Monthly Update | March 2012April 3, 2012 Yaresh Kothari +91 22 39357800 Ext: 6844
[email protected] Automobile Sector Pre-budget buying boosts sales Automobile sales surged at a brisk pace in March 2012 with passenger vehicles (PV) reporting healthy growth aided by pre-budget buying in anticipation of excise duty hike in Union Budget 2012-13. The light commercial vehicle (LCV) segment sustained its strong momentum; however, tractor and two-wheeler demand was impacted by slowdown in rural markets. Among auto majors, Tata Motors (TTMT) and Mahindra and Mahindra (MM, automotive division) reported better-than-expected volume growth; however, TVS Motor (TVSM) and Bajaj Auto (BJAUT) registered weak performance during the month. Going ahead, while we expect LCV sales to sustain their growth momentum, two-wheeler and tractor segments are expected to continue reporting moderate volumes. We also expect revival in PV sales to continue with the likely easing of interest rates going ahead. TTMT registered a strong 20.5% yoy increase (9% mom) in total sales, which came in slightly ahead of our estimates. Growth was driven by better-than-expected growth in the commercial vehicle (CV) and passenger vehicle (PV) segments. The CV segment grew by 12.8% yoy (10.3% mom), driven by impressive 29.5% yoy (8.9% mom) growth in the LCV segment. In the PV segment, Nano volumes jumped by 20% yoy, while Indica sales grew by robust 65%, led by strong demand for diesel models. Maruti Suzuki (MSIL) reported in-line growth of 3.3% yoy (5.9% mom) in total volumes to 125,952 units, driven by strong growth in the recently launched Swift and Dzire volumes. Additionally, pre-budget buying by consumers in anticipation of excise duty hike and availability of additional diesel engines benefited the company’s performance. While domestic volumes increased by 2.1% yoy (4.7% mom) to 112,724 units, exports recorded strong 14.7% yoy (17.1% mom) growth to 13,228 units. MM reported healthy 12.3% yoy (10.3% mom) growth in total volumes to 64,406 units, driven by strong performance by the automotive segment, which grew by 25.3% yoy (9.1% mom). Growth in the automotive segment continued to be driven by strong volume traction in the four-wheeler pick-up and UV segments (led by XUV5OO), which posted 30.4% (12.2% mom) and 27.7% yoy (8.8% mom) growth. However, the tractor segment registered a decline of 12.3% yoy, as demand in domestic markets (sales down 15% yoy) continued to remain sluggish. Two-wheelers and three-wheelers: BJAUT reported lower-than-expected volume growth of 9% yoy (down 2.4% mom) on account of sluggish performance in the three-wheeler and exports markets. Hero MotoCorp (HMCL) registered modest growth of 2.4% yoy (flat mom), mainly due to high growth of last year and general weakness in the two-wheeler segment. TVS Motor (TVSL) continued its poor run, reporting a 4.5% yoy (up 6.1% mom) decline in total volumes on account of dismal performance across all product segments (except mopeds), particularly in the motorcycle segment. Please refer to important disclosures at the end of this report 1 Auto Sector Update | March 2012 Tata Motors TTMT recorded better-than-expected 20.5% yoy growth, led by strong performance in the CV and PV segments TTMT reported strong 20.5% yoy (9% mom) growth to 100,414 units, driven by better-than-expected performance in the CV and PV segments. The CV segment grew by 12.8% yoy (10.3% mom), driven by impressive 29.5% yoy (8.9% mom) growth in the LCV segment. The M&HCV segment, however, registered a decline of 7.5% yoy mainly on account of high base of last year. The PV segment recorded stellar 35.6% yoy (7% mom) growth, led by 34.3% (7.7% mom) and 41.8% yoy jump in cars and utility vehicle (UV) sales, respectively. In the PV segment, Nano volumes jumped by 20% yoy, while Indica sales grew by robust 65%, led by strong demand for diesel models. The Sumo/Safari/Aria/Venture range also recorded strong 40% yoy growth. Exhibit 1: Tata Motors – Sales trend Segment Total sales M&HCV LCV Total CV Utility vehicles Cars Total PV Exports (Included above) Source: Company, Angel Research March 2012 100,414 23,088 39,348 62,436 6,914 31,064 37,978 5,367 March 2011 83,363 24,972 30,386 55,358 4,875 23,130 28,005 5,932 % chg 20.5 (7.5) 29.5 12.8 41.8 34.3 35.6 (9.5) FY2012 906,772 221,298 363,756 585,054 56,464 265,254 321,718 63,078 FY2011 803,322 209,522 287,463 496,985 43,063 263,274 306,337 58,044 % chg 12.9 5.6 26.5 17.7 31.1 0.8 5.0 8.7 Exhibit 2: CV segment – Monthly sales trend (units) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume(LHS) yoy growth (RHS) (%) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Sep-10 Nov-10 Sep-11 May-10 May-11 Nov-11 Jan-11 Mar-10 Mar-11 Jan-12 Jul-10 Jul-11 Source: Company, Angel Research April 3, 2012 Mar-12 2 Auto Sector Update | March 2012 Exhibit 3: PV segment – Monthly sales trend (units 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Jul-10 Jul-11 Mar-10 Mar-11 Nov-10 May-10 May-11 Nov-11 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 Volume(LHS) yoy growth (RHS) (%) 100.0 80.0 60.0 40.0 20.0 0.0 (20.0) (40.0) (60.0) Source: Company, Angel Research Maruti Suzuki MSIL posted in-line 3.3% yoy growth; The company benefitted from pre‐buying ahead of Union Budget MSIL reported in-line growth of 3.3% yoy (5.9% mom) in total volumes to 125,952 units, driven by strong growth in the recently launched Swift and Dzire volumes. Additionally, pre-budget buying by consumers in anticipation of excise duty hike and availability of additional diesel engines benefited the company’s performance. While domestic volumes increased by 2.1% yoy (4.7% mom) to 112,724 units, exports recorded strong 14.7% yoy (17.1% mom) growth to 13,228 units. The entry-level mini segment, however, continued to be impacted by the lack of diesel option and posted a 10.2% yoy decline during the month. Exhibit 4: Maruti – Sales trend Segment Total sales A: Mini: M800, A-star, Alto, Wagon R A: Compact: Swift, Estilo, Ritz A: Super Compact: Dzire A: Mid-size: SX4 A: Executive: Kizashi Total passenger vehicles B: UV - Gypsy, Grand Vitara C: Vans: Omni, EeCo Total domestic sales Total exports March 2012 125,952 52,826 27,913 16,451 1,520 48 98,758 1,530 12,436 112,724 13,228 March 2011 121,952 58,799 22,576 10,278 3,632 103 95,388 620 14,416 110,424 11,528 % chg FY2012 491,389 235,754 110,132 17,997 458 855,730 6,525 144,061 127,379 FY2011 573,238 261,799 107,955 23,317 138 966,447 5,666 160,626 138,266 % chg (10.8) (14.3) (9.9) 2.0 (22.8) 231.9 (11.5) 15.2 (10.3) (11.2) (7.9) 3.3 1,133,695 1,271,005 (10.2) 23.6 60.1 (58.1) (53.4) 3.5 146.8 (13.7) 14.7 2.1 1,006,316 1,132,739 Source: Company, Angel Research April 3, 2012 3 Auto Sector Update | March 2012 Exhibit 5: PV segment – Monthly sales trend (units) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Volume(LHS) yoy growth (RHS) (%) 60.0 40.0 20.0 0.0 (20.0) (40.0) (60.0) Mar-10 Mar-11 Nov-10 May-10 May-11 Nov-11 Source: Company, Angel Research Mahindra & Mahindra MM continued its strong performance in UV and four-wheeler pick-up segments; Tractor sales remained under pressure MM reported healthy 12.3% yoy (10.3% mom) growth in total volumes to 64,406 units, driven by strong performance by the automotive segment, which grew by 25.3% yoy (9.1% mom). Within the automotive segment, passenger UV and four-wheeler pick-up segments maintained their strong performance and posted 30.4% (12.2% mom) and 27.7% yoy (8.8% mom) growth, respectively. CV and Verito sales also recorded strong growth of 72.8% (21% mom) and 73.2% yoy (8% mom), respectively. The tractor segment, however, posted a decline of 12.3% yoy, as domestic tractor volumes declined by 15% yoy to 15,920 units. Exports, on the other hand, grew by 32.7% yoy during the month. During the month, MM decided to shut down its tractor plants (Jaipur, Nagpur and Rudrapur) for two days/week in order to correct dealer inventory. Exhibit 6: Mahindra & Mahindra – Sales trend Segment Total sales Passenger UV Four-wheel pick-up (GIO, Maxximo) Three-wheelers (Champion, Alfa) Logan/Verito LCV/M&HCV Exports Total automotive sales Tractor sales – Domestic Tractor sales – Exports Total tractor sales Source: Company, Angel Research March 2012 64,406 21,257 14,714 5,089 1,763 1,519 2,659 47,001 15,920 1,485 17,405 March 2011 57,370 16,302 11,520 1,018 879 2,034 37,522 1,119 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 Jul-10 Jul-11 % chg FY2012 FY2011 12.3 718,698 590,716 30.4 202,276 169,205 27.7 152,691 105,588 67,440 17,839 13,823 29,177 62,142 10,009 11,077 19,042 73.2 72.8 30.7 % chg 21.7 19.5 44.6 8.5 78.2 24.8 53.2 28.2 9.9 15.6 10.2 5,769 (11.8) 25.3 483,246 377,063 32.7 13,722 11,868 18,729 (15.0) 221,730 201,785 19,848 (12.3) 235,452 213,653 April 3, 2012 4 Auto Sector Update | March 2012 Exhibit 7: UV segment – Monthly sales trend (units) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) yoy growth (RHS) (%) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0) (20.0) Jul-10 Mar-10 Mar-11 Jul-11 Nov-10 May-10 May-11 Nov-11 Source: Company, Angel Research; Note: UV+Four-wheel pick-up combined from November 2010 Exhibit 8: Tractor segment – Monthly sales trend (units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) yoy growth (RHS) (%) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0) (20.0) (30.0) Nov-10 May-10 May-11 Nov-11 Sep-10 Sep-11 Jan-11 Mar-10 Mar-11 Jan-12 Jul-10 Jul-11 Source: Company, Angel Research Bajaj Auto BJAUT reported lower-than-expected volumes as exports performance was subdued during the month BJAUT reported lower-than-expected volume growth of 9% yoy (down 2.4% mom) to 335,515 units on account of sluggish performance in the three-wheeler and exports markets. While motorcycle sales grew by healthy 9.6% yoy (flat mom), three-wheeler volumes posted modest 4% yoy (down 17.1% mom) growth. Exports growth also witnessed moderation, as it declined by 12.3% mom to 107,691 units. On a yearly basis, volumes increased by 54.1%, largely due to low base of last year. April 3, 2012 Mar-12 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 5 Auto Sector Update | March 2012 Exhibit 9: Bajaj Auto – Sales trend Segment Total sales Motorcycles Three-wheelers Exports (Included above) March 2012 335,515 300,848 34,667 107,691 March % chg 2011 307,741 9.0 274,392 33,349 69,884 9.6 4.0 54.1 FY2012 343,777 301,961 41,816 122,727 % chg FY2011 (2.4) 4,349,560 (0.4) 3,834,405 (17.1) 515,155 (12.3) 1,579,824 Source: Company, Angel Research Exhibit 10: Motorcycle segment – Monthly sales trend (units) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Volume (LHS) % yoy growth (RHS) (%) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Jul-10 Mar-10 Mar-11 Jul-11 Nov-10 May-10 May-11 Nov-11 Source: Company, Angel Research Exhibit 11: Three-wheeler segment – Monthly sales trend (units) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) % yoy growth (RHS) (%) 120.0 100.0 80.0 60.0 40.0 20.0 0.0 (20.0) Jul-10 Mar-10 Mar-11 Jul-11 Nov-10 May-10 May-11 Nov-11 Source: Company, Angel Research Hero MotoCorp HMCL reported modest 2.4% yoy growth; however, numbers were in-line with our expectations HMCL reported in-line growth of 2.4% yoy (flat mom) in monthly volumes to 528,290 units. Growth momentum was subdued during the month on account of high base of last year and due to the slowdown being witnessed in the two-wheeler segment. April 3, 2012 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 6 Auto Sector Update | March 2012 Exhibit 12: Hero MotoCorp – Sales trend March 2012 Total sales Source: Company, Angel Research March 2011 % chg 2.4 FY2012 523,465 FY2011 % chg 528,290 515,852 0.9 6,235,205 Exhibit 13: Two-wheeler segment – Monthly sales trend (units) 600,000 500,000 400,000 300,000 200,000 100,000 0 Volume(LHS) yoy growth (RHS) (%) 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Nov-10 May-10 May-11 Nov-11 Sep-10 Sep-11 Jan-11 Mar-10 Mar-11 Jan-12 Jul-10 Jul-11 Source: Company, Angel Research TVS Motor TVSL posted dismal volumes for March 2012, led by weakness across all product segments (except mopeds) TVSL continued its poor run, reporting a 4.5% yoy (up 6.1% mom) decline in total volumes to 182,527 units on account of dismal performance across all product segments (except mopeds). Total two-wheeler sales dropped by 3.5% yoy (up 6.7% mom) on account of a 17.1% and 7.6% yoy decline in motorcycles and scooters sales, respectively. Moped sales, however, continued to hold up well and recorded strong volume growth of 16.1% yoy (8.1% mom). The company continues to struggle in the motorcycle and scooter segments on account of demand slowdown and rising competitive pressures. The three-wheeler segment also posted a disappointing performance, reporting a 47.6% yoy fall to 2,253 units. Exports also registered negative volume growth, posting a decline of 22.7% yoy to 20,690 units. April 3, 2012 Mar-12 7 Auto Sector Update | March 2012 Exhibit 14: TVS Motor – Sales trend Segment Total sales Motorcycles Scooters Mopeds Total two-wheelers Exports (Included above) Three-wheelers March 2012 182,527 65,994 39,395 74,885 180,274 20,690 2,253 March % chg 2011 191,081 42,655 64,484 186,781 (4.5) (7.6) 16.1 (3.5) 79,642 (17.1) FY2012 172,061 63,019 36,693 69,284 168,996 17,960 3,065 FY2011 4.7 7.4 8.1 15.2 (26.5) % chg 6.1 2,199,936 845,668 529,762 784,773 287,400 39,733 6.7 2,160,203 26,762 (22.7) 4,300 (47.6) Source: Company, Angel Research Exhibit 15: Motorcycle segment – Monthly sales trend (units) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume (LHS) yoy growth (RHS) (%) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0) (20.0) (30.0) Jul-10 Mar-10 Mar-11 Jul-11 Nov-10 May-10 May-11 Nov-11 Source: Company, Angel Research Exhibit 16: Scooter segment – Monthly sales trend (units) 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume (LHS) yoy growth (RHS) (%) 100.0 80.0 60.0 40.0 20.0 0.0 (20.0) Jul-10 Mar-10 Mar-11 Jul-11 Nov-10 May-10 May-11 Nov-11 Source: Company, Angel Research April 3, 2012 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 Mar-12 Sep-10 Sep-11 Jan-11 Jan-12 8 Auto Sector Update | March 2012 Outlook We believe long-term structural growth drivers of the Indian automobile industry such as GDP growth rate (leading to increasing affluence of rural and urban consumers), favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact, which should support a 13-14% CAGR in auto volumes over FY2012-14E. As such, we prefer stocks that have strong fundamentals, high exposure to rural and exports markets and command superior pricing power. Against the backdrop of the likely easing of interest rates, we expect demand revival in the four-wheeler segment. Hence, we remain positive on Ashok Leyland (AL), MM and TTMT. Exhibit 17: Relative valuation and recommendation Companies AL BJAUT HMCL MSIL MM TTMT* TVSL Reco. Buy Accumulate Accumulate Buy Accumulate Accumulate Buy CMP (`) 32 TP (`) 37 Sales (`cr) FY13E 15,008 22,362 26,220 42,290 35,095 8,263 FY11-14E EPS FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E CAGR (%) 16,906 12.4 10.4 2.6 2.2 15.5 17.0 6.8 5.9 9.3 P/E (x) P/BV (x) RoE (%) EV/EBITDA (x) 25,633 29,106 49,251 40,213 8,897 14.2 14.9 15.3 15.9 7.2 8.4 13.1 14.2 13.0 14.5 6.5 7.6 5.6 7.0 2.2 2.8 2.5 1.5 4.4 5.4 1.9 2.5 2.0 1.3 44.4 54.5 15.3 18.8 39.8 18.9 37.9 43.2 15.6 18.1 33.9 18.3 8.7 8.1 9.4 8.6 4.6 3.6 7.5 6.5 7.5 7.4 4.0 3.2 9.8 15.3 8.9 4.1 14.5 8.8 1,648 1,888 2,010 2,177 1,309 1,510 708 280 42 802 56 318 191,183 213,150 Source: Company, C-line, Angel Research; Note: Price as on April 3, 2012; *Consolidated financials April 3, 2012 9 Auto Sector Update | March 2012 Research Team Tel: 022 - 3935 7800 E-mail:
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