Automobiles: 2Ws (especially M/C) to remain under pressure due to rural slowdown

Automobiles

Apr-15 Sales Estimates

Demand recovery to continue for M&HCVs

2Ws (especially M/C) to remain under pressure due to rural slowdown

Sector Update | 28 April 2015

Automobiles | Update

“SIAM

(Society of Indian

Automobile Manufacturers)

is forecasting a growth of 6-

8%; that may prove to be

accurate. I expect Maruti

Suzuki to do better than the

market. My personal view is

we should grow in double

digit”,

says RC Bhargava,

Chairman, MSIL.

We interacted with the industry participants to get an update on expected sales trend for

the month of Apr-15 for our auto coverage universe. Key highlights:

In PVs, demand momentum to be robust for PV with higher inquiries leading to

healthy conversions. Discounts to have moderated for players like MSIL, especially in

petrol segment.

Entry level segment is expected to remain weak. However, new launches are getting

good response and remains key driver of demand. Going ahead with strong launch

pipeline for most of players we expect demand momentum in PV to further pick up.

4W inventory levels are at 3-4 weeks for most of the companies in 4Ws, which went

down due to seasonally strong March, it is expected that inventory will go back to 4-5

weeks during the current month.

In 2Ws, domestic demand momentum is expected to have picked up till 21 April (due

to Akshay Tritiya), but slowdown in rural demand to have affected entry level segment

of motorcycle. In urban area, demand momentum continues to remain strong for

Scooters.

2W inventory levels are at 5-6 weeks for most of the players, except 6-7 weeks for

Hero MotoCorp.

Improving utilization and lower input costs are easing pressure on profitability for

fleet operators. M&HCVs would continue to see recovery on low base of last year,

driven by initial round of replacement demand, although fleet operators are yet to

expand their fleet. While LCVs demand remains under pressure, pace of decline has

slowed down considerably. We expect LCVs to witness recovery during 1HFY16.

Our top-picks are MSIL, BJAUT and TTMT in large caps, and EIM and AL in mid-caps.

Comparative valuation

Auto OEM's

Ba ja j Auto

Hero MotoCorp

TVS Motor

M&M

Ma ruti Suzuki

Ta ta Motors

As hok Leyl a nd

Ei cher Motors #

Auto Ancillaries

Bha ra t Forge

Exi de Indus tri es

Ama ra Ra ja Ba tteri es

CMP * Rating

(INR)

1,991 Buy

2,407

2,324 Buy

3,079

228 Buy

301

1,168 Neutra l 1,246

3,647 Buy

4,617

517 Buy

722

66 Buy

14,785 Buy 18,453

1,180

171

792

Buy

1,619

237

1,195

P/E (x)

FY16E

FY17E

15.9

13.2

14.9

12.2

19.4

13.3

15.9

12.5

20.3

15.8

7.4

6.4

18.0

10.6

35.7

21.2

24.9

19.2

24.5

18.2

15.7

16.6

EV/EBITDA (x)

FY16E

FY17E

10.4

8.4

10.1

8.1

12.0

8.2

13.9

11.7

10.5

8.6

3.0

2.4

8.9

5.7

20.7

12.9

13.7

11.8

13.9

10.5

9.5

10.0

RoE (%)

FY16E

FY17E

31.9

33.4

44.2

44.9

29.7

33.6

15.8

16.1

19.3

21.2

24.0

22.1

18.3

26.5

39.2

46.3

29.6

16.3

29.0

31.0

17.3

33.5

RoCE (%)

FY16E

FY17E

43.6

45.0

63.5

64.6

35.3

41.8

16.9

17.9

25.9

28.3

26.2

25.5

18.4

27.4

43.2

54.4

29.7

22.9

40.9

33.4

24.2

45.4

Jinesh Gandhi

(Jinesh@MotilalOswal.com); +91 22 3982 5416

Jay Shah

(Jay.Shah@MotilalOswal.com); +91 22 3078 4701

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Bloomberg, Thomson Reuters, Factset and S&P Capital.

28 April 2015

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Automobiles | Update

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