Sector Update | 23 March 2018
Automobiles
Continued demand momentum across segments
Discounts on CVs moderating
Our interactions with leading channel partners indicate continued demand momentum
across segments. This is supported by festive demand (Gudi
Padwa
and
Chaitra Navratri)
in
key northern, central and western markets in March 2018.
Mr Gopal Mahadevan,
CFO,
Ashok Leyland
said:
“Major states like UP and
Rajasthan, and certain parts
of Madhya Pradesh have
implemented overloading
norms, creating additional
demand for CVs.”
CVs:
CVs will continue to see healthy wholesales, on high base of last year, as demand
continues to outstrip supply. We also note sequential decline in discounts on CVs (1-
2% lower) for the second straight month in March 2018 (v/s 10-15% in February 2018).
PVs:
PV retails are healthy, led by MSIL. New
Swift
bookings are at ~95k units, with
average waiting period of ~3.5 months. The waiting period for
Baleno/Brezza
has
declined, with improving supply. MM’s retails are growing at 8-10% in rural regions.
2Ws:
Demand for 100-125cc motorcycles remains robust, with average retails growing
more than +15%. HMCL is witnessing strong sales in rural markets. TVSL has raised Star
City ES prices by INR500 while BJAUT has slashed Pulsar 150 prices by INR3k.
3Ws:
Demand for 3Ws is normalizing in Maharashtra (35% of passenger 3W market)
after fulfillment of pent-up demand post removal of cap on permit issuance.
We prefer PVs over 2Ws and CVs due to stronger volume growth and stable competitive
environment. Our top picks in Autos are MSIL and MSS among the large caps, and AL and
EXID among the midcaps.
Sequential reduction in CV discounts for second straight month
Mr RS Kalsi,
Executive Director,
Sales & Marketing,
Maruti Suzuki India
said:
“It is a feeling of déjà vu
with the Swift… The first
and second generations
were already bestsellers.
They had surpassed all our
forecasts. Historically, it has
been a model that’s been on
waitlist all throughout,
generation after
generation, even when one
generation was being
phased out for the next.”
Despite a high base (pre-buy due to BS 3 to BS 4 switch over), CVs will continue
to see healthy momentum in wholesales, as demand continues to outstrip
supply in key markets, partially led by short-supply of vehicles. Implementation
of trailer code in Rajasthan is also driving ‘pre-buy’ demand.
Strict vigilance on overloading of trucks in states like UP, Rajasthan, and Haryana
continues to drive healthy CV retails and demand for higher-tonnage trucks.
Leading channel partners are indicating further decline in average discount –
down 1-2% MoM in March after 10-15% MoM decline in February.
There has been no price hike till date in the quarter ending March 2018, apart
from a price increase of ~INR40k-45k towards complying with the regulatory
requirement of having air blowers in all new CVs as a standard fitment.
Initial booking trends for the recently-launched all new
Swift
hatchback remain
encouraging, with waiting period now inching to 3-3.5 months. The aggregate
bookings are now touching ~95k units, with ~40% for the AMT version.
With increasing supply, the average waiting period for the
Baleno
now stands at
5-6 weeks (v/s ~8 weeks earlier).
Non-Nexa models are witnessing healthy retail growth of 7-8%. Channel
partners in rural areas are indicating 10-12% retail growth.
New
Swift
bookings at ~95k units; waiting period at 3-3.5 months
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Deep Shah
(Deep.S@MotilalOswal.com); +91 22 6129 1533
Suneeta Kamath
(Suneeta.Kamath@MotilalOswal.com); +91 22 6129 1534
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
8 August 2016
1

Automobiles
TVSL raises Star City ES prices by INR500; targets two launches by Diwali
Mr Arun Siddharth,
VP – Marketing, Premium
2Ws, International
Business,
TVS Motors
said:
“The RR 310 is our halo
bike. The higher-priced
sports bike segment is still
very small but has huge
potential for growth. We
have announced that we
are planning to sell about
10,000 bikes in the first year
since launch and the
reception has been very
strong so far.”
The newly-launched
Apache RR310
continues to see healthy demand, with a
healthy waiting period. Channel partners indicate that the product is still in
short-supply, as availability is still less than half the dedicated quota.
TVSL has taken price increases of ~INR500 on
Star City
electric start variant in
March, following ~INR250 for mopeds, ~INR500 for
Scooty Pep,
~INR400 for
other scooters, ~INR350 for
Apache
and ~INR300 for motorcycles in February.
Channel partners are not witnessing cannibalization of
Jupiter
by
Ntorq,
as
Ntorq
is targeting youth in the 25-35 years age bracket.
The
Apache 200
racing variant is drawing strong response and inquiries.
Deliveries of new
Apache 160
are gradual.
TVSL is targeting to launch an electric scooter and an entry-level motorcycle (to
compete with
Spendor
and
HF Deluxe).
It is also launching
Wego Sport
by the
end of 1QFY19 and moped,
XL 100
electric start.
Robust demand for entry-level motorcycles; retails up 15%+ in key states
Mr Ashok Bhasin,
Head of Sales and
Marketing, HMCL
said:
“Rural market is on a good
recovery path and will
continue to contribute. We
only expect the growth
momentum to pick up
further.”
Demand for 100-125cc motorcycles remains robust, with average retail growth
of over 15% in key markets.
Strong cash flows in the hands of farmers due to better crop realizations in key
markets, led by Rajasthan and Gujarat, and festive demand related to
Gudi
Padwa
and
Chaitra Navratri
are aiding healthy retails.
Inquiries for HMCL’s recently-showcased
Passion XPro
and
Pro
have been
healthy. Other models too are doing well. However, demand for scooters is not
encouraging, despite aggressive promotional activities.
Economy motorcycle (economy + executive 100) segment sales grew 14.1% in
YTDFY18. The growth in key agricultural states like UP, Bihar, MP, Gujarat and
Rajasthan grew 27%, 22%, 23%, 9%, and 6%, respectively in 9MFY18.
Healthy response to
Thunderbird X
in urban areas; rural preference limited
As indicated by channel partners,
Royal Enfield
continues to see weak demand in
key states like Maharashtra, Karnataka, Kerala and Rajasthan.
Demand in key rural markets of Maharashtra is witnessing a decline of 15-20%
YoY, partly led by inauspicious days.
Festive freebies/discounts – BJAUT slashes
Pulsar 150
prices by 3k per unit
HMCL is offering cash discount of INR1,500 per unit on scooters while TVSL and
HMSI are not giving cash discounts on any models.
BJAUT is extending one-year free insurance on all products, as retails are
relatively mild. Further, it has slashed
Pulsar 150
prices by ~INR3k per unit.
However, BJAUT has indicated an average price hike of INR500-2k for models
above 150cc in April.
On the PV front, MSIL and MM are offering incentives in the form of exchange
bonus across models (except new launches) in the range of INR10k-35k per unit.
23 March 2018
2

Automobiles
Momentum in 3W demand normalizes
3W demand has weakened in March, following robust growth in the preceding
six months, as demand is normalizing in Maharashtra (35% of passenger 3W
market in YTDFY18) after fulfillment of initial pent-up demand post removal of
cap on permit issue.
Demand for cargo 3Ws remains in steady state.
Valuation and view
We prefer 4Ws over 2Ws and CVs due to stronger volume growth and stable
competitive environment.
While we expect 2W volumes to benefit from rural recovery in the near term,
competitive intensity remains high due to changing customer preferences.
Our top picks in Autos are MSIL and MSS among large caps, and AL and EXID
among midcaps.
We also consider MM as the best bet on rural market recovery.
In 2Ws, we have
Buy
on BJAUT and EIM, and
Neutral
on HMCL and TVSL.
Exhibit 1: Comparative
valuations
CMP
INR
Auto OEM's
Bajaj Auto
Hero MotoCorp
TVS Motor
M&M
Maruti Suzuki
Tata Motors
Ashok Leyland
Eicher Motors
Auto Ancillaries
Bharat Forge
Exide Industries
Amara Raja Batt.
BOSCH
Endurance Tech
Motherson Sumi
Mahindra CIE
2,790
3,415
609
733
8,612
331
142
27,919
690
216
770
17,307
1,177
306
207
Buy
Neutral
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Rating
TP
(INR)
4,060
3,986
735
912
10,918
518
159
34,764
880
286
1,000
21,951
1,540
437
303
P/E (x)
FY19E
15.9
17.1
24.5
16.3
23.4
5.7
22.5
26.5
25.8
21.9
22.6
29.1
30.5
24.5
16.9
FY20E
13.7
16.1
18.1
14.8
18.3
5.6
18.2
20.9
19.6
17.8
19.2
23.7
22.9
17.5
13.6
EV/EBITDA (x)
FY19E
11.3
10.6
15.6
12.7
16.5
2.5
11.5
21.5
15.1
12.7
11.5
17.1
14.9
8.9
9.0
FY20E
9.4
9.7
11.5
11.2
13.3
2.3
9.5
17.2
12.0
10.7
9.7
13.9
11.8
6.3
7.3
RoE (%)
FY19E
25.4
32.0
35.1
14.8
22.7
24.3
24.9
34.6
23.5
14.0
18.0
17.9
23.9
25.4
11.7
FY20E
26.3
29.9
35.5
15.0
24.4
19.7
26.4
33.2
25.5
15.3
18.3
19.6
26.5
29.3
12.8
Div Yld (%)
FY19E
2.7
2.8
0.7
1.4
1.3
0.1
1.6
0.6
0.8
1.0
0.7
1.2
0.6
1.0
0.0
FY20E
3.0
3.1
0.8
1.4
1.6
0.1
1.8
0.7
0.9
1.5
0.8
1.4
1.1
1.5
0.0
EPS
CAGR (%)
FY18-20E
15.8
7.2
56.3
13.2
30.8
44.4
24.9
26.9
32.1
22.9
19.0
26.2
35.0
47.0
25.5
23 March 2018
3

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
Automobiles
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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23 March 2018
4