Automobile Sector. Passenger segment strong; CVs continue to lag. Monthly Update August Automobile segment-wise growth trend

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1 Monthly Update August 214 September 4, 214 Automobile Sector Passenger segment strong; CVs continue to lag Bharat Gianani Ext: 6817 Strong momentum continues in passenger space; CVs subdued: The passenger vehicle (PV) segment and two wheelers (2Ws) maintained their strong growth momentum, reporting a double digit volume growth during August 214. An improvement in the economic scenario and positive consumer sentiments post elections boosted volumes during the month. Commercial vehicles (CVs) on the other hand continued to remain under pressure, reporting a double-digit decline. We expect CVs to remain flattish in FY215. Improvement in CV volumes usually comes with a lag to the improvement in the economy; we expect a full-fledged recovery in the segment only in FY216. PV segment grows in double digits: The PV segment (comprising of six large players) grew by a robust 22.2% yoy during the month. This is the third consecutive month of double digit growth. Maruti Suzuki and Hyundai India led the growth reporting 29% and 19% yoy growth, respectively, during the month. 2W segment maintains strong growth: 2Ws continued their strong run, reporting a healthy growth of 21.8% yoy. The growth was led by TVS Motors, Honda Motorcycles and Scooters India (HMSI) and Hero Motocorp, all of which posted double-digit growth. Bajaj Auto continued to lag, reporting a flattish growth of 2.1% yoy. CVs remain under pressure dragged by LCVs: The CV segment continued to decline, reporting a 12.7% drop in August 214. While the medium and heavy commercial vehicle (MHCV) segment recovered, reporting a 14% yoy growth (on a low base), the light commercial vehicle (LCV) segment dipped by 22.2% yoy, dragging overall CV segment sales. Tata Motors (TTMT) reported a 23.3% yoy decline, while sales of Mahindra & Mahindra (M&M) and Eicher Motors declined by 4.3% and 5.6% respectively. In contrast, Ashok Leyland outperformed, reporting a yoy growth of 16.7%. Tractor segment subdued; 3Ws strong: The tractor segment declined marginally (6% yoy) on back of deficient rainfall. The three-wheeler (3W) segment reported a robust growth (48% yoy) driven by new permits in the domestic market and strong traction in exports. Automobile segment-wise growth trend Segment wise growth yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Passenger Vehicles 184, , , , , Two wheelers 1,528,668 1,254, ,45, ,381,139 6,278, Commercial vehicles 5,358 57,688 (12.7) 5, ,224 35,182 (19.3) MHCV 15,568 13, ,186 (3.8) 83,999 85,49 (1.7) LCV 31,763 4,822 (22.2) 3, ,75 217,43 (25.6) Tractors 17,782 18,917 (6.) 21,724 (18.1) 131,91 135,947 (3.) Three wheelers 67,791 45, , ,71 24, Please refer to important disclosures at the end of this report 1

2 Auto Sector Update August 214 Tata Motors Tata Motors continues to witness slowdown across segments TTMT s sales continued to decline, posting a dip of 18% yoy, on account of slowdown in the LCV segment and due to increased competitive intensity in the PV space. Total CV sales declined 23% yoy. LCV sales dropped 35% yoy due to underperformance of the sub one tone segment where TTMT is the market leader. In contrast, the MHCV segment grew 11% yoy on a low base of the corresponding month last year. PV sales continued to remain under pressure, declining by 5% yoy. However the fall has moderated (showed 2% mom growth) given the new launches (TTMT launched the new Zest model during the month). Passenger car sales declined 6% yoy while utility vehicle (UV)s declined 2% yoy. Export sales were also in the negative zone, declining by 8.5% yoy. TTMT aims to launch the new compact car Bolt during the festive season which would further improve its passenger vehicle sales Exhibit 1: Tata Motors Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Commercial vehicles M&HCV 9,141 8, ,725 (6.) 46,24 49,262 (6.6) LCV 16,287 24,94 (34.6) 16,364 (.5) 8, ,487 (36.7) Total CV 25,428 33,153 (23.3) 26,89 (2.5) 126, ,749 (28.3) Passenger cars 8,229 8,761 (6.1) 6, ,45 44,78 (25.3) Utility vehicles (Safari, Sumo) 2,746 2,83 (2.) 2, ,274 12,116 (6.9) Total PV 1,975 11,564 (5.1) 9, ,724 56,896 (21.4) Total Domestic Sales 36,43 44,717 (18.6) 35, ,46 233,645 (26.6) Export Sales 4,48 4,894 (8.5) 4, ,7 2,66 (7.5) Total Sales 4,883 49,611 (17.6) 39, , ,251 (25.1) Exhibit 2: CV segment Monthly sales trend Exhibit 3: PV segment Monthly sales trend (units) Volume(LHS) yoy growth (RHS) (units) Volume(LHS) yoy growth (RHS) 7, 3. 25, 4. 6, 5, 4, 3, 2, 1, (1.) (2.) (3.) (4.) 2, 15, 1, 5, 2.. (2.) (4.) (6.) (5.) (8.) September 4, 214 2

3 Auto Sector Update August 214 Ashok Leyland Outperforms peers with growth across segments Ashok Leyland outperformed peers with the sales recovering sharply, (growth of by 16.7% yoy to 8,331 units), led by improvement in LCV volumes and low base. MHCV sales grew 18% yoy primarily due to low base of the corresponding month of last year. Sale of Dost series (LCV pick-up segment) also witnessed a sharp improvement, growing 13.7% yoy. Exhibit 4: Ashok Leyland Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Commercial vehicles 5,83 4, , ,488 26, SCV (Dost) 2,51 2, , ,644 11,54 (16.2) Total CV 8,331 7, , ,132 37,69 (3.9) Exhibit 5: CV segment (ex Dost) Monthly sales trend (units) Volume (LHS) yoy growth (RHS) 12, 3 1, 8, 2 1 6, (1) 4, 2, (2) (3) (4) (5) Maruti Suzuki Strong double digit growth aided by improvement in consumer sentiments Maruti Suzuki India (MSIL) reported a strong double digit volume growth (of 26.9% yoy) at 11,776 units led by improved consumer sentiment in the domestic markets. This is the fourth consecutive month of robust double digit growth by the company. Domestic sales grew healthy at 29.3% yoy as the company witnessed demand recovery across segments. The Compact segment led the improvement (grew 54.5% yoy) due to strong demand traction of both Celerio and Dzire. Entry level segment sales grew 8.3% yoy on back of improved sentiments among first time buyers. The UVs and the van segment grew 2.3% and 25.6% yoy, respectively, on account of a low base. Exports grew 1.3% yoy as the company is tapping new markets in Africa and Latin America. SX4 sales continued to remain under pressure (dropping 85.6% yoy to a mere 5 units). MSIL phase out the SX4 once it launches Ciaz in coming weeks. September 4, 214 3

4 Auto Sector Update August 214 Exhibit 6: Maruti Suzuki Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Mini: Alto, Wagon R 34, , , , Compact- Swift, Ritz, Celerio, Dzire 48, , , , Mid Size- SX (85.6) 233 (78.5) 82 2,88 (61.6) Total passenger cars 82,823 63, , ,15 334, UVs- Grand Vitara, Gypsy, Ertiga 5, ,631 (2.5) 26,389 23, Vans- Omni, Eeco 9, ,68 (14.5) 5,51 38, Total domestic PV 98,34 76, , ,4 396, Export 12, , ,1 4, Total sales 11,776 87, , ,5 437, Exhibit 7: Total volumes - Monthly sales trend (units) Volume(LHS) yoy growth (RHS) 1,4, 1,2, 1,, 8, 6, 4, 2, (2.) (4.) (6.) Mahindra & Mahindra M&M s UV sales decline due to higher competition; tractor sales impacted by deficient rains M & M posted a decline in volumes as slowdown in the UV segment dented automotive volumes while lower rainfall impacted tractor sales. Total volumes declined 6.7% yoy to 49,333 units led by 7.2% and 5.7% yoy decline in automotive and tractor sales respectively. Tractor sales were impacted by deficient rains, which led to lower kharif sowing. Automotive sales declined led by a decline in the key segment - UVs (dropped 1.6% yoy) - and 4W pick-ups (dropped 5.4% yoy). 3Ws and the MHCV segment however bucked the trend, reporting a growth of 5.5% and 26.8% respectively. Automotive exports too declined 25.9% yoy to 2,3 units. September 4, 214 4

5 Auto Sector Update August 214 Exhibit 8: Mahindra and Mahindra Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Passenger vehicles 14,14 15,821 (1.6) 14,78 (3.9) 81,861 91,575 (1.6) 4W pick-up 12,975 13,718 (5.4) 12, ,98 7,481 (9.1) Three-wheelers 5,433 5, , ,383 22,6 1.7 MTBL (17.7) 3,98 3,8 2.8 Total domestic 33,145 35,159 (5.7) 33, ,25 187,862 (8.3) Exports 2,3 2,738 (25.9) 2,52 (19.4) 11,115 1, Total automotive 35,175 37,897 (7.2) 35,567 (1.1) 183, ,977 (7.4) Tractors - domestic 13,543 13,733 (1.4) 16,379 (17.3) 12,74 12,32.7 Tractors - exports 615 1,273 (51.7) 1,28 (4.2) 4,5 4,936 (8.8) Total tractors 14,158 15,6 (5.7) 17,47 (18.7) 17,24 16,968.2 Total sales 49,333 52,93 (6.7) 52,974 (6.9) 29,569 34,945 (4.7) Exhibit 9: PV segment Monthly sales trend Exhibit 1: Tractor segment Monthly sales trend (units) Volume (LHS) yoy growth (RHS) 3, 25, 2, 15, 1, 5, (1.) (2.) (3.) (4.) (units) Volume (LHS) yoy growth (RHS) 45, 4, 35, 3, 25, 2, 15, 1, 5, (1.) (2.) (3.) Bajaj Auto BJAUT continued to underperform peers led by weakness in the domestic markets Bajaj Auto s overall sales grew 7.9% yoy to 336,84 units, once again led by strong growth in exports (up 21.5% yoy) as key export markets of Africa and Latin America are witnessing strong demand traction. The company continued to underperform its peers in the motorcycle segment (sales grew marginally by 2%) as against Hero MotoCorp and TVS Motor Company which reported a strong double digit growth. While export growth remains strong, the company is losing market share in the domestic space due to rising competition. 3W sales grew strongly by 56.3% yoy, led by opening of new permits in the domestic market and strong traction in exports. The company expects export markets to continue to register double-digit growth while domestic volumes are likely to recover given the improved economic outlook and new launches in the executive space. September 4, 214 5

6 Auto Sector Update August 214 Exhibit 11: Bajaj Auto Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Motorcycles 284, , ,427,1 1,385, Three-wheelers 52, , , , Total Sales 336,84 312, , ,644,562 1,572, Domestic (incl above) 161, ,28 (3.8) 149, , ,44 (1.3) Exports (incl above) 175, , , , Exhibit 12: Motorcycle segment Monthly sales trend Exhibit 13: 3W segment- Monthly sales trend (units) Volume (LHS) % yoy growth (RHS) (units) Volume (LHS) % yoy growth (RHS) 4,, 3,5, 3,, 2,5, 2,, 1,5, 1,, 5, (5.) (1.) (15.) (2.) (25.) 6, 5, 4, 3, 2, 1, (1.) (2.) (3.) (4.) Hero MotoCorp Hero MotoCorp sales grew strongly led by success of recently launched products Hero MotoCorp reported a strong volume growth of 21.4% yoy to 558,69 units. The performance was boosted by continued traction for the recently launched products (Spendor I-Smart and Passion Pro TR) in the motorcycle segment and the new Pleasure model in the scooter space. Hero Motocorp expects the demand momentum to continue given the onset of the festive season and with its strong product pipeline as it plans to launch the Splendor Pro Classic apart from launches of refreshes/variants of existing products. Exhibit 14: Hero MotoCorp Sales trend chg yoy Nov-13 chg mom YTD FY14 YTD FY13 % yoy Total sales 524,99 541,615 (3.1) 53,53 (1.) 4,656,154 4,546, September 4, 214 6

7 Auto Sector Update August 214 Exhibit 15: HMCL Monthly sales trend (units) Volume(LHS) yoy growth (RHS) 7,, 6,, 5,, 4,, 3,, 2,, 1,, (1.) (2.) (3.) TVS Motor Strong double digit growth across categories led by new product launches TVS Motor Company continued its strong performance, registering a growth of 46.3% yoy to 227,482 units, driven by robust performance across the segments. 2W sales grew strongly by 46.6% yoy driven by strong growth across categories. Scooter sales grew 84.3% yoy on back of continued success of Jupiter. Also, the company recently launched Scooty Zest during the month which further boosted sales. The motorcycle (with good response to the new Star City+) and the moped segments grew healthy by 35.9% and 32.4% respectively. 3W sales grew at a robust rate of 39% yoy, driven by strong growth in domestic as well as export markets. Total exports continued with the strong momentum, posting a robust growth of 27.9% yoy led by growth across the 2W and 3W segments. The company aims to launch a bike each in the commuter and the premium segments over the next six months to boost its product portfolio. Exhibit 16: TVS Motor Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Motorcycle 83,332 61, , , , Mopeds 67,9 5, , ,39 278, Scooters 67,24 36, , , , Total two-wheelers 217, , , , , Three-wheelers 9,82 7, , ,766 31, Total Sales 227, , , ,33,727 83, Domestic (incl above) 192,48 128, , ,14 677, Exports (from above) 35,74 27, ,986 (5.2) 169, , September 4, 214 7

8 Auto Sector Update August 214 Exhibit 17: Motorcycle segment Monthly sales trend Exhibit 18: Scooter segment Monthly sales trend (units) Volume (LHS) yoy growth (RHS) (units) Volume (LHS) yoy growth (RHS) 9, 4. 8, 1. 8, 7, 6, 5, 4, 3, 2, 1, (1.) (2.) (3.) 7, 6, 5, 4, 3, 2, 1, (2.) (4.) (4.) Apr-12 Jun-12 Escorts Volumes impacted by weak rainfall and lower presence in fast growing Southern and Western markets Escorts Ltd s sales continued to remain under pressure, declining by 7.3% yoy to 3,624 units. This is the fifth consecutive month of decline in tractor volumes. Domestic sales declined 17.7% yoy to 3,147 units. Deficient rainfall impacted kharif crop sowing, thereby affecting tractor demand. Further, Escorts is losing market share due to relatively lower presence in the fast growing Southern and Western markets. Export sales jumped almost five times to 477 units, albeit on a low base. Exhibit 19: Escorts Sales trend Particulars yoy% Jul-14 mom% YTD FY15 YTD FY14 yoy% Domestic 3,147 3,823 (17.7) 4,126 (23.7) 24,562 27,47 (1.6) Exports , Total 3,624 3,911 (7.3) 4,317 (16.1) 25,79 27,895 (7.5) Exhibit 2: Tractor segment Monthly sales trend 1, Volume (LHS) yoy growth (RHS) 5. 9, 8, 7, 6, , 1. 4, 3, 2, 1,. (1.) (2.) (3.) May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 September 4, 214 8

9 Auto Sector Update August 214 Eicher Motors CV sales subdued; two wheeler growth strong on back of robust demand Eicher Motors commercial vehicle sales declined 6% yoy to 3,87 units. The decline was led by the bus and the Volvo truck segment which declined 34% and 11.8% yoy respectively. In contrast, the light & medium duty segment and the heavy duty segment grew 4% and 9.6% yoy respectively. The 2W segment (Royal Enfield) grew strongly by 65.9% yoy to 26,643 units, driven by capacity expansion at the new Chennai plant. Royal Enfield has witnessed strong demand traction with the current waiting period at 4-6 months despite increase in production capacity. Exhibit 21: Eicher Motors Sales trend Particulars yoy% Jul-14 mom% YTD CY15 YTD CY14 yoy% Eicher LMD 1,812 1, ,86 (2.6) 14,967 17,487 (14.4) Eicher HD ,21 4, Eicher Buses (34.) 869 (32.2) 7,311 7,269.6 Volvo Trucks 6 68 (11.8) 61 (1.6) Total 3,87 3,275 (5.7) 3,42 (9.3) 27,965 3,65 (7.) Two-wheelers (Royal Enfield) 26,643 16, ,314 (2.5) 192,357 16, Exhibit 22: CV segment Monthly sales trend Exhibit 23: 2W segment Monthly sales trend 5, Volume (LHS) yoy growth (RHS) 3. 28, Volume (LHS) yoy growth (RHS) 1 4, 3, , 26, 25, 8 6 2, 1, 5.. (5.) (1.) 24, 23, 22, Mar-14 May-14 Jul-14 (15.) 21, Mar-14 May-14 Jul-14 Outlook Consumer sentiments have improved considerably given the policy reforms by the new government and consequent improvement in the economy. Sales in the passenger segment (passenger cars and 2W) have surged in double digits over the last few months and we expect continued improvement going forward. The CV space continued to remain sluggish due to a decline in the LCV segment although the MHCV segment has shown recovery in the last two months. We expect the CV space to remain under pressure in the near term and expect it to recover only in FY216. Amongst our universe, we prefer two-wheeler stocks (Hero Motocorp, Bajaj Auto and TVS Motors) due to continued demand improvement in both the domestic as September 4, 214 9

10 Auto Sector Update August 214 well as export markets. We also like Maruti Suzuki and Ashok Leyland given the sharp recovery in the passenger vehicle and MHCV space. In the mid cap space, we prefer Escorts (on back of pick up in tractor demand post improvement in rainfall and recovery in the loss making construction equipment segment). Exhibit 24: Relative valuation and recommendation Sales P/E (x) P/BV (x) ROE EV/EBIDTA (x) CAGR EPS Valuation Reco CMP TP FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E FY15E FY16E FY14-16E Ashok Leyland Buy ,977 16,437 NA NA NA Bajaj Auto Accumulate 2,226 2,4 22,914 26, Hero Motocorp Accumulate 2,766 2,961 28,986 34, Maruti Suzuki Accumulate 2,99 3,197 52,77 64, M&M^ Accumulate 1,412 1,491 41,664 46, Tata Motors Accumulate ,8 324, TVS Motors* Accumulate ,449 12, Escorts Buy ,398 4, Eicher Motors # Neutral 11,12-8,55 1, ; Note: Price as on August 3, 214; *Consolidated financials; ^ P/E not adjusted for the value of subsidiaries; # December ending company September 4, 214 1

11 Auto Sector Update August 214 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement Analyst ownership Angel and its Group companies Angel and its Group companies' Broking relationship of the stock ownership of the stock Directors ownership of the stock with company covered Ashok Leyland No No No No Tata Motors No No No No Maruti Suzuki No No No No Mahindra & Mahindra No No No No Bajaj Auto No No No No Hero MotoCorp No No No No TVS Motor No No No No Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors. Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to -15%) Sell (< -15%) September 4,

12 Auto Sector Update August th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai Tel: (22) Research Team Fundamental: Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angelbroking.com Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angelbroking.com Amarjeet Maurya Analyst amarjeet.maurya@angelbroking.com Shrenik Gujrathi Analyst shrenik.gujrathi@angelbroking.com Umesh Matkar Analyst umesh.matkar@angelbroking.com Twinkle Gosar Analyst gosar.twinkle@angelbroking.com Bharat Gianani Analyst bharat.gianani@angelbroking.com Tejas Vahalia Research Editor tejas.vahalia@angelbroking.com Technicals and Derivatives: Siddarth Bhamre Head Technical & Derivatives siddarth.bhamre@angelbroking.com Sameet Chavan Technical Analyst sameet.chavan@angelbroking.com Nagesh Arekar Executive nageshd.arekar@angelbroking.com Sneha Seth Associate (Derivatives) sneha.seth@angelbroking.com Institutional Sales Team: Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angelbroking.com Meenakshi Chavan Dealer meenakshis.chavan@angelbroking.com Gaurang Tisani Dealer gaurangp.tisani@angelbroking.com Production Team: Dilip Patel Production Incharge dilipm.patel@angelbroking.com CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai Tel: (22) Angel Broking Pvt. Ltd: BSE Cash: INB / BSE F&O: INF , CDSL Regn. No.: IN - DP - CDSL , PMS Regn. Code: PM/INP1546, NSE Cash: INB / NSE F&O: INF / NSE Currency: INE , MCX Stock Exchange Ltd: INE / Member ID: 15. Angel Commodities Broking (P) Ltd.: MCX Member ID: / FMC Regn. No.: MCX / TCM / CORP / 37 NCDEX: Member ID 22 / FMC Regn. No.: NCDEX / TCM / CORP / 32. September 4,

Auto Sales Monthly Review

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