Sector Update | 29 July 2019
Automobiles
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Recovery still elusive; Inventory correction a priority
Volume base for PVs normalizes, but over 20% decline still expected
Our interaction with leading PV/2W/CV channel partners still indicates no sign of demand
recovery at the retail level, even as inquiries to sales remain tepid. The production cut
since Mar’19 has been lagging the decline in retail, resulting in higher inventory levels.
2Ws: Despite the production cut, inventory remained high due to weak demand. We
expect BJAUT wholesales to decline ~3% (~1% growth for 2W volumes). According to
our estimates, TVSL volumes should decline ~8% YoY, HMCL’s wholesales should skid
~11% YoY and RE dispatches should decline ~17.5% YoY to 57k units.
Mr. R S Kalsi, Senior Executive
Director (Sales & Marketing) –
Maruti Suzuki, said,
“There is no point pushing
stocks to the dealerships when
there is no demand in the
market. We will take a call
regarding production after
taking a look at the market
situation. We have an inventory
of a little over a month with our
dealers since retail sales are
under pressure.”
The PV demand trend has been weak across major markets with inquiries to sales
conversion remaining weak for existing models. The average inventory levels for
MSIL/TTMT are at 30-35 days, while for MM, it remains higher at 35-40 days. MSIL’s
volumes should decline ~25%, whereas MM’s UV (incl. pick-ups) volumes are expected
to drop ~11%. TTMT’s PV volumes should decline ~29%.
CV retails too were weak across regions as demand from all major end-user segments
remained tepid. This resulted in the average discount per unit inching up further. We
expect CV wholesales for AL to decline ~20% (~27% decline for M&HCVs), while TTMT’s
CV wholesales should decline 19% YoY due to continued inventory correction.
We prefer 4Ws over 2Ws and CVs due to (a) limited impact of BS6, (b) stable competitive
environment, and (c) lesser threat of EVs. Our top picks in autos are MSIL and MSS among
large caps and AL & ENDU among midcaps.
MoM
Jun-19
142,974
75,641
36,765
33,094
51,774
14,406
23,915
38,321
7,591
5,862
616,526
404,624
351,291
53,333
229,225
175,399
12,810
297,102
58,339
4,569
8,960
Residual
Monthly
Gr. (%)
Run rate
-7.1 150,525
8.1
81,319
-2.5
44,926
2.0
28,837
-4.9
64,160
-5.6
20,085
-3.5
25,466
-4.4
45,551
-8.2
11,999
-2.9
6,611
-0.3 668,697
1.9
434,930
4.0
373,600
-9.4
61,330
-1.0 249,457
5.9
185,473
3.2
18,996
3.6
354,729
Exhibit 1: Snapshot of volumes for Jul-19
YoY
Company Sales
Maruti Suzuki
Mahindra & Mahindra
UV (incl. pick-ups)
Tractors
Tata Motors
HCV's
LCV's
CV's
Cars
UV's
Hero MotoCorp
Bajaj Auto
Motorcycles
Three-Wheelers
Domestic
Exports
Ashok Leyland
TVS Motor
Eicher Motors
Royal Enfield
VECV
Escorts
Jul-19
123,600
62,600
35,750
20,000
44,250
12,500
19,500
32,000
6,750
5,500
605,000
388,500
335,000
53,500
220,000
168,500
12,200
295,500
57,000
4,513
5,150
Jul-18
164,369
69,878
40,160
22,679
56,867
16,143
23,535
39,678
11,483
5,706
679,862
400,343
332,680
67,663
237,511
162,832
15,199
321,179
69,063
5,964
5,610
YoY (%)
chg
-24.8
-10.4
-11.0
-11.8
-22.2
-22.6
-17.1
-19.4
-41.2
-3.6
-11.0
-3.0
0.7
-20.9
-7.4
3.5
-19.7
-8.0
-17.5
-24.3
-8.2
MoM
(%) chg
-13.6
-17.2
-2.8
-39.6
-14.5
-13.2
-18.5
-16.5
-11.1
-6.2
-1.9
-4.0
-4.6
0.3
-4.0
-3.9
-4.8
-0.5
-2.3
-1.2
-42.5
FY20 YTD FY19 YTD (%) chg
526,194
280,639
150,177
106,350
181,795
51,555
80,732
132,287
24,661
24,847
2,447,920
1,635,674
1,417,627
218,047
917,153
718,521
51,808
1,218,695
240,589
17,844
26,201
654,848
310,762
161,698
123,463
233,279
69,435
93,458
162,893
46,056
24,330
2,784,811
1,626,984
1,362,644
264,340
926,176
700,808
57,326
1,249,453
294,424
22,291
30,104
-19.6
-9.7
-7.1
-13.9
-22.1
-25.8
-13.6
-18.8
-46.5
2.1
-12.1
0.5
4.0
-17.5
-1.0
2.5
-9.6
-2.5
-18.3
-19.9
-13.0
FY20
estimate
1,730,396
931,190
509,582
337,045
695,079
212,232
284,462
496,694
120,653
77,732
7,797,493
5,115,115
4,406,428
708,687
2,912,811
2,202,304
203,779
4,056,524
806,105
-2.4
70,689
71,531
-2.0
6,711
93,520
-3.0
8,415
Source: Company, MOFSL
Jinesh Gandhi - Research analyst
(Jinesh@MotilalOswal.com); +91 22 6129 1524
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
28 June 2018
1

Automobiles
Exhibit 2: Comparative Valuation
Auto OEM's
Bajaj Auto
Hero MotoCorp
TVS Motor
M&M
Maruti Suzuki
Tata Motors
Ashok Leyland
Eicher Motors
Escorts
Auto Ancillaries
Bharat Forge
Exide Industries
Amara Raja Batteries
BOSCH
Endurance Tech
Motherson Sumi
Mahindra CIE
CEAT
428
182
650
14,811
898
108
177
832
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Buy
556
269
715
17,214
1,329
150
262
1,126
17.6
17.5
21.2
28.3
22.5
19.7
11.6
13.7
16.1
15.7
18.8
23.7
18.9
14.8
10.1
10.9
10.1
9.5
10.4
19.2
9.5
6.9
7.2
3.7
9.4
8.5
9.2
15.4
8.1
4.9
5.8
3.9
19.6
13.5
14.9
18.2
20.3
15.2
12.6
8.6
18.8
13.7
15.1
21.8
21.0
18.7
12.8
10.1
1.5
1.8
1.2
1.2
1.1
1.4
0.0
1.5
1.5
1.8
1.3
1.4
1.3
1.8
0.0
1.6
9.6
13.3
10.4
7.4
14.6
19.6
10.0
9.7
Source: MOFSL
CMP
INR
2,489
2,404
360
553
5,558
138
72
16,403
471
Rating
Neutral
Neutral
Neutral
Buy
Buy
Neutral
Buy
Buy
Neutral
TP
(INR)
2,900
2,636
425
773
6,950
146
106
22,724
520
P/E (x)
FY19E FY20E
15.1
13.8
15.2
21.8
13.6
24.5
13.6
12.0
20.7
9.8
13.5
17.8
12.9
19.3
9.0
13.4
17.4
9.9
EV/EBITDA (x)
FY19E FY20E
9.9
8.3
8.6
10.7
9.9
13.5
3.6
5.7
16.6
-0.6
7.4
9.0
9.7
10.4
3.1
6.5
13.9
-0.8
RoE (%)
FY19E FY20E
20.9
20.7
23.7
21.6
12.0
13.8
5.6
20.4
22.4
14.9
24.6
22.4
11.3
16.4
7.9
17.3
22.7
13.0
Div Yield (%) EPS CAGR. %
FY19E FY20E
FY18-20E
2.6
2.8
4.5
3.7
1.0
1.8
2.2
0.2
4.8
0.7
0.6
4.0
1.1
1.8
2.5
0.2
4.8
0.8
0.7
2.6
19.6
0.0
7.8
LTP
-12.2
7.6
-5.7
29 July 2019
2

Automobiles
NOTES
29 July 2019
3

Automobiles
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In
case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take appropriate measures to make the recommendation consistent
with the investment rating legend.
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past 12 months.
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MOFSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOFSL has incorporated a Disclosure of Interest Statement in this
document. This should, however, not be treated as endorsement of the views expressed in the report. MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of
this report should be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes
(i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not considered in above disclosures. Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary
investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not
considered in above disclosures.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole,
to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in
nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy,
completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or
other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific
recommendations and views expressed by research analyst(s) in this report.
Disclosures:
Disclosure of Interest Statement
Analyst ownership of the stock
Companies where there is interest
No
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOFSL or its associates
maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views.
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This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL & its
group companies to registration or licensing requirements within such jurisdictions.
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who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S:
Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOFSL is not a registered
investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts,
any brokerage and investment services provided by MOFSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-
6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to
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(the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-
dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule
2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
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Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be
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Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult
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account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in
this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in
publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and
may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident
of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The
securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its
directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person
accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such misuse
and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.
CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate
Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management
Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and
IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.
Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to
market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.
29 July 2019
4