India Auto Expo 2018: Key takeaways

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1 16 FEB 2018 Sector Update India Auto Expo 2018: Key takeaways We visited the India Auto Expo 2018 in Delhi. The platform is used by OEMs (Original Equipment Manufacturers) to showcase concepts (what they can make), but not necessarily what they will make. Historically, there has been huge (and disappointing) divergence between concepts and actual production variants. As anticipated, concepts of most OEMs featured EVs (dummy models) to play along with recent noise around EVs, but with no indication on pricing and other details. However, there were handful of launches that were relevant to medium-term volume/market share outlook of key listed auto companies. Key highlights Maruti Suzuki Maruti launched third generation Swift, which saw a big leap in terms of styling and features. Based on its Heartect platform (used in Baleno and Dzire), the petrol version is priced competitively at Rs 500k and diesel variant at Rs 600k (5-7% higher than outgoing model, but with much more features). It also launched an AGS (Automatic Gear Shift) variant. The Swift has been a very strong sub-brand, and was a best-seller for Maruti. However, over past couple of years, it has been outshone by other Maruti models namely Baleno, Vitara Brezza, and new Dzire (all of which are individually doing higher volumes than Swift despite their higher price point). Till 2 years back, Swift was growing at ~15% CAGR, but has de-grown by ~5-7% over last 3 years, as buyers moved on to Baleno. With this launch, we expect Swift volumes to recover, but also expect some cannibalisation of Baleno. Maruti is also expanding its SUV range, as it showcased a small SUV concept likely to be positioned below the Vitara Brezza. However, its Ciaz and Dzire could face competition from Toyota Yaris and new Honda Amaze respectively. Also, while Hyundai didn t showcase too many new models, it showcased the entire range of Kia models (across all segments) which showed Hyundai s aggressive intent with Kia brand Tata Motors Tata showcased its concept SUV, the H5X. The concept looked very attractive, and given its proportions, we reckon it will be positioned between Maruti Vitara Brezza and Hyundai Creta (both hugely successful models). The SUV carries Tata s latest Impact Design 2.0 which means it has a strong road presence and all the latest features. We ll wait to see how much of the styling the production variant can retain from the concept, but we highlight the production variant of Tata s compact SUV Nexon was very similar to its concept showcased at 2016 Auto Expo. Tata s SUV market share has recovered to 5% (from 2% last year), but it used to be 20% at peak Mahindra & Mahindra (M&M) M&M showcased the new Ssangyong Rexton to be launched in India with Mahindra badge. Media articles indicate a starting price of Rs 2 mn (ex-showroom) and will go on sale in Sep 2018 (around festive season). As a 7-seater, we believe, it will target the buyers of Toyota Fortuner, Ford Endeavour, etc. while also competing with the Toyota Innova Crysta on price. M&M has tweaked the frontal exteriors slightly to give it a distinct Mahindra look, and has worked on the ride and handling to make it better suited for Indian road conditions Two wheelers (2Ws) Focus was more on 125cc scooters (vs. the mainstay 110cc) along with premium bikes. In scooters, Hero MotoCorp showcased its Maestro Edge and Duet 125cc, while TVS Motor showcased the NTorq 125 with very attractive features. In premium motorcycles, Hero launched 200cc XPulse (in addition to recently launched 200cc XTreme), while TVS showcased Apache 310 RTR based on 310cc BMW sports bike (conceptualized/designed by BMW, but made by TVS). Like last time, Bajaj Auto and Royal Enfield did not participate in Auto Expo. 01

2 Our view As a central theme, going into upcoming safety norms, emission norms, and clear trend of premiumization, we continue to prefer auto ancillaries over auto OEMs. Our top picks continue to be Endurance Technologies, Motherson Sumi, Maruti Suzuki, Ashok Leyland and Bajaj Auto. In this note, we also roll forward our TP to FY20 for 3 companies Eicher Motors, Bharat Forge, and M&M. Our estimates and HOLD recommendation on each remain unchanged. Sector summary CMP TP FDEPS (Rs) PE (x) EV/ E (x) ROCE (%) Companies (Rs) (Rs) Reco FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E Amara Raja HOLD Ashok Leyland BUY Bajaj Auto 3,104 3,906 BUY Balkrishna Ind 1, HOLD Bharat Forge HOLD Eicher Motors 27,743 29,788 HOLD 993 1, Exide Inds HOLD Endurance Technologies 1,147 1,550 BUY Hero MotoCorp 3,546 4,258 BUY Mah & Mah HOLD Mahindra CIE BUY Maruti Suzuki 8,946 10,427 BUY Motherson Sumi BUY Suprajit Engg BUY Tata Motors BUY TVS Motor SELL Note: Prices as February 9,

3 PV segment OEMs have historically used Auto Expo for big launches small cars in 2012, sub-compact sedans in 2014, UVs in 2016; however, the launch pipeline this year was comparatively light. This was mainly because car makers are moving towards dedicated launches instead of the muddle of Auto Expo. For example, M&M is slated to launch 2 models next 12 months (a compact SUV and an MPV), and did not showcase either. Compact SUVs Tata Motors H5X and Kia SP concept Tata concept H5X was one of best products showcased at Expo. The SUV carries Tata s latest Impact Design 2.0, which means it has a strong road presence and all latest features. We ll wait to see how much of styling the production variant can retain from the concept, but we highlight that the production variant of Tata s compact SUV Nexon was very similar to its concept showcased at 2016 Auto Expo. Given its proportions, we reckon it will be positioned between the Maruti Vitara Brezza and Hyundai Creta (both hugely successful models). Kia Motors will mark its entry in India and showcased a concept SUV (first product it will launch) and also its entire international range. This highlights Hyundai s seriousness about Kia brand in India. The SP Concept is a neatly designed SUV with right proportions and could see a good impact if Hyundai can get India buyers convinced of Kia s similar low cost of ownership. Both models will compete with Hyundai Creta, Jeep Compass, etc. 3

4 Maurti Swift Maruti showcases 3 rd generation Swift (built on modern and lighter Heartect platform) with prices starting at Rs 4.99 lakh (ex-showroom, Delhi) upto Rs 7.96 lakh top-end variant. The top-end variant gets headlamps with projector lens LED DRLs, alloy wheels, new infotainment system and dual-pod instrument cluster. Deliveries of new Swift will commence later this month (Feb 2018); the car already commands waiting period of 6-8 weeks. Brand Swift is loved for its bold stance, strong shoulders and unmistakable road presence. The all-new Swift is built on Suzuki s HEARTECT platform for more space, strength, peppier performance and advanced safety Kenichi Ayukawa, MD and CEO Hyundai Elite i20 It is the first major upgrade after its launch in While majority of the design remains the same, the company has included many new features -- new cascading family grille, LED tail lamp graphics, and 7-inch touchscreen infotainment system. Engine options remain the same, 1.2-litre Dual VTVT Kappa petrol and 1.4-litre U2 CRDI diesel engines Hyundai Elite i20 Honda Amaze 4

5 Honda Amaze Honda had lined up launches across segments. The second generation Amaze gets a fresh design (looks much more appealing and different from other sub-compact sedans). Inside, it gets the new infotainment system and dual tone interiors. Honda has not revealed engine details for new Amaze yet and expects old variants to continue. Amaze will mainly take on hugely successful Maruti Dzire. The company has showcased a new CR-V, Accord, Civic, and Jazz refresh Toyota Yaris While most of OEMs are looking to add SUVs to their portfolio, Toyota will launch its mid-sized Yaris sedan (May 2018) to compete against Honda City and Maruti Ciaz. While Yaris is a global product, this sedan will mainly be sold in ASEAN and developing markets. While Yaris is slightly shorter than City and Ciaz, it is wider than others. It will be powered by 1.5-litre petrol engine with CVT option as well. Toyota Yaris Mahindra Rexton Mahindra Rexton M&M will launch Ssangyong Rexton with Mahindra badge this year. M&M has tweaked the frontal exteriors slightly to give it a distinct Mahindra look, and has worked on the ride and handling to make it better suited for Indian road conditions. As a 7-seater, we believe, it will target the buyers of the Toyota Fortuner, Ford Endeavour, etc. while also competing with Toyota Innova Crysta on price. Media articles indicate starting price of Rs 2 mn (ex-showroom) and it will go on sale in Sep 2018 (around festive season). 5

6 Scooters Both Hero and TVS have tried to gain share from Honda in 110cc scooters, but with little luck. However, they have launched a slew of models in 125cc space where they believe they can gain share from Honda, as customers upgrade to better performing scooter. Honda launched 5 th generation Activa 5G, however, it was very similar to its predecessor with few aesthetic changes. Hero Maestro Edge 125 & Duet 125 Both scooters are positioned to target a different set of customers (1) Maestro Edge for the new millennial with its aggressive design and sporty look (LED tail lamps, optional disc brake); (2) Duet more of a family vehicle. While Maestro gets alloy wheels, Duet gets body painted mirrors. Both scooters will have i3s (Idle-stop-start system) technology. TVS NTorq 125 The most adventurous of the lot, TVS NTorq boasts of higher power (9.3 bhp and 10.5 Nm of peak torque), digital speedometer, Bluetooth connectivity along with alloy wheels, LED lamps, disc brake, etc. TVS has priced new NTorq 125 aggressively at Rs 58,500 (ex-showrrom Delhi). 6

7 Motorcycle Premiumization the mantra Hero Xtreme 200R Hero has gotten aggressive in 200cc segment with 2 new launches -- Xtreme 200R & XPulse. The former marks its re-entry in premium commuter motorcycle segment (earlier Karizma). It boasts of new features LED DRL and alloy wheels. Honda X-Blade Honda has made another attempt to gain some share in fast-growing premium commuter segment with X-Blade 160. The motorcycle has an aggressive styling similar to its competitors and has an all-new LED headlamp cluster. Hero XPulse As per the company, XPulse is targeted at young and thrill-seeking riding enthusiasts who seek a comfortable and capable riding companion for leisure as well as adventure excursions. The new 200cc fuel injection engine delivers 18.4 PS power and 17.1 Nm torque. TVS Apache RTR 300 Launched ahead of the Auto Expo, Apache 310 RTR is based on BMW GTR 310 (co-developed by BMW and TVS Motors). 7

8 Interesting concept launches We list below a few concept vehicles which were heads turners. However, we highlight there is huge divergence between the concept and the actual production variant. Further, many OEMs showcased EVs (dummy models) to play along recent noise around EVs, with no indication on pricing and other details. Maruti Future S Tata Motors 45X Mahindra Stinger Hyundai Ioniq EV TVS Motor Creon EV Emflux One E-superbike 8

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