Sector Update

Automobiles
Trend reversal unlikely

Summary
Sector: Automobile
Š Commercial vehicle (CV) and tractor players are expected to perform better m-o-m due to seasonality
View: Positive and pre-buying ahead of implementation of BS-VI Phase 2 norms.
Š No material trend reversal is expected in rural sales, export sales and entry-level product segment.
Š Maruti is expected to report a m-o-m decline in volumes due to production constraints.
Coverage universe
Š Preferred Picks –
CMP
Company Reco PT (Rs) OEMs: Ashok Leyland, M&M, Maruti, TVS Motors and Tata Motors.
(Rs)
Auto Ancillaries: Amar Raja Batteries, Bosch, Greaves Cotton, Lumax Auto Technologies,
Alicon Castalloy
670 BUY 1,159 Schaeffler India and Gabriel India.
Limited #

Amara Raja Batteries 557 BUY 696 A tale of two halves: In March, retail sales is assumed to be mixed bag as the retail sales was muted
during first week of the month due to inauspicious Holashtak (a few days before Holi) and retail
Apollo Tyres 307 BUY 372 sales are expected to be relatively better in the last 8-10 days of the month due to festive season
(Gudi Padwa, Navratri). Besides fear of price hikes from April 2023 would also have promoted for
Ashok Leyland 135 BUY 181 preponement of purchase decision in March. According to dealers, despite marriage season the
retail demand was also affected by the unseasonal rainfall in many parts of the country. Further the
Bajaj Auto 3,806 BUY 4,151 wholesales volume would have been expected to be driven more by dealer inventory management
than retail demand, ahead of implementation of BS-VI phase 2 norms from April 2023.
Balkrishna Industries 1,937 Hold 2,163
Š Rains ruining rural demand: Unseasonal rainfall and storms has impacted the rural sentiments
Bosch BUY 19,795 and standing crops in many regions. Based on the media reports, the unseasonal rains has
18,322
damaged standing crops in the central, northern, and southern parts of the country. Even the
Eicher Motors 2,886 BUY 3,579 undamaged crop may come in the market with a discount on fear of deterioration of the quality
of crop. This could adversely affect rural sentiments and would delay the recovery in entry level
Escorts Kubota 1,843 Positive 2,278 category if relevant government support would not reach on time.
Š Price hikes from April 2023: It was anticipated a price hike across the category on implementation
Exide Industries $ 172 BUY 215
of BS-VI phase 2 norms from April 2023 and most of the players have indicated for the same.
Gabriel India 134 BUY 217 Effective from April 2023 (1) TML has announced a price hike by 5% in CV segment (2) Hero
MotoCorp has announced for a price hike of up to 2% (3) MSIL has indicated for a price hike but has
GNA Axles 812 BUY 1,121 to announce the quantum yet.
Š Competition in entry-level two-wheeler segment: Amidst weak sentiments in entry level segment,
Greaves Cotton 126 BUY 183 Honda Motorcycles (HMSI) has introduced 100 cc motorcycle – Shine 100. HMSI has been a market
leader in scooter segment and has been lagging in motorcycle segment, given HMSI enjoys
Hero Motocorp 2,308 BUY 3,006
~48% market share in domestic scooter segment and has ~16% mkt share in motorcycle segment.
Lumax Auto With Shine 100, HMSI targets to expand its market share in the overall motorcycle segment. The
276 BUY 288
Technologies# production of the motorcycles will begin in April, and deliveries will begin in May. The company
M&M @ $ 1,138 BUY 1,550
has set a sales target of 3,00,000 units of Shine 100 in the first year. BAL and Hero MotoCorp
would find a competitive product in entry level segment if Shine 100 cc would get strong response
Mahindra CIE in the market. In Q3FY23, Hero MotoCorp has 55% and BAL has 35% mkt share in entry level
341 Positive 457
Automotive motorcycle segment.
Maruti Suzuki 8,274 BUY 10,965 Sector view

Ramkrishna Forgings 276 BUY 329

Volume performance in Q4FY23 has been expected to impact due to dealer inventory management
ahead of implementation of BS-VI phase-2 norms from April. Urban demand has recovered well and
Schaeffler India 2,799 BUY 3,328 the demand for premium segment is continuing to be high, while rural uptick is still challenging. With
high base and regularise economic activities, auto sub-segments are expected to register normalize
Sundram Fasteners # 982 BUY 1,110 growth in line with macros. In broader terms the automobile sector is expected to remain in a cyclical
upturn phase in the medium term. In light of implementation of BS-VI phase 2 norms, the prices hike
Suprajit Engineering # 336 BUY 403 announcements so far has been in in line with expectations. Given the current performance is largely
driven by the improvement in urban demand the structural uptick would be more visible on recovery
Tata Motors # 412 BUY 516 in rural demand. Unseasonal rainfall may delay the recovery in entry-level segment in near term. A
focused and balanced approach towards EV projects is helping the legacy players in building up a
TVS Motors $ 1,046 BUY 1,303
markable presence in EV segment as most of the listed OEMs are preparing vigorous plans for EV
VST Tillers and segment, which can survive even on withdrawal of the subsidy support. Export volumes are expected
2,300 Neutral 2,445
Tractors Limited to remain steady in the near term and likely to improve from Q1FY24 onwards.
@ MM & MVML; # Consolidated;
Preferred picks: In the OEM space we largely prefer four-wheeler over two wheelers as two-wheeler
$ core business valuation; UR Under Review
Source: Company data, Sharekhan estimates space is still at the improvement stage. Ashok Leyland is expected to be a beneficiary of the ongoing
upsurge in CV segment. While historically M&M’s growth was largely driven by the tractor segment,
however now the automotive segment is also contributing significant portion to the operating
performance. Maruti is expected to regain its market share on the successful launch of its new
Price chart products. Despite weakness in export volume, we believe increasing traction in its EV business augurs
180.0 well for TVS Motors. Tata Motors is assumed to register improvement in all three of its key segments
(domestic PV, CV and JLR) on improvement in semiconductor chip supplies. we like Bosch due to its
160.0
technological leadership and rise in content per vehicle on implementation of new emission norms.
140.0 Amara Raja is expected to be a key beneficiary of improvement in replacement demand in battery
120.0 segment and probable value unlocking in its EV related projects. The performance of Greaves Cotton
in expected to improve on revival of its EV business. Lumax Auto Technologies is expected to benefit
100.0 from its new acquisition and likely increase in its revenue mix. Schaeffler India is improving its export
Jan-21
Mar-21

Mar-23
Feb-22

Dec-22
Nov-21

Jul-22
Apr-22
Jun-21
Aug-21

Oct-22

revenue mix and increasing localisation to improve overall profitability. We like Gabriel India due to
its focus on EV projects and inorganic growth opportunity.
Nifty 50 Nifty Auto
Key risks
Source: NSE India, Sharekhan Research
Our forecasts can be affected if semiconductor chips shortage (in premium segment) and geopolitical
situation aggravates or gets delayed along with deterioration in macros.

March 27, 2023 1

 Sector Update
Valuation
EPS P/E (x)
Company CMP Reco PT (Rs)
FY22 FY23E FY24E FY22 FY23E FY24E
Alicon Castalloy Limited # 670 BUY 1,159 15.0 34.6 59.7 44.7 19.4 11.2
Amara Raja Batteries 557 BUY 696 29.9 36.8 44.9 18.6 15.1 12.4
Apollo Tyres 307 BUY 372 10.1 15.4 23.8 30.2 20.0 12.9
Ashok Leyland 135 BUY 181 1.8 3.3 6.6 73.1 41.0 20.6
Bajaj Auto 3806 BUY 4,151 162.6 197.2 225.8 23.4 19.3 16.9
Balkrishna Industries 1937 Hold 2,163 73 61 76 26.5 31.6 25.5
Bosch 18322 BUY 19,795 413 491 644 44.4 37.3 28.4
Eicher Motors 2886 BUY 3,579 61 103 122 47.0 28.0 23.7
Escorts Kubota 1843 Positive 2,278 73.0 58.7 75.4 24.6 30.5 24.4
Exide Industries $ 172 BUY 215 9 11 12 15.3 15.4 13.9
Gabriel India 134 BUY 217 6 9 13 21.5 14.7 10.5
GNA Axles 812 BUY 1,121 41 59 68 19.6 13.7 11.9
Greaves Cotton 126 BUY 183 -2 3 6 NA 37.8 20.3
Hero Motocorp 2308 BUY 3,006 124 135 172 18.6 17.1 13.4
Lumax Auto Technologies# 276 BUY 288 12 15 18 23.4 18.9 15.6
M&M @ $ 1138 BUY 1,550 43 62 71 21.3 14.9 16.0
Mahindra CIE Automotive 341 Positive 457 10.4 18 22 28.1 16.3 15.9
Maruti Suzuki 8274 BUY 10,965 256 346 392 32.4 23.9 21.1
Ramkrishna Forgings 276 BUY 329 15 21 27 18.4 13.4 10.1
Schaeffler India 2799 BUY 3,328 40 56 66 69.5 49.8 42.7
Sundram Fasteners # 982 BUY 1,110 24 33 42 40.8 29.7 23.5
Suprajit Engineering # 336 BUY 403 11 14 20 29.6 23.2 16.6
Tata Motors # 412 BUY 516 -28.0 4.6 32.8 NA 89.6 12.6
TVS Motors $ 1046 BUY 1,303 32 42 47 31.6 24.0 22.5
VST Tillers and Tractors Limited 2300 Neutral 2,445 96 124 153 23.5 18.1 15.0
@ MM & MVML; # Consolidated; $ core business valuation; UR Under Review
Source: Company data, Sharekhan estimates

March 27, 2023 2

 Sector Update
Sector-wise trend

Passenger vehicles segment (PVs)

Š Based on the dealer interactions, the broader trend in retail sales has remained unchanged. The demand for high
product has continued to be high and the demand for entry level products is still lagging.
Š Inventories are rising but the inventory situation is not worrisome, but dealers are continuing to observe high waiting
period for some high-end models. The waiting period is expected to moderate in most of the segments as supply has
improved (barring few models)
Š Few of the high-end products are still facing production constraints.
Š Maruti Suzuki had earlier indicated that it may face a production constraint due to supply chain issues in March.
Backed by media reports Maruti Suzuki is expected to launch Fronx in April.

Domestic PV volumes
Company Mar-23 Mar-22 YoY (%) Feb-23 MoM (%)
Maruti 1,38,000 1,43,899 -4.1 1,55,094 -11.0
M&M 32,150 27,603 16.5 30,358 5.9
Tata Motors 43,000 42,293 1.7 42,862 0.3
Source: Company; Sharekhan Research

Commercial vehicals segment (CVs)

Š CV segment is expected to perform relatively well in March due to seasonality and prebuying ahead of implementation
of BSVI phase 2.

Commercial vehical volumes

Company Mar 23 E Mar-22 YoY (%) Feb-23 MoM (%)
Ashok Leyland 19,500 20,123 -3.1 18,571 5.0
Tata Motors 41,500 47,050 -11.8 36,565 13.5
Eicher (VECV) 7,800 5,856 33.2 7,289 7.0
M&M 22,000 19,837 10.9 20,843 5.6
Source: Company; Sharekhan Research

Two-wheeler segment
Š The two-wheeler segment has been facing headwinds and hence expectations have already been muted. OEMs
have been facing challenges in export markets and now export volumes are expected to remain steady.
Š The entry-level products are not picking up in the domestic market due to financial constraints with the entry-level
customers.
Š High end and premium products have been in demand in urban markets. Unseasonal rain has further deteriorated
the sentiments in the rural region.

Two-wheeler volumes
Company Mar 23 E Mar-22 YoY (%) Feb-23 MoM (%)
Bajaj Auto 2,37,000 2,56,324 -7.5 2,35,356 0.7
Hero MotoCorp 4,20,000 4,50,154 -6.7 3,94,460 6.5
TVS Motor 2,70,000 2,92,918 -7.8 2,67,026 1.1
Eicher 72,000 67,677 6.4 71,544 0.6
Source: Company; Sharekhan Research

March 27, 2023 3

 Sector Update
Tractors segment
Š While the tractor segment has been performing well the high base impact is now catching up.
Š The fall of festive season is expected to support the retail volumes in March; however, the tractor segment is expected
to witness moderation in growth in the coming period.

Tractor volumes
Company Mar 23 E Mar-22 YoY (%) Feb-23 MoM (%)
M&M 29,000 29,763 -2.6 25,791 12.4
Escorts 7,900 10,074 -21.6 7,811 1.1
Source: Company; Sharekhan Research

Domestic Segment
Š In March, the commercial vehicle players and tractor players are expected to perform well compared to consumer
product players in the domestic market as the expectations itself has been muted for two-wheeler segment and
leading four-wheeler player Maruti has been facing production constraints.

Domestic volumes
Company Mar 23 E Mar-22 YoY (%) Feb-23 MoM (%)
Bajaj Auto 1,58,000 1,26,752 24.7 1,53,291 3.1
Hero MotoCorp 4,10,000 4,15,764 -1.4 3,82,317 7.2
Eicher Motors (RE) 65,000 58,477 11.2 64,436 0.9
TVSM 2,25,000 1,98,230 13.5 2,22,745 1.0
Ashok Leyland 18,500 18,556 -0.3 17,568 5.3
Tata Motors CV 40,000 44,425 -10.0 35,144 13.8
Tata Motors PV 43,000 42,293 1.7 42,862 0.3
M&M Tractors 28,000 28,112 -0.4 24,619 13.7
M&M Automotive 59,750 51,483 16.1 56,551 5.7
Maruti 1,38,000 1,43,899 -4.1 1,55,094 -11.0
Source: Company; Sharekhan Research

Export Segment
Š Export volumes are expected to remain steady due to ongoing challenges in overseas markets.

Export volumes
Company Mar 23 E Mar-22 YoY (%) Feb-23 MoM (%)
Bajaj Auto 1,22,000 1,70,436 -28.4 1,26,935 -3.9
Hero Motocorp 10,000 34,390 -70.9 12,143 -17.6
Eicher Motors (RE) 7,000 9,200 -23.9 7,108 -1.5
TVSM 55,000 1,09,724 -49.9 53,405 3.0
Ashok Leyland 1,000 1,567 -36.2 1,003 -0.3
Tata Motors CV 1,500 2,625 -42.9 1,421 5.6
Tata Motors PV 300 - - 278 7.9
M&M Tractors 1,000 1,651 -39.4 1,172 -14.7
M&M Automotive 2,600 3,160 -17.7 2,250 15.6
Maruti 19,000 26,496 -28.3 17,207 10.4
Source: Company; Sharekhan Research

March 27, 2023 4

 Sector Update
Company-wise expectations for March 2023E
Maruti Suzuki Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
Dom PV 1,38,000 1,43,899 -4.1 1,55,094 -11.0 17,04,859 14,14,277
Exp PV 19,000 26,496 -28.3 17,207 10.4 2,48,214 2,38,376
Total Sales 1,57,000 1,70,395 -7.9 1,72,301 -8.9 19,53,073 16,52,653
M&M Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
PVs 32,150 27,603 16.5 30,358 5.9 3,55,406 2,25,895
CVs & 3W 27,600 23,880 15.6 26,193 5.4 3,06,727 2,07,196
Total Dom 59,750 51,483 16.1 56,551 5.7 6,62,133 4,33,091
Exp 2,600 3,160 -17.7 2,250 15.6 32,592 32,510
Total Auto 62,350 54,643 14.1 58,801 6.0 6,94,725 4,65,601
Tractor 29,000 29,763 -2.6 25,791 12.4 4,01,531 3,54,698
Total Sales 91,350 84,406 8.2 84,592 8.0 10,96,256 8,16,916
Tata Motors Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
CV 41,500 47,050 -11.8 36,565 13.5 4,08,216 3,56,843
PV 43,300 42,293 2.4 43,140 0.4 5,40,238 3,70,390
Total Sales 84,800 89,343 -5.1 79,705 6.4 9,48,454 7,27,233
Escorts Kubota Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
Total Sales 7,900 10,074 -21.6 7,811 1.1 1,00,885 94,228
Ashok Leyland Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
MHCV 13,500 13,990 -3.5 12,668 6.6 1,20,836 73,885
LCV 6,000 6,133 -2.2 5,903 1.6 66,943 54,441
Total Sales 19,500 20,123 -3.1 18,571 5.0 1,87,779 1,28,326
Eicher Motors Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
CV 7,800 5,856 33.2 7,289 7.0 75,517 61,680
2W Royal Enfield 72,000 67,677 6.4 71,544 0.6 8,34,660 6,02,268
Hero Motocorp Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
Total Sales 4,20,000 4,50,154 -6.7 3,94,460 6.5 52,29,204 49,44,150
Bajaj Auto Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
Dom 2W 1,25,000 1,07,081 16.7 1,20,335 3.9 17,76,461 16,41,084
Exp 2W 1,12,000 1,49,243 -25.0 1,15,021 -2.6 16,54,241 21,95,772
Total CV 43,000 40,864 5.2 44,870 -4.2 4,83,453 4,71,577
Total Sales 2,80,000 2,97,188 -5.8 2,80,226 -0.1 39,14,155 43,08,533
TVS Motors Mar 23 E Mar-22 YoY(%) Feb-23 MoM(%) YTD FY23 YTD FY22
2W 2,70,000 2,92,918 -7.8 2,67,026 1.1 34,75,395 31,37,703
3W 10,000 15,036 -33.5 9,124 9.6 1,72,016 1,71,875
Total Sales 2,80,000 3,07,954 -9.1 2,76,150 1.4 36,47,411 33,09,578
Source: Company data, Sharekhan estimates; ^ Monthly runrate

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

March 27, 2023 5

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