auto update march

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Hero Honda: Run rate maintained

HH’s volumes, at 472,000, rose 17% Y-o-Y and 1% M-o-M respectively.

Sequentially, sales are positive considering historical trend. The company will drop

the Honda brand from its flagship models i.e., Passion and Splendor by June as

part of a rebranding exercise and to carve out an independent identity of the Hero

Group at the earliest.

Mahindra & Mahindra: Tractors drive growth

UV sales and pick up sales remained steady (up 11% Y-o-Y and 13% Y-o-Y),

whereas, even considering seasonality, Mahindra & Mahindra’s (M&M) sales were

in line M-o-M. Tractors continued to drive overall growth (up 37% Y-o-Y, down

7% M-o-M) indicating strong underlying demand and partially negating the

current macro headwinds which the industry is facing.

Maruti Suzuki: Continues to operate at 100%

Sales were strong across all segments; hatchback (A2) and sedan (A3) sales

continued to register stronger volumes, up 19% Y-o-Y and 27% Y-o-Y,

respectively. Maruti Suzuki (MSIL) will further increase production capacity to 1.4

mn units w.e.f. April 2011 aided by another 250,000 units in H2FY12. During the

month, the company launched two models—diesel variant of SX4 and a new

premium model Kizashi in the A4 segment.

Tata Motors: CV outperforms PV growth sequentially

MHCV sales (up 1% Y-o-Y, 7% M-o-M) were marginally disappointing on a yearly

basis, but positive on sequential basis. LCV sales (up 8% Y-o-Y, down 1% M-o-M)

were also below expectations, indicating that Tata Motors (TTMT) could havefaced capacity constraints rather than demand slump. On the passenger car front,

Indica (compact segment) sales continued to skid (down 13% Y-o-Y) while the

Indigo range (sedan segment) reported yearly sales growth of 22% Y-o-Y. Nano

sales have revived on the back of various promotional schemes.

Outlook: Volume growth to moderate

Going forward, we expect volume growth to moderate. Underlying growth drivers

remain upbeat. However, current headwinds with respect to low IIP growth,

looming liquidity crisis, rising interest rates, rising inflation and fuel costs could

dampen sentiments, proving negative for the sector. Tractors demand is least

affected by rising interest rates. Also, a good rabi crop augurs well for tractor

demand. We have ‘BUY’ recommendation on M&M and TTMT.

March 1, 2011

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Sachin Gupta

+91-22-2286 3472

[email protected]

Chetan Vora

+91-22-6620 3101

[email protected]

India Equity Research | Automobiles Sales Update

AUTOMOBILES

Volume growth sustained

Units Feb-11 Feb-10 % Change YTD FY11 YTD FY10 % Change

Hero Honda 472,000 402,096 17.4 4,886,537 4,225,494 15.6

Mah. & Mah. 52,419 41,815 25.4 533,347 425,051 25.5

Maruti Suzuki 111,645 96,650 15.5 1,149,053 923,242 24.5

Tata Motors* 77,543 69,427 11.7 719,903 571,185 26.0

Sales performance

*Excluding Fiat sales



2 Edelweiss Securities Limited

Auto Sales Update

Hero Honda: Run rate maintained

• HH’s volumes, at 472,000, rose 17% Y-o-Y and 1% M-o-M respectively. Sequentially,

sales are positive considering historical trend.

• The company will drop the Honda brand from its flagship models i.e., Passion and

Splendor by June as part of a rebranding exercise and to carve out an independent

identity of the Hero Group at the earliest.

• Hero Investments, which has controlling stake in Hero Honda, will pledge its shares

in Hero Honda with institutional investors to raise about INR 35 bn in short-term

debt to buy Honda Motor's stake in the joint venture. The shares will be kept as

collateral till the Hero Group retires the debt, which will be raised through non-

convertible debentures (NCDs) expiring in three months.

Table 1: Hero Honda

Source: Company

Mahindra & Mahindra: Tractors drive growth• UV sales and pick up sales remained steady (up 11% Y-o-Y, 13% Y-o-Y) whereas

even considering seasonality, sales were in line M-o-M. Tractors continued to drive

overall growth (up 37% Y-o-Y, down 7% M-o-M) indicating strong underlying

demand and partially negating the current macro headwinds which the industry is

facing currently.

• M&M is planning to enter the micro irrigation business by acquiring 38% stake in

EPC Industries for a consideration of INR 4.33 bn.

• MNAL (Mahindra Navistar Automotive; JV between M&M and Navistar) which is

already present in the MHCV space through trucks, is contemplating entering inter-

city luxury coach and low floor city bus segments by launching them in 2012.

• The company will set up its automotive plant in Tamil Nadu, for which the

government has allocated land and a structured package of incentives. M&M is

entailing a capex of INR 18 bn towards a test track facility, an automotive plant at

Cheyyar, and a R&D centre near Chennai.

Table 2: Mahindra & Mahindra

Source: Company

Volume (units) Feb-11 Feb-10 % Change Jan-11 % Change YTD FY11 YTD FY10 % Change

Total 472,000 402,096 17.4 466,524 1.2 4,886,537 4,225,494 15.6


Utility vehicles 14,288 12,813 11.5 16,088 (11.2) 152,903 136,468 12.0

4 Wheeler pickups 9,903 8,733 13.4 10,193 (2.8) 94,068 66,408 41.7

LCVs 900 856 5.1 1,023 (12.0) 10,198 8,845 15.3

Logan 1,151 537 114.3 1,120 2.8 8,991 4,981 80.5

3 Wheelers 5,725 3,641 57.2 6,177 (7.3) 56,373 40,067 40.7

Total automotive(domestic)

31,967 26,580 20.3 34,601 (7.6) 322,533 256,769 25.6

Exports 1,411 1,314 7.4 2,117 (33.3) 17,008 9,813 73.3

Total automotive 33,378 27,894 19.7 36,718 (9.1) 339,541 266,582 27.4

Tractors

Domestic 18,134 13,141 38.0 19,430 (6.7) 183,057 150,594 21.6

Exports 907 780 16.3 1,069 (15.2) 10,749 7,875 36.5

Total tractors 19,041 13,921 36.8 20,499 (7.1) 193,806 158,469 22.3

Grand total 52,419 41,815 25.4 57,217 (8.4) 533,347 425,051 25.5



Edelweiss Securities Limited 3

Auto Sales Update

Maruti Suzuki: Continues to operate at 100%

• MSIL’s sales were strong across all segments; hatchback (A2) and sedan (A3) sales

continued to register stronger volumes, up 19% Y-o-Y and 27% Y-o-Y, respectively.

The company continues to operate at full capacity. Capacity will be further increased

to 1.4 mn units w.e.f. April 2011 aided further by another 250,000 units in H2FY12.

•

Exports, as expected, have taken a back seat (down 15% Y-o-Y, up 8% Y-o-Y) asthe company is looking out for non European avenues to enhance sales.

• During the month, MSIL launched two models—diesel variant of SX4 and new

premium model Kizashi in the A4 segment.

• MSIL is developing a global model at its Manesar R&D facility centre that will be

launched not only in India but also in Europe, Japan, among other countries.

• Volkswagen (VW), which holds 19.5% stake in Suzuki Motor Corp. (parent company

of MSIL) has identified A-star to be the global car for marketing and selling in

European markets through its network. The news, however, as of now stands

unconfirmed.

Table 3: Maru ti Suzuki

Source: Company


Domestic sales 101,543 84,765 19.8 100,422 1.1 1,022,315 791,260 29.2

Export sales 10,102 11,885 (15.0) 9,321 8.4 126,738 131,982 (4.0)

Total sales 111,645 96,650 15.5 109,743 1.7 1,149,053 923,242 24.5

M800 2,712 3,178 (14.7) 1,876 44.6 23,570 30,266 (22.1)

Omni/ Eeco 13,536 10,668 26.9 13,945 (2.9) 146,210 90,450 61.6

Alto/ Wagon R/

Zen/

Swift/ A Star

72,090 60,380 19.4 72,479 (0.5) 730,092 578,427 26.2

SX4/ Dzire 13,024 10,254 27.0 11,930 9.2 117,372 88,862 32.1

Kizashi 25 - NA - NA 25 - NA

Total cars 101,387 84,480 20.0 100,230 1.2 1,017,269 788,005 29.1MUV-Gypsy/Vitara 156 285 (45.3) 192 (18.8) 5,046 3,255 55.0

Total domestic sal 101,543 84,765 19.8 100,422 1.1 1,022,315 791,260 29.2

Exports 10,102 11,885 (15.0) 9,321 8.4 126,738 131,982 (4.0)

Total sales 111,645 96,650 15.5 109,743 1.7 1,149,053 923,242 24.5



4 Edelweiss Securities Limited

Auto Sales Update

Tata Motors: CV outperforms PV growth sequentially

• On the commercial vehicles (CV) front, MHCV sales (up 1% Y-o-Y, 7% M-o-M) were

marginally disappointing on a yearly basis, but positive on sequential basis. LCV

sales (up 8% Y-o-Y, down 1% M-o-M) were also below expectations, indicating that

the company could have faced capacity constraints rather than demand slump.

•

On the passenger car front, Indica (compact segment) sales continued to skid (down13% Y-o-Y) while the Indigo range (sedan segment) reported yearly sales growth of

22% Y-o-Y. Nano sales have revived on the back of various promotional schemes,

easy financing availability and making it available through out the country, thereby

enabling it to clock volume of 8,262 units.

• TTMT will be setting up LandRover plant in India (probable announcement in May) to

assemble Rover’s Freelander brand. The rationale is to bring down the cost of the

model which is currently being imported at INR 3.4 mn.

• The company announced that new Indica (yet to be launched) will become India’s

most efficient car with an all new BS4 compliant, CR4 diesel engine. The new engine

will pack in 32% increase in power, 65% increase in torque along with 46%

improvement in fuel efficiency.

Table 4: Tata Motors

Source: Company


Domestic

M&HCV 17,632 17,441 1.1 16,487 6.9 168,730 134,290 25.6

LCV 23,498 21,764 8.0 23,776 (1.2) 228,240 196,080 16.4

UV 4,637 4,005 15.8 4,462 3.9 37,460 29,619 26.5

Cars 19,010 18,875 0.7 19,047 (0.2) 171,636 155,520 10.4

Nano 8,262 4,105 101.3 6,703 23.3 61,725 25,640 140.7

Total domestic 73,039 66,190 10.3 70,475 3.6 667,791 541,149 23.4

Exports 4,504 3,237 39.1 4,948 (9.0) 52,112 30,036 73.5

Total 77,543 69,427 11.7 75,423 2.8 719,903 571,185 26.0



Edelweiss Securities Limited 5

Auto Sales Update

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Cove r age g r oup ( s ) o f s t ocks by p r im a r y ana lys t ( s ) : Au t o & Au t o Componen t s

Auto: Ashok Leyland, Bajaj Auto Ltd, Exide India, Escorts, Hero Honda, Mahindra & Mahindra, Maruti Suzuki, Tata Motors

EW indices Recent Research

28-Feb-11 utomobiles Budget: Neutral tomarginally positive;Sector Update

15-Feb-11 Escorts Higher raw material costsdents the margin;

Result Update

113 Hold

11-Feb-11 Tata Motors Inline; JLR leads the way;Result Update

1143 Buy

09-Feb-11 Mahindra & Mahindra

Strong show continues;Result Update

655 Buy

Date Company Title Price (INR) Recos

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Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 116 45 12 176

* 3 stocks under review

Market Cap (INR) 110 53 13

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce depreciate more than 5% over a 12-month period

Rating Expected to

800

1,000

1,200

1,400

1,600

25-Feb-10 25-Aug-10 25-Feb-11

EW Auto Index Nifty

auto update march

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