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May 6, 2015

HDFC Bank Investment Advisory Group


Indian Automobile Industry FY15 Performance overview
Sector Update

Domestic vehicle sales of Indian Automobile industry has been growing at CAGR of ~9.6% over
the period of FY05-FY15 while exports have grown at a CAGR of ~18.9%. However, post the three
consecutive years of strong double digit growth during FY10-FY12, the industry is struggling to
reach even a low double digit growth rate. During FY13-FY15, domestic sales grew at a CAGR of
just ~4.4% which was mainly driven by ~7.2% YoY growth in FY15. This weakness in demand for
automobile vehicle in domestic market was mainly due to sluggish economic growth with subdued
consumer sentiment due to rising interest rate and fuel prices.
Industry growing at slow pace over the past two to three years
Exportsalsorisingforsecondconsecutiveyear
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
5.0%
10.0%

20000
15000
10000
5000

TotalDomesticsalesinunits

4000

35.0%

3500

30.0%

3000

25.0%

2500

20.0%

2000

15.0%

1500

10.0%

1000

5.0%

500

0.0%

FY15

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

Thousands

Thousands

Growthrateimprovingforthirdstraightyear
25000

5.0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Exports

YoY%Growth(RHS)

YoY%Growth(RHS)

Source: Bloomberg

Segmental performance all the segments reported a positive growth except LCV
In FY15, the domestic automobile industry grew by ~7.2% YoY as against ~3.6% in FY14 and
exports grew by ~14.9% YoY during the year as compared to ~7.2% in FY14. In the first half of the
year the total vehicle sales in India grew by ~13.8% YoY whereas in H2FY15 total sales grew by
just 1.2% YoY. The higher growth in H1FY15 was mainly due to low base effect and reduction in
excise duty benefit. However, poor monsoon and removal of reduction in excise duty benefit
dampened the growth in H2FY15. Within the domestic market, Scooter and Medium and Heavy
Commercial Vehicle (MHCV) segment grew strongly by 25.1% YoY and 16.1% YoY, respectively.
However, Light commercial vehicle (LCV) continues to report negative growth and declined by
~11.6% YoY in FY15 as against a decline of ~17.6% in FY14.
ScooterandMHCVgrewstrongly

FY15growthdrivenbyH1asH2remainedsubdued

120%

100.0%

100%
80%
54.4%

60%
40%

FY15Growth(YoY%)

2.7%
1.9%

20%
0%

3W

1.2%

LCV

Scooter

22.8%

MHCV

2.8%

UVs

PassCars

9.5%

Total

Mar15

Feb15

Jan15

Dec14

Nov14

ExportsGrowth(YoY%)

30%
25%
20%
15%
10%
5%
0%
5%
10%
15%

Motorcycle

DomesticsalesGrowth (YoY%)

Oct14

Sep14

Aug14

Jul14

Jun14

May14

Apr14

35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
5.0%
10.0%

Segmentcontribution(RHS)

Source: Bloomberg

Domestic passenger vehicle sales remained volatile during FY15


Domestic Passenger vehicle sales remained volatile during FY15 where passenger car segment
grew by 4.8% YoY whereas Utility vehicle sales grew by 5.3% YoY. Growth in Passenger car sales
in H2FY15 was marginally higher than in the first half. However, in Utility vehicle segment, growth
dipped sharply in H2FY15 compare to H1FY15 due to high base effect and few new product
launches. During the year within domestic passenger car segment, Maruti Suzukis passenger car
sales grew higher than industry growth rate and thereby gaining market share. Total passenger car
sales for the company grew by about 9% YoY. In Utility vehicle (UV) segment, Mahindra and
Mahindra (M&M) retained its leadership position. However, due to absence in compact UV
segment, M&M is losing its market share in the overall UV segment.

May 6, 2015
Domesticpassenger vehicle sales remainedvolatile duringFY15

PassengerCars

Mar15

Feb15

Jan15

Dec14

Nov14

Oct14

Sep14

Aug14

Jul14

Jun14

May14

Apr14

(YoYGrowthin%)

30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
5.0%
10.0%
15.0%
20.0%

Utility Vehicle

Source: Bloomberg

Scooterisation trend continues in FY15


Scooter continued to be the preferred choice for two wheeler (2W) buyers in FY15. Scooter sales
grew by ~25.1% YoY as compare to ~2.5% YoY growth in Motorcycle sales in FY15, sixth straight
year of double digit growth and outpacing Motorcycle sales since FY07. Scooter sales have been
growing strongly over the past few years mainly due to its new age design which suits for both
male and female riders, easy to handle as it is gearless and fuel efficiency.
"Scooters are increasingly becoming a preferred choice for two-wheeler buyers as they provide
certain benefits that a motorcycle cannot give like a relatively easy-to-drive option since most are
gearless. The ease of drive makes it easy to zip across short distances and tight lanes," said
Kamal Sharma, en executive with a top dealership of Hero MotoCorp. Source: Times of India
Scooter segment sales have been higher than Motorcycle sales throughout the year in FY15 which
resulted in increase in overall contribution of scooter in two wheeler sales. Honda Motorcycle &
Scooter India (Pvt) Ltd and TVS Motors have gained market share in overall two wheelers segment
on the back strong scooters sales during the year. Hero MotoCorp continues to be market leader in
2W segment. However, both Hero MotoCorp and Bajaj Auto has lost overall market share.
DomesticscooterssalesgrowthoutpacedmotorcyclesalesinFY15

(YoYGrowthin%)

50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
10.0%

Mar15

Jan15

Feb15

Dec14

Oct14

DomesticMotorcycle

Nov14

Sep14

Aug14

Jul14

Jun14

Apr14

May14

20.0%

DomesticScooter

Source: Bloomberg

Strong revival in MHCV segment while LCV still struggling to make its mark
During FY15, MHCV segment shown strong revival and grew by 16.1% YoY as against the
negative growth in previous two years where it has declined by over 20% on YoY basis. On the
other side, LCV segment consistently reportied negative growth throughout the year which resulted
in a negative growth of ~11.6% YoY in its volume growth in FY15. MHCV segment started picking
up mainly due to extension of exices duty benefit available till 9MFY15, recovery in mining activity,
improvement in fright utilization levels and replacement of ageing vehicles in MHCV segment.
Within MHCV segment Tata Motors continues to be market leader with minor loss in market share
whereas Ashok Leyland gained market share in overall MHCV segment and maintained its second
position due to strong growth in Goods Carrier segment.

MHCV

Source: Bloomberg

LCV

Mar15

Feb15

Jan15

Dec14

Nov14

Oct14

Sep14

Aug14

Jul14

Jun14

May14

Apr14

(YoYGrowthin%)

StrongdemandinMHCVwhileLCVsstruggledinFY15
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
10.0%
20.0%
30.0%
40.0%

May 6, 20155
Key fa
actors to imp
pact the volume growth in FY16
Series
s of new laun
nches to boo
ost volume growth
In FY15, many Orig
ginal Equipme
ent Manufactu
uring (OEM) ccompanies likke Bajaj Auto and M&M ha
ave
faced slowdown in their volume
e growth main
nly due to lacck of new lau
unches. Howe
ever, according
severa
al media repo
orts and intera
action with the company m
management,, FY16 is exp
pected to be ffull
of new
w model laun
nches and va
ariants of exis
sting models.. This is with
h the view off increasing tthe
volume
e growth of th
he company. The manage
ement of M&M
M has indicatted that the ccompany wou
uld
be hav
ving three ne
ew launches which
w
include
e two in com
mpact UV and
d one in sma
all UV segment.
Likewise, Bajaj Autto has also sttarted to laun
nch variation of its Pulsar brand in premium segment.
We be
elieve that the
e volume grow
wth going forw
ward is more dependent o
on the successs of these ne
ew
launch
hes. Following
g are some off the new laun
nches which a
are expected in FY16
Comp
pany

New Produc
ct/Variant

Segment

Maruti Suzuki

Wagon R Die
esel, Celerio, Cervo and a New mode

Hatchback

Maruti Suzuki

SX4 Cross, iV-4, XA Alpha

Utility Vehicle
e

M&M

Thar New, Scorpio AT, Co


ompact SUV

Utility Vehicle
e

M&M

Halo

Coupe Car

Tata Motors
M

Nano AMT, Nano


N
Diesel, Kite Hatch

Hatchback

Tata Motors
M

Safari Storme facelift, Nex


xon, Aria AT

Utility Vehicle
e

Hyund
dai

Tucson New
w, ix25

Utility Vehicle
e

Bajaj Auto
A

RE60

Hatchback

Bajaj Auto
A

Pulsar 150ns
s, Pulsar 180n
ns, Pulsar 40
00ss, KTM Du
uke 690

Two wheeler

Hero Motocorp
M

Dare 125, ZIR 150, Leap 125,HX250R


R 250, Dash 110

Two wheeler

TVS

Apache RTR
R 250, TVS Drraken 250

Two wheeler

Mahind
dra

Mojo 300, Ce
enturo O1 D

Two wheeler

Source: Media
M
reports

Improvement in ru
ural income to
t drive the volume
v
grow
wth for rural d
dependent companies
The vo
olume growth in most of th
he segment in
n H2FY15 wa
as lower than the H1FY15. This was mo
ore
visible in segment like 2W and tractors
t
which
h are more d
dependent on rural income
e. Rural incom
me
came down in FY15 due to poo
14, unseason
or monsoon season
s
in 201
nal rains at th
he beginning of
2015 and
a small inc
crease in minimum supporrt price (MSP
P). A fall in ru
ural income h
has significan
ntly
impactted the perfo
ormance of rural depend
dent compan ies like M&M
M. However, as per med
dia
reports
s, Skymet, Indias largest weather mon
nitoring comp
pany, is prediicting that rains during 2015
monso
oon season will
w be 102% (e
error margin of
o +/-4%) of t he long perio
od average (LPA). In addition
to this,, the Commis
ssion for Agric
cultural Costs
s and Prices ((CACP), a sta
atutory body tthat advises tthe
govern
nment on the pricing policy
y for major farrm produces,, has recomm
mended an inccrease of Rs 50
per qu
uintal in the MSP for paddy farmers. We believe
e that forecasst of normal monsoon and
increas
se in MSP prices is likely
y to beneficial for compan
nies which are
e more rural dependent liike
M&M, Hero Motoco
orp etc.

Source: Media
M
Article

May 6, 20155
Overa
all View: Ind
dian Automo
obile industry grew at a healthy rrate in FY15
5 compare to
previo
ous two years on the back of some
e policy inittiative and im
mprovementt in consum
mer
sentim
ments. Howe
ever, we belie
eve that the volume grow
owth in FY16
6 is likely to be better than
the FY
Y15 due to se
eries of new
w launched in
n the pipeline
e for most o
of the OEMs, infrastructu
ure
push by the government, reduction in interest
i
rate
e which will boost the availability of
financ
ce and expec
ctation of no
ormal monso
oon season. We remain positive on the long terrm
prospect of the In
ndian Autom
mobile industtry and currrently recom
mmend Buy o
on M&M, Baj
ajaj
Auto and
a Escorts.

Mah
hindra & Ma
ahindra Lim
mited

CM
MP:Rs.115
59

Backg
ground
Mahind
dra & Mahin
ndra Limited operates in multiple seg
gments direcctly or via ho
olding in oth
her
compa
anies. Autom
motive Segme
ent consists of sales of automobiless, spare parrts and relatted
service
es. Farm Equ
uipment Segm
ment consists of sales of trractors, spare
e parts and re
elated service
es.
Information Techno
ology (IT) Serrvices consistts of servicess rendered fo
or IT and Tele
ecom. Financcial
Services consists of
o services re
elating to financing, leasin g and hire pu
urchase of automobiles and
tractorrs. Steel Trad
ding and Proc
cessing cons
sists of tradin g and processsing of stee
el. Infrastructu
ure
consists of operatin
ng of commerc
cial complexe
es, project ma
anagement an
nd developme
ent.
Key Details
52 wee
ek H/L(Rs)
Book Value/
V
Share (Rs) YTD
FV (Rs
s)
PE (TT
TM)
Dividend Yield (%)

1421/1057
375.3
5.00
16.8
1.18

Shareho
olding Pattern
n (%) on 31 M
March 2015
Promoterr
25.65
FII
37.64
DII
18.44
Others
18.27
Total
100.00

Valuattions
PE
FY14
19.3

FY15E

FY16E

17.6

15.5

Sourrces: Bloomberg

View: Tractor indu


ustry has bee
en facing headwinds due
e to deficientt monsoon a
and lower cro
op
prices
s; however M&M
M
continue
es to be a lea
ader in the s
segment with
h ~41% mark
ket share. The
Manag
gement is ex
xpecting a revival
r
from Q2FY16 in tractor sale
es on the ex
xpected bettter
monso
oon in FY16
6 and expec
cts a 7-8% CAGR
C
for th
he industry in near to medium terrm.
Althou
ugh the Com
mpany is facing slowdow
wn in Auto se
egment due tto absence in Compact U
UV
segme
ent but we believe
b
it has
s geared up
p itself to tak
ke on the co
ompletion an
nd to grab the
opporrtunity arising from expe
ected recovery in auto in
ndustry with series of ne
ew launches in
FY16. We remain positive on the
t
stock on
n the expecte
ed new launches on botth product an
nd
engine
e side in FY1
16 and on go
ood return ra
atios of overr 20%. We m
maintain our BUY rating o
on
the sttock with target price of
o Rs.1502 (1
15x FY16E E
EPS of Rs.7
75.0 + Rs.37
77 as value of
subsid
diaries at 30
0% holding company discount). An y earning/ta
arget price rrevision wou
uld
depen
nd on the performance of
o new launches, rolloverr of earning estimates and changes in
genera
al business momentum.

May 6, 20155

Baja
aj Auto Ltd
d

CM
MP:Rs.202
20

Backg
ground
Bajaj Auto
A
Limited is a manufa
acturer of sc
cooters, moto
orcycles and three-wheele
er vehicles and
spare parts thereoff. The Compa
any operates
s in two segm
ments: Autom
motive and Invvestments. T
The
Compa
anys brands include Puls
sar, Avenger, Discover, Pllatina and Ninja. Its comm
mercial vehiclles
range include good
ds carriers, such
s
as GC Max Diesel, GC Max CN
NG, RE600, and passeng
ger
carrierrs, such as RE
R 2S, RE 2S
S CNG, RE 2S LPG, RE 4
4S, RE 4S CNG, RE 4SLPG, RE Diessel,
ude Bajaj Auto Internation
RE GD
DI and Mega Max. The Co
ompanys sub
bsidiaries inclu
nal Holdings B
BV
and PT
T. Bajaj Auto Indonesia.
Key Details
52 wee
ek H/L(Rs)
Book Value/
V
Share (Rs) YTD
FV (Rs
s)
PE (TT
TM)
Dividend Yield (%)

2690/1844
2
351.4
10
19.26
2.42

Shareho
olding Patterrn (%) on 31 March 2015
Promote
er
49.24
FII
16.99
DII
8.65
Others
25.12
Total
100.00

Valuattions
PE
FY14
18.0

FY15E

FY16E

16.0

13.3

Sourrces: Bloomberg

View: Bajaj Autos domestic two wheele


er business continued tto be weak while exporrts
suppo
orted the gro
owth in reven
nue for Q3FY
Y15. Going fo
orward, gain
n in domestic
c market sha
are
led by
y expected new
n
launche
es in existing
g brands an
nd adding ne
ew brands w
will be the k
key
growth drivers fo
or the comp
pany. Key monitorable
m
for the sto
ock would b
be the rate of
improvement in market
m
share in domestic 2W segmen
nt with the la
aunch of new
w brands in the
portfo
olio and exte
ension in Pu
ulsar and Pla
atina brand.. We mainta
ain our posittive stance o
on
Bajaj Auto
A
consid
dering its foc
cus on exports, strong R
R&D capabilities, huge c
cash and cas
sh
equiva
alent of Rs.7
75.68 bn and strong returrn ratios with
h ROE of 32.1% and ROC
CE of 45.5% in
FY14. We maintain
n our BUY re
ecommenda
ation on the stock with the target price of Rs 2734
(18x FY16E
F
EPS of Rs 152)). Any earn
ning/target p
price revisio
on would de
epend on the
perforrmance of new
n
launche
es, improvem
ment in dom
mestic mark
ket shares in
n motor cyc
cle
segme
ent and gene
eral business
s momentum
m.

May 6, 20155

Esco
orts Ltd

CM
MP:Rs.122
2

Backg
ground
Escortts Limited is
s an India-ba
ased compa
any engaged in the bussiness of ma
anufacturing of
agricultural tractors, engines for agricultural trractors, round
d end flat tube
es, heating elements, doub
ble
acting hydraulic shock absorberrs for railway
ys coaches, ccenter buffer couplers, automobile sho
ock
absorb
bers, telescop
pic front fork and
a Mcpherso
on struts, bre
eak block, inte
ernal combustion engine and
all type
es of breaks used
u
by railways, construc
ction, earth m
moving and material handling equipmen
nts.
It also
o trades in oils and lubric
cants, implem
ments, trailers
rs, compresso
or accessorie
es and spare
es,
construction, earth moving and material
m
handling equipme nts and aero business..
Key Details
52 wee
ek H/L(Rs)
Book Value/
V
Share (Rs) YTD
FV (Rs
s)
PE (TT
TM)
Dividend Yield (%)

174/102
149.5
10
9.51
1.45

Shareho
olding Patterrn (%) on 31 March 2015
Promote
er
41.96
FII
9.31
DII
3.82
Others
44.91
Total
100.00

Valuattions
PE
FY14

FY15E

FY16E

8.3

10.8

6.6

Sourrces: Bloomberg

View: Escorts Ag
gri-machinery
y segment has
h
continue
ed to witnes
ss subdued growth durin
ng
the qu
uarter and is expected to
o remain neg
gative to flat during FY15
5 due to dela
ayed monsoo
on
and lo
ower crop prices. However, the mana
agement is p
positive on th
he long term
m growth of the
compa
any due to in
ncreased foc
cus of the go
overnment on
n agriculture
e and infrastrructure secto
or.
Going
g forward, th
he company plans to drrive tractor volume grow
wth by incre
easing mark
ket
share through new
w product lau
unches and improving d
dealer footprint in weaker markets. The
Comp
pany has be
een focusing
g on improv
ving margins
s with the help of pro
oduct portfolio
rationalization, en
nhancing pre
esence in hig
gher HP seg
gment (above
e 45-50HP) a
and other co
ost
cutting
g initiatives. We are po
ositive on th
he company
y from long term persp
pective due to
improvement in lower tractorr penetration
n on the ba
ack of labou
ur shortage and expected
reviva
al in infrasttructure acttivity. The stock
s
has ffallen in re
ecent past due to we
eak
perforrmance. We recommend a BUY on th
he stock with
h the target price of Rs.148 (8x FY16
6E
EPS of
o Rs 18.5). Any
A earning/ttarget price revision
r
wou
uld depend o
on the perforrmance of ne
ew
launch
hes, improve
ement in marrket share an
nd changes iin general bu
usiness mom
mentum.

May 6, 2015

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