Data Track Mahindra & MahindraAuto sales below est, however tractor sales ahead of est; Strong momentumin UV continues, recovery in tractor sales expected to continue
Recovery in tractor sales
expected to continue
with prospects of good
rabi crop and favorable
base
Bloomberg MM IN
Equi ty Sha res (m) 587.2
CMP (INR) 956
52‐Wk Ra nge (INR) 879/622
1,6,12 Rel .Perf.(%) 1/12/‐8
M.Cap. (USD b) 10.5
Highlights M&M's Nov-12 auto volumes grew 18% YoY (-10% MoM) to 48,143 units (v/s est
~53,750 units). The passenger UV segment grew by 38% (32% YTD), while the
growth in pick-up segment moderated to 7% (17% YTD).
UVs (incl. pick-ups) volumes grew 20% YoY (-12% MoM) to 38,995 (v/s est 45,000).
Our industry interaction indicates that the company has moderated billings of
relatively slow moving models (Xylo, Verito) ahead of the seasonally weak
December month. Our FY13 estimates factor in 22% YoY growth in UVs (incl. pick-
ups) to 468,823, implying residual run-rate of 40,856 (13.4% residual growth).
3-wheeler volumes grew 17% YoY (-1.5% MoM) to 6,867 (v/s est 6,000). Our FY13
estimates factors in flat volumes, implying residual run rate of 5,646 (2.3% residual
growth).
Our FY13 auto volume estimate of 17.7% growth implies 12.7% residual growth
with monthly run-rate of 50,076 units.
Tractors sales grew by 17% YoY (-31% MoM, due to seasonality) to 20,476 units (v/
s est of 19,000 units). Our industry interaction indicate recovery in demand during
the festive season with flat YoY growth in retail sales (compared to YTD decline).
With favourable base and prospects of healthy rabi crop, we expect recovery in
tractor sales to continue. We factor in 5% decline in FY13 M&M tractor sales due to
weak performance in 1H (driven by higher exposure to weak performing Southern
3/13E 1,971,042 110,482 33.2 14.0 8.3 19.6 25.2 23.9 0.5 3.83/14E 2,185,850 137,408 41.3 19.5 6.6 14.0 24.7 24.2 0.4 3.2* Consol idate d; ^ Norma l i ze d for capi tal i zed e xpenses
Dashboard
December 2012 11
LCV volumes (units)
Car volumes (units)
Source: Company, MOSL
Product mix in the CV segment
LCV volumes
remains robust
Domestic car volumes
de-grew 42% YoY
M&HCV volumes (units)
M&HCV volumes
continue to disappoint
LCVs account for over 70%
of the CV product
portfolio
8,000
14,000
20,000
26,000
32,000
38,000
Apr Ma y Jun Jul Aug Sep Oct Nov De c Ja n Feb Ma r
FY11 FY12 FY13
4,000
10,000
16,000
22,000
28,000
Apr May Jun Jul Aug Sep Oct Nov Dec Ja n Fe b Mar
FY11 FY12 FY13
8,000
16,000
24,000
32,000
40,000
48,000
Apr May Jun Jul Aug Se p Oct Nov De c Ja n Fe b Mar
FY11 FY12 FY13
0%
25%
50%
75%
100%
Jul-
08
Se
p-0
8
No
v-0
8
Jan
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Ma
r-0
9
Ma
y-0
9
Jul-
09
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p-0
9
No
v-0
9
Jan
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Ma
r-1
0
Ma
y-1
0
Jul-
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Se
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0
No
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0
Jan
-11
Ma
r-1
1
Ma
y-1
1
Jul-
11
Se
p-1
1
No
v-1
1
Jan
-12
Ma
r-1
2
Ma
y-1
2
Jul-
12
Se
p-1
2
No
v-1
2
M&HCVs LCVs
Dashboard
December 2012 12
Data Track Ashok LeylandNov-12 volumes: Below est; declines by 6% YoY (-8% MoM); MHCV declines37% YoY
With expected
improvement in
macro-economic
environment, we expect
MHCV industry to
recover in FY14
Highlights Ashok Leyland volumes declined by 6% YoY (-8% MoM) to 7,370 (v/s est 7,850
units).
MHCVs registered a decline of 37% YoY (-10% MoM) to 4,487 units (v/s est 4,750
units) as weak economic growth impact freight availability and transporters
profitability.
Dost (LCV) sales stood at 2,883 units, decline of 5% MoM (v/s est 3,100 units).
Ashok Leyland volumes have been relatively better than Tata Motor's in few
quarters, driven by recovery in its key southern market.
The management has guided total volumes of ~132,000 (30% growth) in FY13, led
by ramp-up of Dost volumes to 36,000 units, 2-3% growth in its domestic M&HCV
volumes and export volumes of ~10,000 units. It expects production from Pantnagar
plant at ~40,000 units in FY13.
Our estimates factor 1% decline in MHCV volumes and 35,000 units of DOST,
implying a residual run-rate of 13,319 units (residual growth of 19%, against YTD
growth of 27%).
With expected improvement in macro-economic environment, we expect MHCV
industry to recover in FY14. AL, being pure play and second largest CV player in
India, is the best bet to play expected improvement in CV cycle.
The stock trades at 13.2x FY13 EPS of INR2.1 and 10x FY14E EPS of INR2.8. Maintain
Apr Ma y Jun Jul Aug Se p Oct Nov De c Ja n Fe b Mar
FY11 FY12 FY13
Dashboard
December 2012 14
Special Report MARUTI SUZUKI: Discounts lowered across modelsInventory normalized, Manesar operates at peak production
Retail demand is estimated to have grown by 8-9% YoY for Maruti Suzuki(MSIL) during the Navratra-Diwali period. Our channel checks suggest demand improvement during the festive season
compared to last year similar period. Demand is estimated to have grown by 8-9%
YoY during Navratras-Diwali period.
While diesel segment benefited from higher supplies from Manesar, sales for the
petrol segment were driven by the new Alto launch.
Despite aggressive promotions by Hyundai (Eon) with additional consumer offers,
demand for the new Alto remains strong.
From a regional perspective, growth was driven by the Northern markets followed
by West. CNG availability has been a key volume driver particularly for Wagon R in
the Western markets.
Our channel checks indicate normalized production from Manesar plant with peak
production of 1,700 cars/day from November compared to 90% levels in October
2012.
Hyundai's ad comparing Eon with new Alto 800
We interacted with various industry participants (passenger car dealers, financiers
etc) to get an update on the current trends with respect to demand, inventories,
discounts, waiting period, etc for Maruti Suzuki. Key takeaways:
Retail demand is estimated to have grown by 8-9% YoY for Maruti Suzuki (MSIL)
during the Navratra-Diwali period.
While diesel segment benefited from higher supplies from Manesar, sales for the
petrol segment were driven by the new Alto launch.
Despite aggressive promotions by Hyundai (Eon) with additional consumer offers,
demand for the new Alto remains strong.
From a regional perspective, growth was driven by the Northern markets followed
by West.
Discounts were lowered across models/markets from early November by an
average of 15% MoM.
Inventory has reduced to 3-4 weeks (largely consisting of petrol cars) from 4-5
weeks earlier.
Manesar supplies have normalized with near peak production of 1,700 cars/day.
Dashboard
December 2012 15
Manesar production normalizes from Nov, drivingRamp-up of supplies from Manesar plant healthy wholesales
Source: Company, MOSL
Inventory has reduced to 3-4 weeks (largely consisting of petrol cars) from4-5 weeks earlier With healthy pick-up in festive sales, inventory have reduced over the last 2 months
to 3-4 weeks compared to beginning Oct-12 levels of 4-5 weeks.
Inventory largely consists of petrol models, while popular diesel models (Swift,
Dzire) continues to have a waiting period of 3-4 months.
Discounts have been lowered by ~15% MoM across models from earlyNovember Our channel checks indicate reduction in discounts across models/regions from
early Nov-12 driven by pick-up in demand and manageable inventory levels. In
Oct-12, Maruti had increased the prices by INR3-7,000 across models.
Unlike last year, discounts in Dec-12 are not likely to increase at substantial rates
(to push MY2012 sales) due to lower channel inventory and stable demand
environment.
Dealers in some of the Western markets indicated very low inventory of Wagon-
R CNG variant from early November.
Indicative discount trends over last few months (INR' 000/car) Avg. discount trend for MSIL
Source: Company, MOSL
Dashboard
December 2012 16
Valuation and view Operating environment for Maruti Suzuki (MSIL) is gradually improving with initial
signs of demand recovery, stabilization of discounts, and possible permanent
solution to its industrial relationship problem (with the conversion of temporary
workers to permanent workers, and liberal wage hikes).
Continued volume revival, discount reduction and higher diesel engine availability
(expected from September 2013) would be the key catalysts for operating / stock
performance, apart from favorable forex movement.
We expect MSIL to register volume growth of 4% in FY13 and 15% in FY14 (FY12-14E
CAGR of 9.2%, FY11-14E CAGR of 2.1%). EBITDA margin for FY13/FY14 would be
8.8%/10.3%
The stock trades at 15.2x FY14E consolidated EPS of INR98.2 and 8.6x FY14E cash
EPS of INR172.6. Buy with a price target of INR1,725 (~10x FY14E cash EPS; 17.6x
FY14E consolidated EPS).
Maruti Suzuki: Financial & Valuation SummaryYear Total Inc. PAT Con. EPS EPS Con. P/E P/CE P/BV EV/ RoE RoCE
End (INR m) (INR m) (INR) Gr. (%) (x) (x) (X) EBITDA (%) (%)
Special Report 2-W CHANNEL CHECKS: Demand picks-up led by NorthChannel inventory normalizes at 3-4 weeks
We interacted with various industry participants (dealers, financiers etc) to get an
update on the current trends with respect to festive demand, inventories, discounts,
waiting period, etc for the two-wheeler industry. Key takeaways:
2W demand improves during the recent festive season. Festive retail demand
estimated to have grown by 5-7% during Navratras-Diwali period
Growth has been primarily driven by the northern markets with estimated 9-11%
growth for major players.
While inventory is still higher on a YoY basis, it has reduced significantly to
manageable levels of 3-4 weeks for major players such as Bajaj, Hero & HMSI.
Demand momentum expected to sustain into December benefiting from the
marriage season in the northern market. Hero Moto expected to be key beneficiary
due to strong presence in North India.
Demand for recently launched Hero's Maestro (110cc scooter) is strong and giving
tough competition to HMSI's Activa. Bajaj's recent launches particularly Discover
125ST has been well received by the customers.
2W demand improves during the recent festive season. Festive retaildemand estimated to have grown by 5-7% Demand for 2W industry was lower YoY during the 1HFY13 due to weak economic
outlook and inflationary trend. However, festive season has helped revive the
consumer sentiments leading to mid-single digit growth for the 2W industry over
last year.
Hero's sales have picked-up with the help of Maestro scooter and brand specific
advertisements of Splendor motorcycle. Moreover, Hero Moto has also benefited
from the recent tie-up with HDFC Bank to offer loans at 6.99% (flat rate). While
the effective interest rates in the scheme works out to 20-21% on an IRR basis
(due to 5 advance EMIs, in line with current industry trends), the scheme has
been promoted well by the dealers/company, leading to higher customer footfalls/
inquiries.
Bajaj Auto has witnessed improvement in sales driven by the recent launch of
Discover 125ST and Pulsar 200NS.
Growth has been primarily driven by the Northern markets, followed bySouth; West continues to remain under pressure Prior to the festive season, East and South were the relatively better performing
markets, followed by North and West. However, demand pick-up (on a YoY basis)
during the recent festive season has been higher in the North compared to other
regions.
Our industry interaction indicates sales to have grown by 9-11% for major players
including Hero and Bajaj in the northern market. Demand in West, though improved
with festive season, continues to remain under pressure with low single digit YoY
growth.
Dashboard
December 2012 18
Marriage season is expected to keep the demand momentum healthy over the
near term for the northern market. This would be particularly beneficial for Hero
Moto due to its strong presence in northern markets.
Inventory still higher YoY but reduced significantly to 3-4 weeks; Hero Motoinventory correction sharpest Our channel checks indicate inventory levels of 3-4 weeks for major players such
as Bajaj, Hero and HMSI (against 5-6 weeks prior to festive season). Hero has
witnessed the highest inventory correction during the festive season.
However, on a YoY basis, it is still higher compared to the last year's level (post
festive season) by 1-1.5 weeks.
Recent launch of Hero's Maestro (110cc scooter) is performing well andgiving tough competition to HMSI's Activa Our channel interaction indicates that Maestro is witnessing strong demand and
commanding an average waiting period of 1 month.
New launches of Bajaj Auto particularly Discover 125ST has been well received by
the customers.
Recently launched Yamaha's Ray scooter has garnered favorable customer
response. However, given the premium pricing with INR4-5k higher than peers
(Hero Pleasure, TVS Scooty), dealers doubt if Ray could be a large volume product.
Channel inventory normalizes (no. of weeks) Hero's inventory reduces sharply post festive season
Hero's scooter sales rise with ramp-up in supplies… ...leading to share rise for Hero (%)
Source: Company, MOSL
Dashboard
December 2012 19
Valuation and view Following the weak demand environment during 1HFY13, pick-up in festive
demand was expected and factored in our estimates. We expect demand recovery
to sustain in FY14 and would be critical to maintain profitability of the industry.
HMSI remains a real threat and a key challenge for the two-wheeler industry,
particularly with the 3rd plant becoming operational in 1QFY14 and plans to launch
3-4 new models in FY14.
We believe Bajaj Auto is relatively better placed due to its diversified product/
market mix vis-à-vis Hero MotoCorp and would be less impacted to any increase
in competitive intensity.
Dashboard
December 2012 20
Special Report INDIA TRACTORS: Channel checkDemand recovers in festive season; Southern market weakness impacts M&M
We spoke with several tractor channel participants to gauge festive season demand
and outlook. Key takeaways:
Tractor demand has recovered during festive season; October demand (Navratras-
Diwali) is flat YoY v/s decline in recent months.
Growth has been primarily driven by Northern markets while South market
continues to remain weak. However, with pick-up in paddy prices from recent
lows and low base of last year, Southern region is expected to stabilize over Dec-
Mar period.
Our channel checks indicate FY13 industry growth of 1-2%.
Players with higher exposure to the Northern markets have witnessed relatively
higher growth and increase in market share (Sonalika, Escorts).
TAFE has been growing ahead of the market due to its strong presence (40% share,
against PAN India average share of 23%) in fast-growing Rajasthan market.
While M&M's Swaraj brand has outperformed YTD industry growth with decline
of 0.5% (v/s industry decline of 3.6%), its Mahindra brand has fallen sharply by
9.6% due to its higher Southern region exposure. Overall, M&M is expected to
underperform the tractor industry for FY13, though we expect YoY growth to pick
in 2HFY13 due to low base and pick-up in demand from Southern region.
Weak Southern region drags tractor volumes down M&M and John Deere impacted due to high South exposure
Expect M&M to benefit in 2HFY13 from low base &M&M market share (%) have marginally reduced pick-up in South
Apr Ma y Jun Jul Aug Se p Oct Nov Dec Jan Fe b Mar
FY11 FY12 FY13
Dashboard
December 2012 28
M&HCVs: domestic market share, goods (%)
M&HCVs: domestic market share, buses (%)
LCVs: domestic volumes (units)
LCVs continue
robust growth
Tata Motors continue
to dominate M&HCV
goods segment
0%
25%
50%
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Jun
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TataMotor A shokLeyland Eic her
0%
25%
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75%
100%
Jun
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TataMotor AshokLeyland Eicher Swaraj
20,000
30,000
40,000
50,000
60,000
Apr Ma y Jun Jul Aug Se p Oct Nov Dec Jan Fe b Mar
FY11 FY12 FY13
Dashboard
December 2012 29
LCVs: domestic market share (%)
Goods: segment-wise break-up (%)
Tata Motors dominates
the domestic LCV
segment
LCVs contribution
to CVs increased
0%
25%
50%
75%
100%
Jun-
08
Aug
-08
Oct
-08
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-08
Feb-
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Oct
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Dec
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Feb-
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Ap
r-1
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Jun-
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Aug
-12
Oct
-12
LCVs <12T <16T <35T
0%
25%
50%
75%
100%
Jun
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-12
TataMotor Piaggio M&M Others
Dashboard
December 2012 30
News and Events
GM launches Chevrolet Sail starting at INR0.44mGeneral Motors India has launched its premium hatchback Chevrolet Sail U-VA starting
at INR0.44m for petrol version and INR0.59 for the diesel version (ex-showroom,
Delhi). While the petrol version will be powered by 1.2 litre engine, the diesel variant
will have a 1.3 litre engine.
On the launch, General Motors India President and Managing Director Lowell Paddock
stated "The Sail U-VA is a strong edition to our small car portfolio. With the market
preferring bigger cars in the compact segment, with Sail U-VA we are able to balance
our presence in the segment along with Beat."
Harley Davidson India launches Fat Bob at INR1.3mThe iconic American bike maker Harley-Davidson India launched the Fat Bob model
priced at INR0.13m (ex-showroom, Delhi). The Fat Bob, a member of the Dyna family
has a 1585 CC engine with a six-speed cruise drive transmission and a fuel tank capacity
of 18.8 litre.
Fat Bob will be assembled at Harley's Bawal, Haryana facility and this will expand its
portfolio of completely knockdown (CKD) models to six. On the launch, Anoop
Prakash, Managing Director, Harley-Davidson India said that the launch of the Fat Bob
as CKD will allow more customers to experience our Dyna range at an attractive price
point. Harley Davidson will open its tenth showroom in Goa by the year-end and
another three next year in Jaipur, Indore and Pune.
Harley Davidson, which started operations in India in 2009, offers 13 models available
at its nine authorised dealers in the country. The company sold around 1,000 units last
year (2011 calendar) and it expects to close this year with double that number.
Maruti Suzuki drives Alto 800 to small towns & villages, expects 25% growthfrom rural markets in FY13Maruti Suzuki is targeting markets in rural areas and tier II cities to build more volumes
for its newly introduced Alto 800 cars.
In Kerala, the company is selling 8,000 cars in a month of which Alto constitutes 30-
35% of total sales. Maruti also enjoys 58% market share in Kerala, the highest across
any other state, Ram Suresh Akella, General Manager, Commercial Business Head
(South) said in a recent media report.
Maruti Suzuki is eying a 25% growth in the rural market in FY13. Small towns and niche
segments like turmeric farmers in Tiruchengode in Tamil Nadu, spices farmers in
Kerala and apple growers in Himachal Pradesh are being targeted to achieve this
growth, he said.
Major developments in the auto sectorNovember 2012
Maruti Suzuki: New Alto 800
GM launches Chevrolet Sail
Harley Davidson: Fat Bob
Dashboard
December 2012 31
The company has taken steps to enhance its presence in smaller towns by opening
extension outlets. Currently, there are about 500 extension outlets out of 11,000 sale
points. There is a good demand for Alto cars as it is the best entry level car and is fuel-
efficient, he said, adding that the company had sold 25,000 Alto cars in a month last
year.
There are also plans to export the new Alto to Latin America and African countries, he
added.
CNG version of Nano may hit market in six monthsTata Motors plans to do more with the Tata Nano and is working on repositioning it to
find the right kind of customer.
A new CNG version is expected to hit the market in the next six months, but the
diesel version is expected to take a little more time, said Karl Slym, MD, Tata Motors.
Admitting that Nano has not met expectations, Slym said the product had seen a
resurgence in the last quarter, having sold 9,000 units a month. The company would
launch a next-generation version of the Nano in the next three years and would look
at all kinds of options for this, he said.
"The Nano is not just a car for Tata Motors, but is a brand name for the company. The
Nano is also important for India because the country gained global recognition with
this car. There are lots of plans around this," he said.
"In the current product cycle of the Nano, the company is looking at tapping markets
in Europe, Asean and South America and, for the second generation of the car, we
could look at markets in North America and parts of Europe," Slym said.
German luxury car maker Audi plans to start assembling of Q3 SUV in IndiaGerman luxury car maker Audi said it is looking to start assembling SUV Q3 in India at
its Aurangabad plant. The car maker at present assembles sedan A4, A6 and SUV Q5,
Q7 in India. It plans to have an installed capacity of upto 12,000 cars a year in the
country within the next 18-24 months, as per media report. "We are planning to start
assembling Q3 in India," Audi India Head Michael Perschke said to a media agency.
The company has invested close to EUR30m in India since its foray into the country in
2007. The company has about 7,500-9,000 units capacity at the Aurangabad plant with
the commissioning of Q7 SUV assembly line. Audi began assembling Q5 SUV in India
last year and Q7 this year. It is focused on the Q series expansion. It has set up a
dedicated production unit at the Aurangabad plant of Volkswagen group firm Skoda.
"Last year we sold 5,511 units in India, and this year we expect to cross 8,000-mark, a
rise of nearly 55-60 per cent," Perschke said.
General Motors to expand manufacture capacity at Halol up to 1.10 lakhunitsGearing up to launch a new multi- purpose vehicle (MPV) - 'Enjoy' - US car maker
General Motors said it would shortly have 110k units annual commissioned capacity
Audi Q3
CNG version of Nano
Dashboard
December 2012 32
at its Halol plant in Gujarat. At present, GM India's Halol plant is installed with an
annual capacity of 85,000 units, with the company planning to launch new eight seater
MPV -Enjoy- from its Shanghai Automotive Industries Corp (SAIC) platform.
"Shortly, we would have 1.10 lakh unit commissioned capacity annually at Halol
because Enjoy is proposed to be rolled out from this plant in next couple of months,"
company's Vice-President (Corporate Communication) P Balendran said. GM had
recently raised its shareholding in an equal joint venture with SAIC to 91 per cent,
regaining complete control.
The company has invested over USD1b in India till date, a company statement said.
"Halol capacity was short...so it is being expanded. With the inaguration of a press
shop at Halol, it is now an integrated manufacturing plant," Balendran said. The
company has phased out its few models like Chervolet Optra and Aveo.
"After launch of Chevrolet Sail U-VA a hatchback, we plan to roll out a new sedan
model of Sail by next month," he said. The new sedan will be company's sixth launch
this year. As compared to sales of 1,11,510 units last year, GM sold nearly 78,100 units
till October end in India this year. "In Gujarat we had sold 11,500 units last year, and
hope to sell 10,000 units by this year end," Balendran said. "With new launches we
expect to sell 4,000 units per month from next year, although the market is sluggish in
wake of high interest rate regime," he said.
Honda goes into diesel drive for India growthJapanese car major Honda Cars India, which has been facing stagnant sales over the
last two years, is hoping for a revival in fortunes with the launch of its maiden diesel
sedan 'Amaze' in India in the first half next year. Honda is expected to follow up this
launch with at least four more diesel cars, including its best-selling sedan City, Jazz,
Brio and an SUV based on the Jazz platform by the middle of this decade.
Amaze would be Honda's sub-4-metre entry level sedan based on the small car Brio.
It will debut only with a petrol engine in Thailand later this month. "The Amaze will
be a significant product for us not only because it is a foray into a new segment but
also our first car with a diesel engine," said Jnaneswar Sen, senior vice-president,
sales and marketing, Honda India to media. "There will be more to follow so we hope
it will lay the foundation to replicate the success of our petrol engines."
Amaze will compete directly with the likes of Maruti Swift Dzire, Toyota Etios, Mahindra
Verito and Ford Classic. It is expected to be powered by a 1.5-litre diesel engine.
Honda is the only car maker in the country that does not have a diesel car in its
portfolio. Its sales have stagnated at around 60,000 units per annum over the last 2
years, even as rivals strong in diesel cars like Toyota and Ford have zoomed ahead.
Chevrolet MPV-Enjoy
Honda Amaze
N O T E S
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Disclosure of Interest Statement Companies where there is interest1. Analyst ownership of the stock None2. Group/Directors ownership of the stock Hero MotoCorp3. Broking relationship with company covered None4. Investment Banking relationship with company covered None
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