The Maruti Case Study

Agenda

1
• Transaction background

2
• Issue considerations

3 • Valuation ramp up

4 • Marketing

5 • Key highlights

Kotak Investment Banking 2

IPO Structure

• Offer for sale of 72.2mn equity shares of Rs. 5 each owned by the GoI through
the 100% book building route
Offer Details
• Option to retain over-subscription of up to 10% of the offer size i.e. of up to
7.2mn shares

Floor Price • Rs. 115 per share

Offer Price • Rs. 125 per share

Offer Size • Rs. 9933mn (including retention of over-subscription of 10%

Subscription • 840% at Rs. 125

Total number of
• 288,000
applications

• Book Running Lead Manager to the IPO

Kotak’s Role
• Sole advisor to the GoI for the 2002 transaction

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Offer Team
Legal Team
Domestic and international
legal counsel for the offer
(representing GoI)
• Advice on legal matters
• Due diligence
Legal counsel to the
company
• Advice on legal matters
Legal counsel to the
underwriters
• Advice to Book Runners on
all legal matters
Auditors
• Provide audited accounts
• Provide certificates required
by SEBI
• Provide “comfort letter”
required for International
marketing
Registrar to the offer
• Collection of application
forms
• Transfer of shares to
investors
Central Coordinating Team Bankers to the offer
and Escrow collection
GoI (46%) - Promoter Bankers
• Provide escrow facilities
• Department of Disinvestment –
Coordinator • Receive and clear funds
• Department of Law – Coordinating • Hold the issue amount and
transfer to Offerors post-
legal issues listing
• Department of Heavy Industries -
Offeror Financial Advisors to
the company
Suzuki (54%) - Promoter • Advisors to the company with
regards to financial matters
Maruti Udyog Limited - Company
Book Runners
Kotak Investment Banking – BRLM
• Due diligence
• Chief Coordinator • Drafting Prospectus
• Collecting bids
• Marketing
Co-BRLMs
• Advice on pricing and
• ICICI Securities • JMMS / HSBC allocation
• Assistance in listing process
Syndicate Members
Syndicate Members
• Kotak Securities • ICICI Brokerage
• Collecting Bids
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Transaction Background

1981 • Company incorporated as Maruti Udyog Limited

1982 • JV agreement and license agreement executed between Suzuki and GoI

1983 • Suzuki acquired 26% stake in Maruti

1983-1992 • Suzuki increased its stake to 40% in small tranches

1992 • Suzuki increased its stake to 50%

• Conflict between shareholders; Business suffers due to delay in launch of new

1999-2001 models

• Conflict resolved; Maruti launches 3 new models; Company suffers a loss of

2001 Rs 270 crores

2002 • JV agreement revised with disinvestment process laid out

2003 • IPO

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Revised JV Agreement
Transfer of Management Control

A revised JV agreement (RJVA) was entered into between GoI, Suzuki and MUL in 2002

Under the RJVA, MUL made a rights issue to its shareholders at a price of Rs. 3280 per equity
share of Rs. 100 each (Rs. 164 per equity share of Rs. 5 each)
— The valuation was arrived at through an independent valuation exercise which was carried out by
three valuers of repute
— GoI renounced its entitlement and thus its shareholding reduced to about 46%, with Suzuki
holding the balance 54%

GoI received a control premium of Rs. 1000 crore for relinquishing control

The RJVA also laid out plans for disinvestment of a further tranche of about 25%, through a
public issue
— Suzuki agreed to provide stand-by support at Rs.2300 per equity share of Rs. 100 each (Rs. 115
per equity share of Rs. 5 each) in the public issue

The balance shareholding of about 20% with the GoI was to be sold
— Through the stock exchange within 24 months from the date of listing of the stock, or
— By exercising its put option to cause Suzuki to buy the shares anytime between 4 months and 24
months from the date of listing

The RJVA also laid out the rights of Suzuki and GoI with regards to the appointment of
Directors
— GoI rights to fade away in stages over time

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Suzuki Stand-by Arrangement
Unique mechanics of accepting Suzuki bid

Suzuki to deliver irrevocable bid at Rs.115 per equity share of Rs.5 each for entire offer size prior to
opening of the Bid period

On the bid opening date, bid to be delivered to the registrars, however bid not to be uploaded

Shortfall to be established after pricing and approval of the basis of allocation by the Stock Exchanges

In case of shortfall, GoI to give notice to Suzuki giving details of shortfall and payment required to be
made by Suzuki

On receipt of notice, Suzuki to deposit consideration by way of inward remittance of foreign exchange.
Thereafter, Suzuki to be credited with shares.

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Timeline

Jan Feb Mar Apr May Jun

Common date for proposed
Initial Meeting Jan 6, 2003
and actual timeline

Actual commencement date

Commencement of due diligence Jan 13, 2003
was Jan 20, 2003

Discussions on the business plan Jan 30 to

Mar 1, 2003

Business presentation to Merchant Bankers Mar 7, 2003

Research briefing Mar 22, 2003

Signed auditor’s report for draft OD Apr 5, 2003

Circulation of Research report Apr 18, 2003

SEBI and SE filing Apr 25, 2003

SE Clearance May 14, 2003

SEBI Observations May 14, 2003

SEBI final clearance May 24, 2003

Receive March ’03 accounts May 15, 2003

File RHP with RoC May 28, 2003

Commence Road Shows May 30, 2003

Bid Opening Jun 12, 2003

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Agenda

1
• Transaction background

2
• Issue considerations

3 • Valuation ramp up

4 • Marketing

5 • Key highlights

Kotak Investment Banking 9

Key Considerations
Type of offering
Rule 144A and Reg S

Rule 144A of the US Securities Act, 1933 establishes conditions which, if met, ensures that offers and
sales of securities to QIBs in the US will not require registration with the SEC; some of the key
conditions are:

Securities to be sold in the US as private placement to institutions not involving the general
public or other non-institutional investors in the US

In light of the above condition, no general solicitation or general advertising of the issue
permitted in the US

Reg S of the US Securities Act, 1933 establishes conditions which, if met, ensures that offers and
sales of securities are deemed to occur outside the US and hence will not require registration with
the SEC; some of the key conditions are:

The offers and sales of securities be made in “offshore transactions”

No “directed selling efforts” be made in the US
Key considerations

Reg S excludes marketing to the biggest securities market in the world - the US

144A offerings generally require the legal counsel to deliver a 10-b-5 opinion to the offeror, the
company and the underwriters, thus requiring:

Certain due diligence procedures to be carried out by the legal counsels

Auditors to provide comfort on the financials based on certain audit/ review procedures

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Key Considerations
Type of Offering (contd.)
The 10b-5 opinion

The 10b-5 opinion typically states that:

The counsel has conducted certain due diligence procedures

Nothing has come to the counsel’s attention that has caused it to believe that the offer
document contains

any untrue statement of material fact; or

has omitted to state a material fact

The 10b-5 opinion typically provides some comfort to the offerors, the company and the underwriters
that

The offer document contains no material misstatement or omission, and if it does then

A due diligence defence is available

The 10b-5 opinion is not a defence to liability but is evidence that the legal counsel believes that
appropriate due diligence has been conducted and appropriate disclosures have been made

Maruti was offered and sold to QIBs in the US in accordance with Rule 144A and to investors
outside US in accordance with Regulation S and applicable local regulations of the
jurisdictions on which the sale was made

A 10b-5 opinion was delivered by the international legal counsel in the deal to the GoI (the
offeror), the company (Maruti) and the underwriters

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Key Considerations
Related Party Transactions

Regulatory requirement Accounting requirement

Related party transactions need to be given for
AS-18 requires related party transactions to be
all associate companies, directors and key recorded and disclosed since FY2002 (previous
management personnel for previous three two financial years in case of Maruti)
financial years

An exemption was granted by SEBI for this requirement

The related parties covered were

— Joint ventures and associate companies of Suzuki Motor Company (SMC)

— Suzuki Motor Company (as Promoter)

— Subsidiaries of SMC

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Key Considerations
Audit Period

Regulatory requirement Marketing requirement

Accounts are required to be provided for a
International investors prefer financial

period not older than six months from the issue information which is not older than 1-2 months
opening date to gauge trends in the financials and business
fundamentals

Additional requirements

Marketing in the US requires special audit / review procedures to be carried out for periods up to 15
days before the:
— SEBI Filing date
— Issue opening date
— Issue closing date
— Pricing and allocation date

These review procedures require comparison with corresponding periods in the previous year

At the initial stage, when IPO was planned to be finished by March 31, 2003, December 2002
accounts were called for

The final prospectus carried March accounts

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Key Considerations
Litigation

Regulatory requirements

All pending litigations, disputes, overdues, defaults to financial institutions, banks and instances of non-
payment of statutory dues against the company, its promoters and all group companies
— Such listing is required irrespective of financial implications on the company

Material cases arising during IPO need to be made public either through a revision of prospectus, if
possible, or through a public announcement

Due diligence carried out by legal counsels

— Details of all pending cases in India were disclosed
— Status of legal cases updated at various stages during IPO

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Agenda

1
• Transaction background

2
• Issue considerations

3 • Valuation ramp up

4 • Marketing

5 • Key highlights

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Valuation Ramp-up

P/E (x) FY2003 FY2004E

May 6, 2003: Start of pre-marketing – Sensex 3621
Maruti Udyog 25.0
Tata Motors 15.8 9.7
Ashok Leyland 10.1 7.9
Hero Honda 7.2 8.7
June 12, 2003: Issue opening – Sensex 3337
Tata Motors 20.8 9.8
Ashok Leyland 12.5 8.3
Hero Honda 9.2 7.5
June 19, 2003: Issue closing – Sensex 3455
Tata Motors 21.8 10.3
Ashok Leyland 13.2 8.8
Hero Honda 9.2 7.5
July 9, 2003: Listing date – Sensex 3621
Maruti Udyog 32.2
Tata Motors 23.6 11.1
Ashok Leyland 13.5 9.0
Hero Honda 9.5 7.7

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Agenda

1
• Transaction background

2
• Issue considerations

3 • Valuation ramp up

4 • Marketing

5 • Key highlights

Kotak Investment Banking 17

 Marketing to Institutional Investors

London (2 days)
Barings
Boyer Allen
Cheyne Capital Mgmt.
Genesis Inv. Mgmt.
GLG Partners
Henderson
Singapore (2 days)
Boston (1 day) Hermes
Invesco Allianz
Batterymarch J.P. Morgan Inv. Mgmt. Aberdeen
Evergreen Merrill Lynch Inv. Mgmt. American Century
Global Asset Mgmt. Pictet American Express
Pioneer Sloane Robinson Citigroup Global Asset Mgmt.
San Francisco (1 day) Putnam T Rowe Price Goldman Sachs Asset Mgmt.
Loomis Sayles State Street Govt. of Singapore Inv. Corp.
Newport Pacific The Boston Company ING
Standard Pacific Invista-Principal
MFS Inv. Mgmt.
OCBC Asset Mgmt.
Oaktree Capital
Dubai (1 day) Schroders
New York (2 days) Societe Generale
Abu Dhabi Inv. Authority
Los Angeles (1 day) Aeneas T Rowe Price
Banyan UBS Global Asset Mgmt.
Capital International Wellington
Bernstein
Emerging Markets Inv. Corp. Mumbai (3 days)
GE Capital Alliance Capital
JW Seligman Birla Mutual Chennai (1 day)
Kingdon Deutsche Franklin Templeton
Merrill Lynch Asset Mgmt. HDFC-Zurich Mutual New India Assurance
Morgan Stanley Asset Mgmt. HDFC
Trust Co. of New York HSBC
Life Insurance Corp.
Pru-ICICI Mutual
Unit Trust of India
Conference calls with
HongKong-based investors

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Marketing to Retail Investors

700 Centres in 74 Cities

Jodhpur Jalandhar Ludhiana Dehradum

Kota Meerut

Jaipur Gurgaon

Bhopal New Delhi

Ahmedabad 14 Retail Sales

8 Retail Sales 9 PCS

4 PCS Lucknow

Vadodara Kanpur

2 Retail Sales Kolkata

Bhavnagar 34 Retail Sales

Surat 7 PCS

2 Retail Sales Guwahati

Indore Patna

10 Retail Sales Ranchi

Nagpur Jamshedpur

Mumbai Rajkot

30 Retail Sales 1 Retail Sales

12PCS Huderabad

Nasik 5 Retail Sales

Pune 2 PCS

2 Retail Sales Vijaywada

2 PCS 1 Retail Sales

Belgaum Vizag

Mangalore Chennai

Bangalore 13 Retail Sales

12 Retail Sales 2 PCS

5 PCS Coimbatore

Kochi

Kotak Investment Banking 19

 Demand Breakup

MARUTI UDYOG LTD. (BOOK BUILDING: OVERALL) BREAK-UP OF OVERALL

SYNDICATE MEMBERS PERFORMANCE – INDIAN PUBLIC DEMAND

ISSUE OPENING DATE : 12/06/2003 NO. OF APPLICANTS : 250,732

NET PUBLIC ISSUE (NO.) : 79,467,600 EQUITY SHARES (PREM) NO. OF SHARES APPLIED : 667,637,300
NET PUBLIC ISSUE (AMT) : Rs. 9933.45 MILLION TIMES SUBSCRIBED : 8.40 I-Sec
PROCUREMENT/ALLOTMENT :PROCUREMENT
HSBC 12%
16%
RANK SYNDICATE MEMBER NO. NO. OF PROCUREMENT % Kotak
THE PRIMARY MARKET MONITOR
OF SHARES AMOUNT
APPL. (Rs. million)
43%

1 KOTAK SECURITIES 105,349 293,752,800 36,719.10 369.65 JMM S

2 JM MORGAN STANLEY 77,532 205,191,800 25,648.98 258.21
3 HSBC SECURITIES 15,400 110,549,200 13,818.65 139.11
29%
4 ICICI BROKERAGE 52,049 86,576,800 10,822.10 108.95

MARUTI UDYOG LTD. (BOOK BUILDING: INSTITUTIONAL) BREAK-UP OF INSTITUTIONAL

SYNDICATE MEMBERS PERFORMANCE – INDIAN PUBLIC DEMAND

ISSUE OPENING DATE : 12/06/2003 NO. OF APPLICANTS : 294

NET PUBLIC ISSUE (NO.) : 31,786,900 EQUITY SHARES (PREM) NO. OF SHARES APPLIED : 406,035,600
NET PUBLIC ISSUE (AMT) : Rs. 3973.36 MILLION TIMES SUBSCRIBED : 12.77 I-Sec
PROCUREMENT/ ALLOTMENT : PROCUREMENT 15%
HSBC
RANK SYNDICATE MEMBER NO. NO. OF PROCUREMENT %
Kotak
18%
OF SHARES AMOUNT 35%
THE PRIMARY MARKET MONITOR
APPL. (Rs. million)

1 KOTAK SECURITIES 99 153,956,400 19,244.55 484.34

2 JM MORGAN STANLEY 138 140,545,300 17,568.16 442.15 JMMS
3 HSBC SECURITIES 48 76,997,200 9,624.65 242.23 32%
4 ICICI BROKERAGE 41 63,806,300 7,975.79 200.73

Source: Prime Database

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 Demand Breakup (cont’d)

MARUTI UDYOG LTD. (BOOK BUILDING: RETAIL) BREAK-UP OF RETAIL DEMAND

SYNDICATE MEMBERS PERFORMANCE – INDIAN PUBLIC
ISSUE OPENING DATE : 12/06/2003 NO. OF APPLICANTS : 247,102
NET PUBLIC ISSUE (NO.) : 35,760,500 EQUITY SHARES (PREM) NO. OF SHARES APPLIED : 90,705,300
NET PUBLIC ISSUE (AMT) : Rs. 4470.06 MILLION TIMES SUBSCRIBED : 2.54 I-Sec
PROCUREMENT/ ALLOTMENT : PROCUREMENT HSBC 16%
6%
RANK SYNDICATE MEMBER NO. NO. OF PROCUREMENT %
THE PRIMARY MARKET MONITOR OF SHARES AMOUNT
APPL. (Rs. million) Kotak
47%
1 KOTAK SECURITIES 103,549 41,972,600 5,246.58 117.37 JMM S
2 JM MORGAN STANLEY 76,506 27,836,900 3,479.61 77.84 31%
3 ICICI BROKERAGE 51,666 14,878,000 1,859.75 41.60
4 HSBC SECURITIES 14,966 5,856,300 732.04 16.38

MARUTI UDYOG LTD. (BOOK BUILDING: NON BREAK-UP OF NON-

INSTITUTIONAL) INSTITUTIONAL DEMAND
SYNDICATE MEMBERS PERFORMANCE – INDIAN PUBLIC
ISSUE OPENING DATE : 12/06/2003 NO. OF APPLICANTS : 3,336
NET PUBLIC ISSUE (NO.) : 11,920,200 EQUITY SHARES (PREM) NO. OF SHARES APPLIED : 170,896,400 I-Sec
NET PUBLIC ISSUE (AMT) : Rs. 1,490.03 MILLION TIMES SUBSCRIBED : 14.34 5%
HSBC
PROCUREMENT/ ALLOTMENT : PROCUREMENT
16%
RANK SYNDICATE MEMBER NO. NO. OF PROCUREMENT %
OF SHARES AMOUNT
THE PRIMARY MARKET MONITOR
APPL. (Rs. million) JMM S
22% Kotak
1 KOTAK SECURITIES 1,701 97,823,800 12,227.98 820.66
2 JM MORGAN STANLEY 888 36,809,600 4,601.20 308.80 57%
3 HSBC SECURITIES 386 27,695,700 3,461.96 232.34
4 ICICI BROKERAGE 342 7,892,500 986.56 66.21

Source: Prime Database

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Demand Build-up

Date Applications Shares

Day-wise Cumulative Day-wise Cumulative
June 12 823 823 243,800 243,800
June 13 3,436 4,259 5,770,100 6,013,900
June 14 6,847 11,106 2,044,900 8,058,800
June 16 10,557 21,663 4,361,300 12,420,100
June 17 21,190 42,853 11,422,400 23,842,500
June 18 32,797 75,650 80,944,900 104,787,400
June 19 175,644 251,294 591,349,700 696,137,100

Note: Only bids at or above the final offer price of Rs 125 per share considered

Kotak Investment Banking 22

Agenda

1
• Transaction background

2
• Issue considerations

3 • Valuation ramp up

4 • Marketing

5 • Key highlights

Kotak Investment Banking 23

Path-breaking Milestones

Maruti IPO is the largest offering of any Indian Company in domestic / GDR / ADR
markets in recent years

Book / Co-Book Running Lead Managers

Kotak Kotak Kotak Kotak Kotak

JMMS I-Sec I-Sec JMMS I-Sec

DSPML DSPML JMMS / HSBC

66Largest
LargestBook
BookBuilt
BuiltIPOs
IPOs
12
9 .9 3
10 8 .3 4
8 .2 3
8 7 .4 9
IPO Size
6
(Rs. bn) 3 .7 2
4 2 .7 5
2
0
H ughes C a d ila H ughes HCLT B h a rti M a ru ti
S o ftw a re T e le c o m

Period Sept 1999 Feb 2000 Aug – Sept 2000 Nov 1999 Jan – Feb 2002 June 2003

Sensex Level 4,687 – 4,733 5,649 – 5,725 4,402 – 4,599 4,579 – 4,686 3,317 – 3,518 3,300 – 3,500

Kotak Investment Banking 24

Path-breaking Milestones

The demand for the Maruti IPO was higher than the demand for any Indian ADR offering of all
times, thereby demonstrating the depth of Indian Capital Markets for high quality IPOs

Book / Co-Book Running Lead Managers

Kotak Kotak Kotak Kotak Kotak

JMMS JMMS I-Sec I-Sec

DSPML DSPML JMMS / HSBC

Largest
LargestDemand
DemandGeneration
Generation- -Top
Top66Book
BookBuilt
BuiltIPOs*
IPOs*

250
1 9 9 .4 8
Demand 200

Generated 150

(Rs. bn) 100

74 24.2X
8 7 .0 1

50 9.6X
1 8 .0 9 2 3 .5 9 26.9X
1 1 .9 2.2X 6.3X
0 8.2X
M ascot B h a rti C a d ila H ughes H CLT M a ru ti
S o ftw a re
*Above Rs. 1 bn IPO size

% procured by
89% - 43% 55% 55% 45%
Kotak

Sensex Level 4,745 - 5,442 3,317 – 3,518 5,649 – 5,725 4,687 – 4,733 4,579 – 4,686 3,300 – 3,500

Kotak Investment Banking 25

Path-breaking Milestones

• Maruti’s IPO of Rs. 9.93 bn generated unprecedented demand of nearly Rs.

90 bn
• The largest ever book built equity offering
• The widest Institutional and Non-Institutional distribution achieved in any
equity offering
• The largest ever number of applications received for any book-built equity
offering
• The fastest ever subscription in any equity offer in our history - subscribed
within 3 hours of opening
• The largest equity offering that has been priced above the floor price
• The demand generated exceeds demand for any Indian GDR or ADR
offering ever

Kotak Investment Banking 26