Shastra #1: Stock Investing is not Rocket Science!

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What is the common mindset?

Complete the following sentence using one word. Stock Investing is _________. What word came to your mind?

What should our mindset be?

Sounds too far-fetched? Consider this:

Shastra #1: Stock Investing is not Rocket Science!

Rating: 0.0/5 (0 votes cast) We said that to make your money work for you, you have to take charge of your own investments. You cannot leave it any more to your Relationship Manager, your Insurance Advisor, your Broker. Sounds threatening? Of

What is the common mindset?

Complete the following sentence using one word. Stock Investing is _________. What word came to your mind? Most likely it will be one of these: Gamble, Risky, Unpredictable, Complex, etc. What do these words make you feel? Do they make you take up stock investing or make you avoid it? Most of us will feel like avoiding it. We are afraid of venturing in it on our own; hence hand it over to experts. However, it is these experts who have constantly blasted us with the myth: You are better off leaving Stock Investing for the experts to handle. Just have a look at ads of any of the financial products and services; they all say the same thing. Now, if they were all such wonderful experts, how well did such expertise protect your wealth during the crash of 2008?

What should our mindset be?

The test of real expertise is wealth protection in bad times and solid growth in good times. So that, over a longer horizon covering boom and bust, you get attractive growth, say 20% CAGR. Of course there are a few rare, real experts (but you wont see them on TV every day, predicting the market) who have consistently been doing this. Each Stock Shastra is the distilled wisdom of such rare, real experts. The real Gurus! And from them, here is Stock Shastra #1: Stock Investing is not Rocket Science! Now, how do you feel when you say this Shastra?

Sounds too far-fetched? Consider this:

Benjamin Graham, one of the Gurus of stock investing, did not have a background of finance when he started investing. However, he learnt stock investing, eventually pioneering the concept of value investing; his philosophy was simple: Buy great businesses at extremely cheap prices.

Warren Buffett, one of the greatest stock investors of all time, started investing when he was 12, without any formal finance education. He regarded Benjamin Graham as his Guru and today is amongst the richest people in The common thread binding these great investors is the same. They werent experts when they started. But they learnt to do it on their own by following a simple and sound framework of investing and sticking to it It involved buying into a great business with the mindset of an owner. Finding such a business might require some search and analysis, but is something you can certainly manage. Most importantly, sooner or later, the market gives you many opportunities to buy such wonderful businesses at throw-away prices; or sell your holdings at unbelievably high prices. The proof: Look at the 52-week Highs and lows of any of the Sensex stocks.

Once we change our mindset and decide to invest in stocks on our own, the next step is to find a wonderful business worth owning. The next Stock Shastra will tell you how to start doing this.

Shastra #2 Buy a wonderful business and not just

Why do you need to buy a great business?

And a company can earn profits consistently only if it has a wonderful business!

How do you find a wonderful business?

1. An Excellent Financial Track Record 2. A Sustainable Moat, and 3. Respectable Management

Shastra #2 Buy a wonderful business and not just a sto

We said in Stock Shastra #1 that Investing in stocks is not rocket science, not as difficult as it has been made out to be. You dont need to be an expert to do it. You just need to buy a great business with the mindset of an owner. Lets see why this is important and how you can find this kind of business.

Why do you need to buy a great business?

If you are currently investing in stocks, what is the method you use to select stocks? Is it low P/E, low Price/Book Value, High Dividend yield? Or is it based on charts showing peculiar patterns? These methods are completely inadequate because they over-simplify your investing method. They dont tell you about the earning capacity of a company the key driver of its stock price in the long term. They may lead you to take a wrong decision. Its much like the story of three blind men who encounter an elephant for the first time and attempt to learn about it by touch alone. The first touches the trunk and thinks the elephant is like a snake; the So, what is the best way to avoid making this mistake of over-simplification and at the same time, have a simple but robust way of investing in stocks? The answer is Stock Shastra #2: Buy a wonderful business and not just a stock. The fact is that, in the short run, market sentiments drive the stock prices due to which any stock can go up or down, no matter whether it is wonderful or not. But in the long run the price of any stock is driven by the companys ability to earn profits consistently. As Benjamin Graham says,

And a company can earn profits consistently only if it has a wonderful business!

How do you find a wonderful business?

A wonderful business is one which has done well and will continue to grow in the future. It mainly has three 1. An Excellent Financial Track Record 2. A Sustainable Moat, and 3. Respectable Management An excellent track record is proof of its successful past whereas a sustainable moat and respectable management will drive the growth in the future. Hence, to find such a wonderful business you need to look for To find whether a company has an excellent financial track record, you need to see whether it has performed very well over atleast the past 10 years. Why 10 years? Because, over a 10-year period, the company is likely to have experienced one full economic cycle: good & bad times; growth and recession. A business does not do well over a 10year period just by accident! A question may arise in your mind: Are we saying past performance is a guarantee of future performance? No. But past performance and past behaviour of management give enough A company which has performed well over a 10-year period will most likely have a moat. A moat is a strong competitive advantage that helps the company survive in tough times and helps earn consistent profits. Consider the example of Colgate. Its moat is its brand, which is known all over the country. What if a company has an excellent track record, a strong moat but has management who was arrested for a FERA/Excise Duty violation? Would you invest in such a company? The business must have a good, credible leader and management who drive the growth of the company. Having shortlisted a company that has good financial track record, a strong, sustainable moat and good management, you are on course to find a company that has a high probability of performing well in the future.

The next Stock Shastra will talk about a simple and powerful lens through which we can identify if a business has an excellent financial track record.

t just a stock!

So, what comes to your mind when we talk about company financials?

The truth-revealing 5 Financial parameters

How can you be absolutely sure if a companys financial track record is great or not?

Write to us for any clarifications. We will be glad to be of help

Shastra #3: You just need to look at 5 Financial Parameters to shortlist a wonderful company!

We said in Stock Shastra #2 that a wonderful business worth investing in has 3 important characteristics: An Excellent Financial Track Record, A Sustainable Moat and Respectable Management. The first one An Excellent Financial Track record is a Go/No-go criterion and hence is critical. It will prevent you from investing in the

So, what comes to your mind when we talk about company financials?
A big, fat, 100-page Annual Report with reams of data that leave most of us confused! It seems too difficult, too complex, needing too much time which you dont have! However, truth is always simple. Let us now see a simple and powerful lens through which we can identify companies with an Excellent Financial Track record. The From all the 100+ parameters, all you need are just 5 of them! Earnings per share (EPS); Net Sales; Book Value per share (BVPS); Return on Invested Capital (ROIC); and, Debt-to-Net Profit ratio. Seen together and over 10

The truth-revealing 5 Financial parameters

What is the first thing that you will look for in a company before investing? You will check whether it is making Profits, consistently! Since we will be shareholders, we need to look at the profit it earns per share. Hence the How can a company continue to earn profits year after year? By selling more and more every year. Hence, the To increase its sales in the long run, a company will need to expand its capacity. Book Value per Share, BVPS tells us how much a company is investing in expanding its capacity. Thats the third parameter.

Companies in the most basic sense are money-using and money-making machines. How do we rate a machine? Simple, we look at what it produces in relation to what it uses i.e. efficiency. Companies produce profits using the capital invested (both equity and debt). Hence to know the efficiency with which a company uses its capital, Finally, if a company borrows money, it should be able to repay it without serious difficulty over a reasonable period of time. Debt-to-Net Profit ratio tells us the number of years in which the company will be able to repay

How can you be absolutely sure if a companys financial track record is great or not?
We have checked over 1500 companies and arrived at a gold standard that only the best meet: A company that has been growing its EPS, Net Sales and BVPS by 12%+ year-on-year; has a ROIC of over 12% every year; and can pay off its debt in less than 3 years i.e. a Debt-to-Net Profit ratio of 3 or less has a great Financial Track Such companies are quite likely to have a moat a sustainable competitive advantage, which has allowed it to post great numbers. So, now you know how important these 5 parameters are! We are sure your next question now is Where do I get these 5 Financial Parameters, without wasting any time? It was ours too earlier. So we searched high and low and found that it was not available anywhere. And, we chose the road less travelled we decided to make it available These crucial 5 parameters, over 10 years are

Write to us for any clarifications. We will be glad to be of help The next Stock Shastra will outline the importance of sustainable competitive advantage, i.e. moat, for any

Shastra #4: Look for companies with unbreachable

What is a moat?

So, why is it important to look for a moat?

What are the moats that can stand the test of time?

A company can also have other moats like network effects, distribution network, etc.

So, how do you find such a company?

Shastra #4: Look for companies with unbreachable moat

We said in Stock Shastra #3 that you need to look at only 5 financial parameters over a 10-year period to shortlist a wonderful company. Once you have identified such a company, you need to determine whether the company has what it takes to remain a winner in the future. So, how do we do this? The answer is Stock Shastra #4: Look for companies with Unbreachable Moats.

What is a moat?
In olden days, a castle was protected by the moat, a wide channel that was dug around it and filled with water. The wider the moat, the more difficult it was for enemies to enter and capture the castle. For us, the castle is the company we want to invest in. And, the moat is: A sustainable competitive advantage which protects the company from competition and tough economic conditions. Now you know why we use a rarely used word like

So, why is it important to look for a moat?

As discussed in the earlier shastras, a company worthy of our investment must be able to grow its profits consistently, despite competition and tough economic conditions. We emphasize on competition and tough economic conditions because every company has competitors and sooner or later faces tough conditions. During such times, companies fight harder to win customers which usually leads to a fall in prices and thus margins. Only a company with a wide, unbreachable moat a competitive edge can maintain and grow its profits even during tough economic conditions. As Warren Buffet said,

What are the moats that can stand the test of time?
While all this may sound a little conceptual to some of you, moats in business are really easy to understand, because it is common-sense. Check out these 5 types of moats! If you had to buy toothpaste, which name comes to your mind? Most of us would think of Colgate and many of us would buy it. Why? Because this is a name many in India have come to trust over the years. It is quite easy to make toothpaste, maybe even better than Colgate, but without the Colgate brand name, you will sell very little in India. This is the power of the Brand the first moat. A strong brand helps a business to command a large market share and higher prices, and makes it very difficult for competition to grow. Wouldnt we love to own a company that was the only one who could manufacture a particular product and had no direct competition? That is exactly what happens if a company has a patent or a trade secret the second moat. The most common examples: Pharma companies with patents and food and beverages companies with unique and usually patented recipes like Coca Cola and McDonalds fries (which are made from specially grown We travel between cities quite frequently and we always use the expressways/highways, paying a toll. Though the old highways have improved from earlier times, we have never used them since the time the new expressways were inaugurated. The wide empty roads, the time saved and the hassle free driving make the expressway easily the only way to travel between these two cities. Wouldnt you love to own such a business, that makes money every time someone uses it and people really have no option but to use it. Some companies have exclusive control over particular areas. That gives them the ability to collect a toll the third moat. For example: If you want to advertise a product in South India on a television network, you would have no real option but to advertise on Sun TV, because of the very high viewership it commands. We are all creatures of habit. We do not like to change, especially if the change requires a little bit of effort. The fourth moat that a company can have is based on this and is called Switching. It means a company has a product or service you are so used to, that changing or switching it is either very difficult or not worth it. The most common example of this is Microsoft Windows. We are so used to it, that changing to say Linux is not worth it even though it is free and offers certain advantages over Windows. IT Companies like Infosys and TCS get around 90% of their business from repeat clientele because of this very moat. One of the biggest factors on which companies compete is price the fifth moat. A company which can price its products really low and still make a profit makes it difficult for anyone to compete with it. Consider Koutons Retail, the largest discount retailer for readymade apparels in India. Its strong retail network and a value retailing format combined with a franchise based model enables it to offer heavy discounts on apparels. So, the five types of moats that a company can have, that can stand the test of time are Brand, Secret, Toll, Switching and Price. A company can also have other moats like network effects, distribution network, etc.

So, how do you find such a company?

A company which has an excellent financial track record will most likely have at least one moat. Companies without a moat will not usually pass the gold standard of an excellent Financial Track Record, about which you have read in Stock Shastra #3. What we need to check is whether this moat is sustainable in the future. If the company has sustained it for 10 years, it most likely will in future, but check this out before investing.

In the next few Stock Shastras, we will talk more about each of these moats, starting with Brand the first moat. See you next week with Stock Shastra No. 5.

hable moats

Shastra #5: Great Brands are an unbreachable moa

What is a Brand?
Did you know this?

Why is Brand a Moat?

Translating the Brand Moat to outstanding financial track record

While successful brands are a moat, it takes more to translate it into an outstanding financial track record.

The next Stock Shastra will talk about the second moat i.e. Secret/Patent. See you soon with Stock Shastra#6.

Shastra #5: Great Brands are an unbreachable moat

In Stock Shastra #4, we said that to invest in a wonderful company, you need to look at a business with an unbreachable moat (a sustainable competitive advantage that helps the company remain a winner, even in tough times). We talked about 5 different moats that a business can have: Brand, Secret, Switching, Toll and Price. But, how does each moat make the company a winner? And what are some good examples of companies in India with these moats? Let start with the first Moat i.e. Brand.

What is a Brand?
Did you know this? Every Indian consumer uses, interacts or at least comes across 2 Godrej products every day in his/her life. It can be a Godrej cupboard, appliance, furniture, safe or lock. Right from consumer products like soaps & hair-dyes to equipment parts for spacecrafts, Godrej has a presence in almost every sphere. This is the power of a Brand. It connects emotionally with consumers and becomes an integral part of their lives. Brands are represented by a name, phrase, sign, symbol or a combination of these. It is the unique identity, association, emotion; which a product or service creates for itself in the mind of the consumers. Brands become synonymous with the products & services used by consumers. Take the example of adhesive bandages. When we go to a medical store we ask for Band-Aid. Most of us maybe unaware that Band-Aid is the brand name for Johnson & Johnsons adhesive bandages. Its popularity across countries has made the brand name synonymous with the product. Examples like Fevicol or Fevistick in the adhesive category, Amul in the Milk & Milk product category; further prove this point.

Companies which have a brand as a moat can generate profits consistently in the long run & emerge a winner during tough times. Let us see how brands become a moat.

Why is Brand a Moat?

When a company creates a successful brand, it creates loyal consumers. When consumers are happy & satisfied with a brand they are unlikely to switch. When happy consumers talk enthusiastically about their favorite brand they help the brand attract more consumers at virtually no marketing cost. This leads to higher profitable market share. Financially, this translates as higher sales & profits for the company. Brands make the process of taking decisions easier for the consumers & bring peace of mind to them. As consumers love the brand, they do not mind paying a premium for its products & services. Take the example of Asian Paints. It is a classic example of a successful brand which charges a premium in the paints category. In this age of advertising clutter, successful brands break through the clutter and become a part of the consumers consideration set i.e. the shortlist of brands a consumer will consider buying from. Take the example of small cars. Maruti brands will most certainly be a part of every consumers shortlist while buying a small car.

A company with a strong & successful brand also has the ability to expand to other product & service categories with ease. Titan is one such brand. It is the largest manufacturer of watches in the organized sector in India. Over the years, Titan has diversified to other categories like Jewellery & Eyewear. It has been quite successful in these product categories too. The company has been able to diversify because of the trust and value that the brand commands. You can refer to our Company Shastra to know more about this great brand.

Translating the Brand Moat to outstanding financial track record

While successful brands are a moat, it takes more to translate it into an outstanding financial track record. First, while brands can earn money, it cannot prevent companies from poor investment decisions, spending disproportionately to achieve short term results, giving away more than required to channel partners, succumbing to price wars etc. Every category has competition. When successful brands do not evolve and maintain the edge over competition, over a period of time they get diluted and the brand ceases to be a moat. This means brands require innovation and investment in the long term. Management that fails to act on this, end up losing an asset that has taken years to build.

When you look at any product category, you would be aware of the top 2 or 3 brands in that category. Find out which company owns these brands. Then look at the 5 critical parameters to know the financial track record of these companies. Such companies with an excellent track record over 10 years clearly own great brands and know how to use this as a moat to keep succeeding. These are stocks you should consider buying, of-course at the right price.

The next Stock Shastra will talk about the second moat i.e. Secret/Patent. See you soon with Stock Shastra#6.

moat

Shastra
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Titan Industries Ltd. Will its Brand do the trick?

Titans 10 YEAR X-RAY*: Green (Very Good)

(* 10 YEAR X-RAY shows the financial performance of a company in the last 10 years.)

Titan, in brief

What does Titans past say?

What is Titans Short-term Outlook?

Segment-wise Performance:

To capture the kids segment, Titan recently launched a new brand Zoop

What is Titans Long-term Outlook?

Till date, Titan has achieved growth & success because of its brand. Lets see what will its moat of a strong brand do for Titans future in its 3 segments?

Hence, we can expect Titans long-term outlook to be Green (Very Good) Conclusion:

Shastra
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Titan Industries Ltd. Will its Brand do the trick?

Titans 10 YEAR X-RAY*: Green (Very Good)

(* 10 YEAR X-RAY shows the financial performance of a company in the last 10 years.)

Titan, in brief
Titan Industries Ltd, a joint venture between the Tata Group & Tamil Nadu Industrial Development Corporation, is the worlds fifth largest & Indias leading manufacturer of watches (60%+ market share in the organized Indian market). It is also the market leader in branded jewellery with a 40% market share. In both the It has four main business units, viz. Watches (brands like Titan, Sonata, Fastrack), Jewellery (Tanishq), Eyewear (Titan Eye +) and Precision Engineered Components. Jewellery (70%) and Watches (20%) contribute a major It operates through 539 stores for its 3 segments through the following retail formats; all designed to give a memorable buying experience to its customers :

The company has five manufacturing plants in Hosur, Dehra Dun, Baddi, Roorkee and Goa. Its products are sold

What does Titans past say?

Titan Industries has performed robustly in all its parameters over the last 10 years. Its impressive fundamentals in the past form a strong base for its future. It has increased demand consistently over the years, evident in its impressive Net Sales CAGR of 24.8%, strongly aided by its growth in Tanishq. Besides, it has improved on its margins in the watches segment to also deliver a 36.3% CAGR on EPS. Both its brands have helped Titan grow its Net Sales & EPS in the past. Titan Industries has been able to convert its high brand equity (its moat) in an

What is Titans Short-term Outlook?

Segment-wise Performance: 1. Both, Watches & Jewellery benefited from a longer wedding season, steadily increasing gold prices and an improvement in overall consumer sentiment 2. The B2B business of precision engineering was affected due to the slowdown & postponement/cancellation of It recently shut down 2 of its stores in the US market owing to the slowdown. Titan plans to concentrate on the Indian market for its jewellery segment. Even in the watches segment, it was witnessing stagnancy in the Dubai market, hence it is shifting focus to smaller international markets like Vietnam & Oman Titan plans to focus more on its jewellery business (70% revenue), especially on studded jewellery as margins To capture the kids segment, Titan recently launched a new brand Zoop Despite its exports being a concern, the demand for watches & jewellery in India is expected to further increase with the improvement in consumer spending. Hence, we can expect the short-term outlook of Titan Industries to -

What is Titans Long-term Outlook?

Till date, Titan has achieved growth & success because of its brand. Lets see what will its moat of a strong brand do for Titans future in its 3 segments? Titan Using the right segmentation & smart branding strategies, Titan has successfully captured the watch market. Over the years it has launched brands to cater to each segment. For example: Titan for the premium segment, Fast-Track for the youth, Sonata an economy brand, Raga to target the women etc. Once Titan had captured a large market, it moved from its initial strategy of gifting concept, to attaching watches as a fashion accessory; a statement of lifestyle. For this, it initiated the concept of Matching Watches to Clothes to remove the earlier perception of watches being a one-time buy. Roping in Aamir Khan added to its brand value. With this, the company also launched its superior range of watches offering people the option of upgrading this part of their wardrobe. This helped the company improve its margins. It is further aiming to improve margins by concentrating more on its premium watch brands like Xylys. Also, the company is setting a new plant at Pantnagar, with an annual production of 3mn watches to cater to the increasing demand Tanishq Titan launched its jewellery segment, Tanishq at a time when Indians only followed the traditional way of purchasing jewellery. Local jewelers were the only existing players then. The trust & value that Titan commanded in the market helped it successfully diversify into the jewellery segment starting in 1994. It pioneered the concept of branded jewellery at that time. Till date, 90% of the Indian market purchased jewellery

Tanishq has built a brand for itself, where now people consider going to a national brand to purchase jewellery. It has grown its sales from Rs. 268 Cr. in 2002 to aprrox Rs. 3505 Cr. in 2010 registering an impressive CAGR of 30%+. It is well-positioned in a market where huge opportunity exists in the form of branded jewellery taking over from local players. It has always promised superior quality jewellery with purity. Aimed at touching the Indian womans heart, Tanishq is now focusing on creating jewellery for each scenario/occasion Valentines In fact the branding of jewellery with its new commercial The Jewellery that makes you want to Marry!!! has Right now, Tanishq appears to be aiming at achieving high volumes, even at modest margins. The company is already shifting focus to the high-margin studded jewellery segment.. With the Indian jewellery market expected to grow from Rs 80,000 Cr. to around Rs 1,25, 000 Cr. by 2014-15, Tanishq is well-positioned to Titan Eye+ Recently (2007), Titan has entered into a new market i.e Titan Eye +, which is its prescription eyewear business. This is another market where there is no well-known national brand & people shop at their local opticians. By foraying into this segment, Titan is again aiming re-create its success as it has done in the branded jewellery segment. It currently has around 86 Titan Eye + outlets (FY10) in the country and has plans

Hence, we can expect Titans long-term outlook to be Green (Very Good) Conclusion: Titan Industries is a leader in watches & jewellery in India mainly because of the strong brand developed by it over the years. The company can leverage its strong brand to grow its Sales & Profits in the future

Maruti Suzuki India Ltd. Will it win the Battle, aga

Maruti Suzukis 10 YEAR X-RAY*: Green (Very Good)

(* 10 YEAR X-RAY shows the financial performance of a company in the last 10 years.)

Maruti Suzuki, in brief

What does Maruti Suzukis past say?

The 10 YEAR X-RAY of Maruti Suzuki is Green (Very Good)

What is Maruti Suzukis Short-term Outlook?

Hence, we can expect the short-term outlook of Maruti Suzuki to be Orange (Somewhat Good) -

What is Maruti Suzukis Long-term Outlook?

In this context: Will Maruti remain a winner in the future?

This redesign phase helped Maruti develop a few moats (sustainable competitive advantage):

These moats have remained its key growth drivers till date and in the future. The Company is now taking steps to fight the current competition it is facing:

Conclusion:

Maruti has proved itself in the past by sustaining its market leadership position. It is well-poised for growth in t

Maruti Suzuki India Ltd. Will it win the Battle, again?

Maruti Suzukis 10 YEAR X-RAY*: Green (Very Good)

(* 10 YEAR X-RAY shows the financial performance of a company in the last 10 years.)

Maruti Suzuki, in brief

Maruti Suzuki India Ltd, a subsidiary of Suzuki Motor Corporation of Japan, is Indias largest passenger car company, with over 50% market share. Almost all its models are in the A2 passenger car segment. Suzukis technical superiority lies in its compact & light-weight engines, which are clean and fuel efficient Maruti Suzuki has two state-of-the-art manufacturing facilities, one at Gurgaon and the other at Manesar, with a total installed capacity of 10,00,000 cars per year. It has a strong sales network of 600 outlets and service network of 2628 workshops. It exports its cars to over 100 countries. Exports accounted for over 17% of the

What does Maruti Suzukis past say?

Stock Shastra #3 talks about the 5 Financial Parameters(Net Sales Growth Rate, EPS Growth Rate, BVPS Growth Rate, ROIC & Debt/Net Profit Ratio) by which we can shortlist wonderful companies with an Excellent Financial Track Record. In case of Maruti, the growth in Net Sales has been consistently good, because of increasing demand over the years. Its EPS and BVPS growth rates have been impressive too. Marutis management has been utilizing its funds in an optimum manner, as indicated by its average ROIC of 25.5%. The company has a comfortable debt position too. Looking at all these parameters, we can say that Maruti Suzuki is a company worth short-listing, on the basis of its financial track record The 10 YEAR X-RAY of Maruti Suzuki is Green (Very Good)

What is Maruti Suzukis Short-term Outlook?

Maruti is currently facing capacity constraints due to the unexpected increase in demand in FY10 hence it was operating at 102% of its total capacity. To overcome this, the company will be increasing its capacity at the Manesar plant to manufacture additional 2.5 Lakh units by June 2011

Implementation of Euro-IV Norms have increased costs: The Company has begun to increase its price to pass on the cost-increase - Since April 1, 2010, eleven selected cities have moved to Euro-IV emission norms. Hence, Maruti Suzuki needs to change the engine completely for some models; while in others the ECU (Electronic Control Unit) will need tweaking. Some models (Ritz, SX4 and Estilo) are already Euro-IV compliant Re-launch of WagonR priced Rs.5000-10000 higher, after technical & physical up gradation to meet Euro-IV emission norms Increasing competition, interest rates, fuel prices and withdrawal of European incentive scheme will affect its demand in the short term. Besides, increasing raw material prices, excise duty hike from 8% to 10% are other concerns. Despite these concerns, higher employment rate and increased salaries will drive the sale of A2 segment cars in India. Maruti, being the leader in this segment will benefit the most from this increase Hence, we can expect the short-term outlook of Maruti Suzuki to be Orange (Somewhat Good) -

What is Maruti Suzukis Long-term Outlook?

Increasing Competition in the small car segment poses a threat: Tata Motors has taken over the tag of entrylevel-car-maker with the launch of Nano. With other companies like Toyota, Volkswagen, Ford etc planning to launch cars in the A2 segment, competition is set to heat up; putting pressure on Marutis market share In this context: Will Maruti remain a winner in the future? Maruti has been the market leader for over 2 decades now. Before the Government allowed foreign car makers in India, Maruti was competing with local players like Telco, Hindustan Motors etc. Once foreign players started entry in 90s, Maruti initiated strategic responses to its new competition & fought hard to maintain its position. It narrowed down on a plan and changed its focus from only production to marketing & customer focus Under this phase, Maruti launched a new model every year, it increased its sales & service network to reach customers and improved its technology. As a part of the plan, it completed a Rs. 400 Cr. expansion project which increased the total production capacity to over 3,70,000 vehicles p.a. It thus, won the battle then, This redesign phase helped Maruti develop a few moats (sustainable competitive advantage):

These moats have remained its key growth drivers till date and in the future. The Company is now taking steps to fight the current competition it is facing: It has repositioned Alto as its entry-level car at a more competitive price, as it has phased out Maruti 800 from across 13 cities from April 2010 onwards Maruti will now concentrate on the A2 segment where it is already the market leader with a 60% share. It has a wide range of models A-Star, Swift, Ritz, Estilo and WagonR in this segment. The company is betting big on this segment especially with the re-launch of WagonR the bestselling car in this segment. It is planning to launch new models in new segments It is setting up its independent R&D facility in India, the biggest outside Japan for parent Suzuki, by 2012, with an expenditure of up to Rs 1,500 Cr; in collaboration with Suzukis product development cell to meet global standards. It will manufacture cars for the local and export market, keeping in mind the expectations of customers. This will help India turn into a global hub for small car design Volkswagen, the largest car-maker in Europe with 57% market share, has purchased a 19.9% stake in Suzuki Motors. Does this have any significance for Maruti? In the long term, we expect Maruti Suzuki to gain from this, as Suzuki will benefit from the diesel-engine technology strengths of Volkswagen. Also, Europe is a major export destination for Maruti Suzuki. It will also help the Company access better technology in the future, which will strengthen its position globally. This deal will also help Maruti compete better in India and in exports Yes, competition is getting aggressive. But Maruti Suzuki is taking appropriate steps to fight competition and remain a winner Considering all the above factors, we can expect the long-term outlook of Maruti Suzuki to be Green (Very Good). It is likely to overcome its roadblocks and remain successful. However, it will not be a smooth ride for the company, along the way

Conclusion:

Maruti has proved itself in the past by sustaining its market leadership position. It is well-poised for growth in the long term

e, again?

growth in the long term due to its growing business, the competitive advantage of its market share especially in the A2 segment, its w

specially in the A2 segment, its wide sales & service network and superior technology. Competition is likely to give it a bumpy ride, bu

likely to give it a bumpy ride, but it is well-armed to remain successful