just to give you an idea about the difference in sizes between the two firms, here are some of the key figures of the two companies.

Rs bnMarutiHyundaiHyundai/ Maruti (x)
Sales361 4,223 12
EBIDTA26 499 19
Profit17 428 25
Total assets231 6,052 26
Data as of FY12 for Maruti, CY12 for Hyundai; View Full Comparison Table
Data Source: Equitymaster Database
The purpose of this article is not to compare the size of the two firms. If that was to be done, then naturally Hyundai would win hands down; as can be seen above. Instead, we would be focusing on how Maruti Suzuki and Hyundai Motor have fared against each other in terms of the earnings quality as well as their growth trends over the past five years.

On comparing the two companies' sales growth trends it seems that Maruti has overtaken Hyundai. While Maruti's sales have doubled over the period, Hyundai's revenues remained flat. However, when it comes to profitability (at the operating level), the overall improvement displayed by Hyundai overshadows Maruti's volatile, yet higher margin profile by miles. From an operating margin of 4.7% in 2008, Hyundai's operating margins gradually improved to about 12% in CY12. On the other hand, Maruti's margins were quite volatile hovering in the range of 7% to 13% (7% in 2012).

Maruti and Hyundais sales profits trends
Data Source: Equitymaster database

The growth trend of the profit after tax is quite the opposite as compared to the sales growth trend of the two companies. With the strong expansion in operating margins, Hyundai's profits expanded by almost 10 times in the five year period ended 2012. Maruti's profits on the other hand, remained flat after five years, largely due to the poor margins.

Coming to the balance sheet numbers - at first glance, one could see the difference in capital structure of the two firms. While Maruti Suzuki remained virtually debt free over time, Hyundai's D/E ratio (long term debt only; while declining over time) stood at 0.7 times in 2012. The same stood at about 1.2 times in 2008. Maruti also seemed to perform better when it came to managing its working capital requirements in the recent past as compared to the South Korean auto major. While the ratios have worsened for both the companies over time, they have remained relatively much stable for Maruti.

Diving slightly deeper into the working capital details, Maruti's inventory days averaged to 17 days as compared to 28 days for Hyundai. In other words, Maruti is able to sell its inventories at a faster pace. Further, Maruti's debtor days averaged at 12 days as compared to Hyundai's 13.4 days. This indicates that both the company's tend to receive payments in the same time. It may however be noted that Hyundai's debtor days stood at 4 days in 2008.

Coming to return ratios, the return on assets (RoA) - an indicator of how profitable a company is relative to its total assets - for both these companies stood at about 7.5% in 2012. However, when compared to the previous years, it is Hyundai whose performance improved substantially. The company's RoA stood at 1.5% in 2008, which gradually improved to 7.6% in 2012. Maruti's RoA averaged to 12% in the five year period. The RoA of 7.5% was the lowest reported figure.

RoCE Maruti versus Hyundai
Data Source: Equitymaster database

Further, given the debt on Hyundai's books, it would make more sense to compare the two companies' return on capital employed (RoCE) ratios. Barring the latest year, Maruti's RoCE stood much higher throughout. But similar to the RoA performance, Hyundai's RoCE has improved overtime, while that of Maruti remained volatile. In 2012, Maruti RoCE stood at 14.2%, while Hyundai's stood at 15.7%.

In conclusion...

The performance of the two companies seems quite mixed. While Hyundai has performed very well in terms of improving its financial performance over the past five years, from the data above it can be said that Maruti's management seems to be doing a fine job when it comes managing its working capital requirements. While return ratios of both the companies were at similar positions in 2012, Maruti has done better in the past.

PLEASE NOTE:

This comparison is one of many that you could do yourself. Make sure to view the 'Compare Globally' section, which allows you to compare the financial performance of Indian companies with their global peers. The data can also be views in the form of graphs thereby making the comparison easier. These charts can be viewed in two ways - in the form of trend (using base 100) as well as by plotting the actual values.

Some of the popular viewed comparisons are:

Devanshu Sampat

Devanshu Sampat (Research Analyst) has a degree in commerce and nearly 5 years of experience in equity research. He draws inspiration from successful value investors across the globe and constantly endeavours to refine his own unique stock picking approach. While a firm advocate of the principles of value investing, he believes in adapting a versatile investing strategy in response to varying market conditions. Devanshu contributes to our Megatrend investing service The India Letter.


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