Economic Analysis for Business Decisions

MBA Full Time

Term - 1

Group Assignment - 1
‘Maruti Suzuki Ltd. Company

Submitted to:
Prof. Dhyani Mehta

On
25/08/19

Submitted by:

Roll Number Name

191225 Hari Sankar R
191230 Karan Gulia
191233 Namit Maheshwari
191234 Omkar Khandekar
193102 Priya Harchandani
 LIST OF CONTENTS

Serial Title Page

Number Number
1. Overview of the Industry 1

2. Current Fleet of Cars 3

3. Factors affecting Demand Curve 4

4. Factors affecting Supply Curve 7

5. Demand and Price Data 10

6. Estimation of Demand Function 10

7. Supply and Price Data 14

8. Estimation of Supply Function 15

9. Micro Economic Concepts 17

10. References 20

11. Undertaking 21
OVERVIEW
“Cars are what Maruti Suzuki Builds, Experiences are
what it creates.”
The company which gives you a product which is very best for the Indian road through
constant forward thinking, Innovation and commitment was started its Journey in 1983. The
company – Maruti Suzuki, was initially started in 1981 by Government of India, then known as
Maruti Udyog Limited, got merged with Japanese Motorcycle manufacturers, Suzuki Motor
Corporation, in October 1982. Now, 56.21% of the company I owned by Suzuki Motor
Corporation and Maruti Suzuki has 53% of market share in Indian passenger car market. The
company, which introduced the ever green Maruti 800, has its headquarters in New Delhi.

The Gurgaon plant, with a production capacity of 40000 units per annum, started off with
Maruti Van, in 1984 followed by Maruti Gypsy, in 1985. In 1986, the company introduced Maruti
800, the most successful car in Indian Automobile history. In 1987, company started exporting the
cars to Europe and by 1988, the Gurgaon plant capacity increased to 100000 units per annum. By
1991, most of the components, 65% of the total, were manufactured in India. And after the market
liberalization, Suzuki Motor Corporation, increased their stake in the company to 50% making a
joint-venture with Government of India.

History
Formed First Indian Merged with Japanese
Car Manufacturing Automobile Company
Company “Maruti “Suzuki Motor Corporation”.
Suzuki Udyog”

First lot of Maruti Suzuki

Indian roads witness the Iconic car was assembled in
Maruti Omni, First MPV of India. Gurgaon Plant

Introduced the first model of Maruti Launched Maruti Gypsy,

800. India’s first Off-Roader
Vehicle.
\
\

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 Started exporting cars to Europe,
\\\\\\\\ Expanded plant capacity to
Hungary. 100000 units/annum.

Suzuki increased stake to 50% and Introduced Maruti 1000,

entered a JV phase with Maruti. India’s first sedan.

Launches Maruti Esteem,

Introduces premium hatchback,
Reached milestone of 1
Maruti Zen.
million customers.

Inaugurated Manesar Plant, the Launches India’s first 24-

manufacturing unit apart from hours On-road Service.
Gurgaon unit.

Introduced True Value Outlets in Suzuki Increased the stake

Bangalore. in Maruti to 53%.

Launched Swift, Rolled out 5 Maruti ranked world No.7

millionth car. by Forbes in Automobile
sector.

Changed name from Maruti Udyog Maruti celebrates 25 years

Ltd to Maruti Suzuki Ltd. of driving excellence.

Ranked no.1 for Customer Maruti rolls out 1 million

Satisfaction. cars in 1 year.

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 Launches Ciaz and S-Cross through First Made in India car
NEXA showroom \\\\\\
introduced same exported to Japan.
year.

Starting with Maruti 800, now Maruti Suzuki Ltd has 16 models and 150 variants in their
portfolio, ranging from small entry car, Alto 800 to premium sedan, Ciaz. The company today has
3 manufacturing units (Gurgaon, Manesar and Hansalpur) as well as a high-end state of art R&D
center in Rohtak, in India. Apart from manufacturing, they have End to End fleet management,
Maruti Finance, Maruti Insurance, Maruti Driving School – as a part of Corporate Social
Responsibility and Maruti Accessories. Currently Suzuki Motor Corporation owns equity share of
56.2% in Maruti Suzuki Ltd and is listed in National Stock Exchange (NSE) as well as Bombay
Stock Exchange (BSE).

Current Fleet of Cars

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Factors Affecting Demand Curve
• Interest rate:
There is a negative relationship between demand of products of Maruti Suzuki and the rate
of interest of loan. Nearly 80% of cars of Maruti Suzuki are bought on loans.

Source:https://www.techprevue.com/wp-content/uploads/2015/03/impact_interest_rates_on_price.png

High interest rate increases the purchasing cost of the car as well as the down payment and
equated monthly installments (EMI). And in the case of lower interest rates on loan allows
more affordable EMIs to consumer.

• Price of Maruti Suzuki:

Price is a major factor that affects the demand of any commodity in any economy. India is
home of 23.6 Million middle class people, which is 3% of global middle-class population.
Price of the car is a key factor for middle class families while making their purchasing
decision. Maruti Suzuki offers various kinds of models for middle class families at a price
comparatively lower than its competitors (Tata motors, Honda, Hyundai, Nissan and many
more)
In an era(90s) in which Cars were premium products, only for high- income group, Maruti
Suzuki took the first mover advantage by offering a four-wheeler at lower price for the

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 middle-class families. Since then offering lower price as compared to their competitors has
been a key strategy of Maruti Suzuki while taking their pricing decision for its products.

Price comparison of Maruti Suzuki Wagon R with the cars of same segment of other
brands.

Picture Source: https://www.zigwheels.com/newcars/Maruti-Suzuki/Swift/comparisons

• Advertisement:
Advertisements helps Maruti Suzuki in increasing consumer awareness about the models
of Maruti Suzuki and it explains the benefits consumer will get by
purchasing the models of it. Hence as a consequence of its consumer preference is gets
influenced.

Picture source: https://www.businesstoday.in/sectors/auto/maruti-suzuki-names-varun-dhawan-as-brand-ambassador-for-arena-retail-chain/story/286690.html

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With the help of Television advertising, Newspapers, Radio ads, and other kinds of promotions
(Bollywood actor Varun Dhawan is the current brand ambassador of Maruti Suzuki) All such kinds
of campaign help in creating the good image of Maruti Suzuki in the mind of the potential
customer.

• Upgradation in its competitor models:

In 2008 response to the lower price of Maruti Suzuki swift one of its competitors Hyundai
upgraded its I20 model with better interior design of the car. Since then a trend has been
setup in Indian automobile Industry that consumers are willing to pay extra price for the
car for better interior design.
Such upgradation in the design always affects the demand of the models of Maruti Suzuki.
More of such kinds of changes the lesser is the demand of cars.
• High Fuel efficiency:
“Kitna deti hai” (how is the fuel average) one of most common slogan uses by Maruti
Suzuki to market it high fuel efficiency of its product. This slogan sums up the consumer
behavior in Indian Automobile economy. Fuel efficiency of the car is equally important
just like the purchasing price of the car.
Most of the models of Maruti Suzuki cars are more fuel efficient as compare to it
competitors in the market.

Picture source:
https://www.cardekho.com/compare/maruti-wagon-r-and-hyundai-i20-and-hyundai-grand-i10.htm

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 • Income level in the society:
Indian economy from the last three decades has been growing at very faster pace, such
growth is the reason behind the increase in income level of income of the people in the
economy.
There is a direct relation between Income level of the consumer and the demand of Maruti
Suzuki cars as The more the income of the consumer more will be there purchasing power.
The given is the growth of per capita income of India.

Source: https://tradingeconomics.com/india/gdp-per-capita

Factors for Supply Curve

• Technological advancement:
Supply of the cars of Maruti Suzuki is directly related to the
Advancement in technology. More advance technology made easy for Maruti firm to a unit
of car faster and with more cost efficiently.

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 Picture source:
https://www.google.com/search?q=maruti+suzuki+plant&rlz=1C1CHBF_enIN858IN858&source=lnms&tbm=isch&sa=
X&ved=0ahUKEwjPm9j5rpvkAhUC63MBHazkDQEQ_AUIEygD&biw=1366&bih=657#imgrc=X4BDNawLm5IqLM:

Such kind of Robotic technology use in given picture helps in reducing the time taken by
each car to manufacture hence the mass production is possible. As a consequence of it the
supply in the economy is increase.

• Availability of inputs material:

There are 30,000 components required to manufacture one unit of Maruti Suzuki car.
Maruti Suzuki doesn’t produce all of these components, they outsource the production of
these unit to different firms and assemble them at manufacturing plant.
For example: Plant of Maruti Suzuki in Gurugram require 470 tons of steel every day to
produce 3,100 Units of cars every day.
Performance of such firms also affects the supply of Maruti Suzuki car. For example, if
there is a strike in any firm which outsource parts of Maruti Suzuki car, Its creates hurdle
in the efficient Supply of cars.

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 • Infrastructure requirements:
Infrastructure includes electricity of effective productions out cars, Better Highways for
easy transportation of various parts from their firms and also transportation of produced
cars to the retail showrooms. Such kind of infrastructure requirements is necessary to make
sure of effective and efficient supply of cars.
For example: There are more than 2,000 sales outlets of Maruti Suzuki cars in more than
1,400 cities across India. Proper road network is required to make sure the regular supply
of Maruti Suzuki cars in the economy.

Picture Source: http://www.railnews.in/maruti-suzuki-join-hands-with-indian-railways-to-transport-cars/ Note: In the given picture a

train at Detroj station in Ahmedabad is loading cars of Maruti Suzuki to transport them all over the country

• Import duty on machinery:

Production of Maruti Suzuki cars highly depend on the various kinds of robotics machine
use by them in the assembly line process. There are 1,100 robots use to manufacture 1
unit of Maruti Suzuki car at Gurugram manufacturing plant.
Many of these machines are not produced in India and hence are subject to import duty.
Such kind of import duty has a big impact on the production of the Maruti Suzuki cars
which indirectly affects the supply of them.

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 Higher the import duty higher will be the cost of machinery which reduce the purchasing
power of Maruti Suzuki to setup more plants in India hence the supply reduces. On the
other hand reduce in such kind of import duty increase the purchasing power of Maruti
Suzuki cars which at the later stage increase the supply of Maruti Suzuki cars in the
Economy
Note: In order to support the automobile industry in India Government of India in its union
budget of 2019 has reduced import duty on such kind of machinery from 25% to the current
15%

Demand Function
Year Sales Quantity Price per unit Estimated Demand
2019 1862449 401468.71 1515481.73
2018 1779574 410948.91 1571612.78
2017 1568603 443868.21 1766523.68
2016 1429248 408507.13 1557155.31
2015 1292415 379758.82 1386940.28
2014 1155041 377579.67 1374037.79
2013 1171434 376600.82 1368242.12
2012 1133695 319407.78 1029609.51
2011 1271005 299020.85 908901.16
2010 1018365 293150.29 874142.33
2009 792167 273414.57 757289.65
2008 764842 258863.92 671137.14
2007 674924 239089.14 554053.21
2006 561819 246807.25 599751.11
2005 536301 234267.70 525506.05
2004 472122 221305.09 448756.11
2003 362253 235641.94 533642.77
2002 352197 239241.11 554952.97
2001 350376 238589.40 551094.31

Above is the data of Maruti Suzuki which includes price per unit and estimated demand on the
basis of the sales made by the company for the last 15 years. We have attributed the sales made by

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the company to estimated demand of the company in the market i.e. how much are the customers
demanding the products manufactured by Maruti Suzuki.

From this data we have selected the dependent and the independent variable to calculate the slope
and the intercept required to perform regression analysis.

We have calculated the slope and intercept by using a method known as Regression Analysis.
This method helps us to find out the value of dependent variable using the value of independent
variable.

After performing the regression analysis in the excel with the given data, following is the output:

SUMMARY OUTPUT

Regression Statistics
Multiple R 1
R Square 1
Adjusted R
Square 1
Standard Error 0.003029367
Observations 19

ANOVA
df SS MS F Significance F
Regression 1 3.60219E+12 3.60219E+12 3.92521E+17 1.6E-140
Residual 17 0.00015601 9.17707E-06
Total 18 3.60219E+12

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept -861562.8123 0.003014603 -285796486.1 9.6868E-135 -861563 -861563
X Variable 1 5.920871229 9.45049E-09 626514679.2 1.5535E-140 5.920871 5.920871

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After performing Regression analysis on the above data, we get the following demand function
values as:

Independent Variable Price Per unit

Demand A+B*Price
slope 5.92087231
intercept 861562.8134

Hence the demand function looks like this:

Quantity Demanded = 861562.8134 + 5.92087231 * Price

2000000.00

1800000.00

1600000.00

1400000.00

1200000.00
Price

1000000.00

800000.00

600000.00

400000.00

200000.00

0.00
0.00 50000.00 100000.00 150000.00 200000.00 250000.00 300000.00 350000.00 400000.00 450000.00 500000.00
Demand Quantity

Graph Analysis:

• This graph is plotted against price on the Y-axis and the quantity demanded on the X-axis.
• It is evident from the graph that the slope is positive and hence is upward sloping. This
means that the demand of the product will also increase even if the price of the products
offered by Maruti Suzuki increases.
• There are 2 reasons for the demand curve to be positive sloping:
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 o Conspicuous Consumption
o Giffen Goods
• We don’t consider cars offered by Maruti Suzuki as Giffen goods. But we can consider the
consumption of the Maruti Suzuki cars as conspicuous because in this phenomenon people
purchase goods/items that they might consider as luxurious and there is status symbol
associated with that product. Maruti Suzuki mainly offers low end budget cars that are
affordable in the Indian economy. There is also an assurance associated with ‘Maruti
Suzuki’ as a brand being trustworthy because this brand is an Indian brand and has
established itself as extremely reliable. This reliability stems from the great aftersales
support provided by it. So, when all of the factors are considered together, we can directly
infer that Indian customers will be more inclined towards buying the products (cars) offered
by Maruti Suzuki. In India the price of a Maruti car will rise if and only if the market price
increases overall. That is the other players increase the prices of their low-end cars which
in turn makes Maruti to increase their price as well but still comparatively lower than the
other players in the market. This is one of the reasons that Maruti had the highest market
share in India a of 2018

Domestic Sales and market October Market November Market

share (2018) Share Share

Maruti Suzuki 135,948 48% 143,890 54%

Hyundai 52,001 18% 43,709 16.4%

Honda 14,233 5% 13,006 4.8%

Mahindra & Mahindra 24,056 8.46% 16,191 6%

Tata Motors 19,539 6.8% 18,226 6.8%

Ford 9,044 3.1% 6,375 2.3%

Toyota Kirloskar Motors 12,606 4.4% 10,721 4%

Source:https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/maruti-suzuki-regains-54-market-share-in-
november/67047159

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 Also, as India is a weak economy people tend to buy cheaper cars. When the overall prices
of cars go up in the market, Maruti still offers the cheapest prices. So, this is also the reason
that there is a positive sloping curve for demand for Maruti cars.

Supply Function
Year Production Amount per unit
Production Quantity
(Price)
2019 1562938 501468.71
2018 1624487 510948.91
2017 1573414 443868.21
2016 1424330 408507.13
2015 1308537 379758.82
2014 1153645 377579.67
2013 1168917 376600.82
2012 1134607 319407.78
2011 1273361 299020.85
2010 1027879 293150.29
2009 774738 273414.57
2008 777017 258863.92
2007 667048 239089.14
2006 572127 246807.25
2005 540409 234267.70
2004 472908 221305.09
2003 359960 235641.94
2002 358108 239241.11
2001 350433 238589.40

Above is the data of the production quantity and production amount from last 15 years of
Maruti Suzuki Pvt Limited. The table shows amount of production of cars done and the per

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 .unit price of the production. With the help of the price we are now able to find the quantity
of the supply.
For calculating the quantity of supply, we use regression method. This method helps us in
finding the intercept as well as the slope of the curve which in turn help in finding the
quantity of supply.

The output of after regression analysis is as follows:

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.937407166
R Square 0.878732194
Adjusted R
Square 0.871598794
Standard
Error 158986.9826
Observations 19

ANOVA
Significance
df SS MS F F
Regression 1 3.11375E+12 3.11375E+12 123.1855992 3.28955E-09
Residual 17 4.29707E+11 25276860628
Total 18 3.54345E+12

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

-
Intercept -754739.30 158212.0905 -4.770427447 0.000177624 1088537.632 -420940.9659
X Variable 1 5.504830409 0.495979782 11.09890081 3.28955E-09 4.458404538 6.55125628

The Supply function is given by:

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Q = A- B*Price

Where A is the intercept and B is the slope of the curve.

Hence the supply equation will be look like as

Q= 754739.30 – 5.504830409 * Price

Plotting the graph:

Supply
1200000.00

1000000.00

800000.00
Price

600000.00

400000.00

200000.00

0.00
0 50000 100000 150000 200000 250000 300000 350000 400000 450000 500000
Quantity

Graph Analysis

• The above graph is between the Supplied Quantity and the price where X-axis contains
Quantity value and Y- axis has Price.
• The supply curve has positive slope. This means that the quantity of supply increases, when
the price of cars increases. The reason behind the positive relation is whenever the prices

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 increases the producer margin’s increases and hence the supplier is able to increase their
labor and hence the quantity of production is increases.

Some Microeconomics Concepts

• Price Elasticity of Demand

Price elasticity of demand can be understood as the change or fluctuation in a
commodity/product’s quantity demanded whenever there is a change in the price of the
corresponding product. On the basis of this fluctuation in demand we can categorize the
demand as either elastic or inelastic.
When considering elasticity, we also factor in, price of the product and the income of the
consumer. The demand also changes whenever there is change in the income of the
customer associated. So, income is also an important factor while determining the
elasticity.
Elasticity is given by:
𝑑𝑄 𝑃
× =𝐸
𝑑𝑃 𝑄

In this equation:
Q – Quantity Demanded
P – Price of the Product
E – Elasticity
Whenever the value of E is less than 1 i.e. E<1, then we conclude that the demand is
inelastic.
Whenever the value of E is greater than 1 i.e. E>1, then we conclude that the
demand is elastic.

• Price Inelastic demand: Inelasticity refers to the condition in which the change in the
quantity demanded as compared to the change in price of a product is relatively less. For
example. Consider a product ‘K’. Now in the following graph price of K increases from

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 10-14 i.e. an increase of 40%, and now since K is inelastic, then the quantity demanded
of K will go down from 88-80 i.e. a change of only 1%.
• 50

• Price Elastic Demand: Price elasticity refers to the condition in which the change in
quantity demanded of a product is more relatively as compared to the change in price of
the product. For example, consider another product ‘J’. Since this product has an elastic
demand, we can see that the price is increasing from 50-60 i.e. an increase of 10% but at
the same time the quantity of the product demanded changes from 100-50 i.e. a change of
50%.

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From the demand curve, we can calculate the price elasticity of Maruti Suzuki cars.

Taking the data of the year 2018 and 2019 and calculating the price elasticity on the excel sheet.
It comes out to be 1.56851. Since the value is greater than 1, hence it is price elastic. This demand
elasticity is due to the presence of abundant substitutes in the market. Along with Maruti, Datsun,
Hyundai etc. are also offering similarly priced vehicles in the market. The only differentiating
factor in case of Maruti is that it is Indian brand and people are familiar with its good services.

So, from this we understand and reinstate the fact that, whenever there are a lot of substitutes
available in the market, the demand will always be elastic.

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References

• https://auto.ndtv.com/news/maruti-suzuki-india-now-has-over-2000-sales-outlets-in-
india-1671781
• https://auto.ndtv.com/news/maruti-suzuki-india-now-has-over-2000-sales-outlets-in-
india-1671781
• https://www.news18.com/news/auto/union-budget-2019-expectations-and-
recommendations-of-indian-automobile-industry-2216809.html
• https://www.news18.com/news/auto/union-budget-2019-expectations-and-
recommendations-of-indian-automobile-industry-2216809.html
• https://www.motoroids.com/features/maruti-suzuki-makes-3000-cars-day-see-dzire-
production-manesar-find/
• https://www.business-standard.com/article/companies/maruti-drives-new-launch-
strategy-to-score-over-competition-117050100180_1.html

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 UNDERTAKING

To Whom it May Concern

We hereby declare that this assignment is our original work and is not copied from anyone
/ anywhere. If found similar to other sources, we shall take complete responsibility of the
action, taken thereof by, EABD Team.

Group Members: Harisankar R. (191225)

Karan Gulia (191230)
Namit Maheshwari (191233)
Omkar Khandekar(191234)
Priya Harchandani (193102)

Section :B

Batch : MBA – FT (2019-2021)

th
Date : 25 August, 2019

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