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Monthly Update | October 2011

November 2, 2011 Yaresh Kothari


+91 22 39357800 Ext: 6844 yareshb.kothari@angelbroking.com

Automobile Sector
Uncelebrated festive season
During the festive month of October, automobile sales reported a muted performance on account of weak demand environment across most segments. The tractor and medium and heavy commercial vehicle (M&HCV) segments, however, defied the general slowdown by posting strong growth. Hero MotoCorp (HMCL), Bajaj Auto (BJAUT), Maruti Suzuki (MSIL) and Tata Motors (TTMT) posted volume numbers that were not in tandem with expectations. Mahindra and Mahindra (MM) was an exception as it managed to sustain its impressive volume performance. Going ahead, we expect the two-wheeler segment to grow at a healthy rate; however, demand in the passenger vehicle (PV) segment is likely to remain subdued as rising loan rates and high fuel costs continue to dampen consumer sentiments. Tata Motors (TTMT) registered a modest 5% yoy increase (down 13.7% mom) in its total sales as the commercial vehicle (CV) and passenger vehicle (PV) segments reported a subdued performance. The CV segment grew by 6.3% yoy (down substantially by 18.4% mom) as light commercial vehicle (LCV) sales witnessed slowdown in growth during the month. M&HCV volumes, on the other hand, grew by strong 14.6% yoy (down 8.6% mom). The PV segment registered marginal 2.9% yoy growth (down 4.6% mom), led largely by growth in Nano (up 26.2% yoy) and utility vehicles (22.8% yoy) volumes. Maruti Suzuki (MSIL) posted extremely poor volumes for October 2011, as production during the month was impacted by the strike at Gurgaon and Manesar plants. The strike at both the plants resulted in a production loss of 40,000 units, as a result of which total volumes declined by 53.2% yoy (35% mom) to 55,595 units. Domestic volumes were down by 52.2% yoy (34.7% mom) and exports volumes fell by 63.6% yoy (38.7% mom). All sub segments of the company witnessed a steep mom and yoy decline in volumes. Mahindra and Mahindra (MM) reported strong 24.8% yoy (6.6% mom) growth in total volumes to 73,344 units, supported by robust 31.1% yoy (29% mom) and 20.3% yoy (down 6% mom) growth in tractor and automotive sales, respectively. In the tractors space, domestic and exports sales recorded impressive growth of 30.5% (29.8% mom) and 46.1% yoy (13.2% mom), respectively. Within the automotive segment, the four-wheeler pick-up segment continued its strong growth traction and witnessed 41.2% yoy (down 2.4% mom) growth. LCV and M&HCV sales grew by 42.4% yoy (20.1% mom), whereas Verito continued its strong run during the month. Automotive exports, however, posted modest 7.5% yoy (down 28.2% mom) growth. Two-wheelers and three-wheelers: BJAUT reported moderate 6.6% yoy (down 5.4% mom) growth in total volumes, as civil unrest at Pantnagar affected production leading to production loss of about 25,000 motorcycles. HMCL reported marginal 1.3% yoy growth in total volumes to 512,238 units. On the retail front, however, the company posted the highest-ever sales of over 650,000 units, thus registering strong double-digit yoy growth.
Please refer to important disclosures at the end of this report

Auto Sector Update | October 2011

Tata Motors
M&HCV sales grew strongly by 14.6% yoy, aiding overall CV sales; Total volumes posted modest 5% yoy growth TTMT registered a modest 5% yoy increase (down 13.7% mom) in total sales to 68,009 units as the commercial vehicle (CV) and passenger vehicle segments reported a subdued performance. The CV segment grew by 6.3% yoy (down substantially by 18.4% mom) as light commercial vehicle (LCV) sales witnessed slowdown in growth during the month. M&HCV volumes, on the other hand, grew by strong 14.6% yoy (down 8.6% mom). The PV segment registered marginal 2.9% yoy growth (down 4.6% mom), led largely by growth in Nano (up 26.2% yoy) and utility vehicles (22.8% yoy) volumes. Indigo sales, however, continued the disappointing run, declining by 24.4% yoy during the quarter.

Exhibit 1: Tata Motors Sales trend


Segment Total sales M&HCV LCV Total CV Utility vehicles Cars Total PV Exports (Included above) Source: Company, Angel Research October 2011 October 2010 % chg YTD FY2012 YTD FY2011 % chg

68,009 17,890 24,294 42,184 4,208 21,617 25,825 4,171

64,757 15,610 24,062 39,672 3,427 21,658 25,085

5.0 467,670 444,870 14.6 121,444 112,229 1.0 191,045 153,345 6.3 312,489 265,574 22.8 27,164 22,955

5.1 8.2 24.6 17.7 18.3

(0.2) 128,017 156,341 (18.1) 2.9 155,181 179,296 (13.4) 35,249 32,648 8.0

5,950 (29.9)

Exhibit 2: CV segment Monthly sales trend


(units) 60,000 50,000 40,000 30,000 20,000 10,000 0 Dec-09 Dec-10 Apr-10 Aug-10 Apr-11 Aug-11 Oct-09 Oct-10 Feb-10 Feb-11 Oct-11 Jun-10 Jun-11 Volume(LHS) yoy growth (RHS) (%) 160 140 120 100 80 60 40 20 0

Source: Company, Angel Research

November 2, 2011

Auto Sector Update | October 2011

Exhibit 3: PV segment Monthly sales trend


(units 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Oct-09 Oct-10 Feb-10 Dec-09 Dec-10 Feb-11 Aug-10 Aug-11 Oct-11
% chg

Volume(LHS)

yoy growth (RHS)

(%) 80 60 40 20 0 (20) (40) (60)

Jun-10

Apr-10

Source: Company, Angel Research

Maruti Suzuki
Strike at Manesar and Gurgaon plants led to a significant decline in sales in October 2011 MSIL recorded a 53.2% yoy (35% mom) decline in total volumes to 55,595 units, led by disruption in production at the Manesar and Gurgaon plants. The strike at the plants resulted in a production loss of 40,000 units in October 2011. Domestic volumes declined by 52.2% yoy (34.7% mom) and exports volumes fell by 63.6% yoy (38.7% mom). Sales volume in the mini, compact and super compact segments registered a 54.9% (33% mom), 56.1% (44.9% mom) and 48.1% yoy (46.9% mom) decline, respectively. Management expects the production at Manesar plant to reach its normal levels from January 2012.

Exhibit 4: Maruti Sales trend


Segment Total sales A: Mini: M800, A-star, Alto, Wagon R A: Compact: Swift, Estilo, Ritz A: Super Compact: Dzire A: Mid-size: SX4 A: Executive: Kizashi Total passenger vehicles B: UV - Gypsy, Grand Vitara C: Vans: Omni, EeCo Total domestic sales Total exports Source: Company, Angel Research October 2011 October 2010 % chg YTD FY2012 YTD FY2011

55,595 25,009 10,859 5,001 320 3 41,192 270 9,996 51,458 4,137

118,908 55,404 24,729 9,644 1,977 91,754 422 15,379 107,555 11,353

(53.2) 589,428 715,886 (54.9) 259,909 308,398 (56.1) 111,374 153,314 (48.1) (83.8) (36.0) (35.0) (63.6) 50,384 10,229 174 4,116 88,361 64,881 60,005 11,936 4,229 90,496 87,508

Apr-11

Jun-11

(17.7) (15.7) (27.4) (16.0) (14.3) (19.0) (2.7) (2.4) (16.5) (25.9)

(55.1) 432,070 533,653

(52.2) 524,547 628,378

November 2, 2011

Auto Sector Update | October 2011

Exhibit 5: PV segment Monthly sales trend


(units) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Volume(LHS) yoy growth (RHS) (%) 80 60 40 20 0 (20) (40) (60)

Oct-09

Oct-10

Feb-10

Dec-09

Dec-10

Feb-11

Aug-10

Source: Company, Angel Research

Mahindra & Mahindra


MM maintained its strong growth traction; total sales grew by 24.8% yoy despite planned shutdown for five days in October 2011 MM maintained its strong growth trajectory, reporting a 24.8% yoy (6.6% mom) jump in total volumes to 73,344 units, driven by strong growth in tractors and four-wheeler pick-up sales. The tractor segment recorded better-than-expected 31.1% yoy (29% mom) growth, as domestic and exports sales posted impressive growth of 30.5% (29.8% mom) and 46.1% yoy (13.2% mom), respectively. Volumes in the automotive segment grew strongly by 20.3% yoy (down 6% mom) to 41,506 units, led by continued strong growth in the four-wheeler pick-up segment. Four-wheeler pick-up sales growth was boosted by strong performance from Maxximo and Gio. MM had a planned maintenance shut down for five days in October 2011. The recently launched XUV500 has received a phenomenal response with more than 8,000 bookings in just 10 days.

Exhibit 6: Mahindra & Mahindra Sales trend


Segment Total sales Passenger utility vehicles (UV) Four-wheel pick-up (GIO+Maxximo) Three-wheelers (Champion, Alfa) Logan/Verito LCV/M&HCV Exports Total automotive sales Tractor sales Domestic Tractor sales Exports Total tractor sales Source: Company, Angel Research October 2011 October % chg 2010 YTD FY2012 YTD FY2011 % chg

73,344 16,938 13,101 6,332 1,818 1,163 2,154 41,506 30,519 1,319 31,838

58,776 15,908 9,277 5,410 1,079 817 2,004 34,495 23,378 903 24,281

24.8 414,315 328,655 6.5 108,868 41.2 17.0 68.5 42.4 7.5 83,611 39,481 10,525 7,362 15,110 96,375 56,112 34,075 6,743 10,464

Aug-11

Oct-11

Jun-10

Apr-10

Apr-11

Jun-11

26.1 13.0 49.0 15.9 9.2 44.4 26.9 25.3 11.8 24.5

4,948 112.7

20.3 264,957 208,717 30.5 142,029 113,382 46.1 7,329 6,556 31.1 149,358 119,938

November 2, 2011

Auto Sector Update | October 2011

Exhibit 7: UV segment Monthly sales trend


(units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) yoy growth (RHS) (%) 140 120 100 80 60 40 20 0 (20)

Dec-09

Aug-10

Dec-10

Apr-10

Apr-11

Aug-11

Oct-09

Oct-10

Feb-10

Feb-11

Source: Company, Angel Research; Note: UV+Four-wheel pick-up combined from October 2010

Exhibit 8: Tractor segment Monthly sales trend


(units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) yoy growth (RHS) (%) 180 160 140 120 100 80 60 40 20 0 (20)

Dec-09

Dec-10

Apr-10

Aug-10

Apr-11

Aug-11

Oct-09

Oct-10

Feb-10

Feb-11

Source: Company, Angel Research

Bajaj Auto
BJAUT registered 6.6% yoy growth; Exports continued to grow at a strong pace; Prices in exports markets have been raised to compensate for reduction in DEPB benefits BJAUT reported moderate 6.6% yoy (down 5.4% mom) growth in total volumes to 395,274 units, as civil unrest at Pantnagar affected production leading to production loss of about 25,000 motorcycles. Motorcycle dispatches grew by 6.5% yoy (down 5.4% mom) and three-wheeler volumes increased by 7.7% yoy (down 4.9% mom). Boxer 150 accounted for close to 10,000 units in volumes during the month. Exports maintained their volume momentum, registering growth of 19.5% yoy. However, sequentially, volumes by dipped by 7%. BJAUT has raised its product prices by 3.5% across exports markets from October 2011 to compensate for reduction in DEPB benefits to 5.5% from 9% earlier. In the domestic market, the company has increased prices of Discover and Pulsar by `500 each. Three-wheeler prices have been raised by `1,000. Management expects to touch 400,000 units mark again in November 2011.
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Auto Sector Update | October 2011

Exhibit 9: Bajaj Auto Sales trend


Segment Total sales Motorcycles Three-wheelers Exports (Included above) October 2011 October 2010 % chg YTD FY2012 YTD FY2011 % chg

395,274 351,083 44,191 131,948

370,816 329,776 41,040 110,387

6.6 6.5 7.7 19.5

2,652,226 2,341,491 310,735 983,446

2,299,722 2,041,661 258,034 741,618

15.3 14.7 20.4 32.6

Source: Company, Angel Research

Exhibit 10: Motorcycle segment Monthly sales trend


(units) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Volume (LHS) % yoy growth (RHS) (%) 120 100 80 60 40 20 0

Oct-09

Oct-10

Feb-10

Dec-09

Dec-10

Feb-11

Aug-10

Source: Company, Angel Research

Exhibit 11: Three-wheeler segment Monthly sales trend


(units) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) % yoy growth (RHS) (%) 120 100 80 60 40 20 0 (20)

Dec-09

Dec-10

Apr-10

Aug-10

Apr-11

Aug-11

Oct-09

Oct-10

Aug-11

Feb-10

Feb-11

Source: Company, Angel Research

Hero MotoCorp
HMCL posted marginal growth of 1.3% yoy; sequentially volumes fell by 6.8% HMCL reported marginal growth of 1.3% yoy in total volumes to 512,238 units. Sequentially, volumes declined by 6.8%, largely on account of higher dealer dispatches in September 2011 to meet the festive demand. On the retail front, however, the company posted the highest-ever sales of over 650,000 units, thus registering strong double-digit yoy growth.

November 2, 2011

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Auto Sector Update | October 2011

During the festival season, HMCL launched Impulse, a 150cc dual-purpose on-road-off-road bike, at an attractive price of `66,800 (ex-showroom Delhi).

Exhibit 12: Hero MotoCorp Sales trend


October 2011 Total sales October % chg 2010 YTD FY2012 YTD FY2011 % chg

512,238

505,553

1.3 3,586,130 3,025,536

18.5

Source: Company, Angel Research

Exhibit 13: Two-wheeler segment Monthly sales trend


(units) 600,000 500,000 400,000 300,000 200,000 100,000 0 Volume(LHS) yoy growth (RHS) (%) 80 70 60 50 40 30 20 10 0

Dec-09

Dec-10

Apr-10

Aug-10

Apr-11

Aug-11

Oct-09

Oct-10

Feb-10

Feb-11

Source: Company, Angel Research

November 2, 2011

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Auto Sector Update | October 2011

Outlook
Considering the near-term macroeconomic challenges, we expect the auto industry to register moderate volume growth of 12-13% for FY2012. However, we believe low penetration levels coupled with a healthy and sustainable economic environment and favorable demographics supported by increasing per capita income levels will drive long-term growth of the Indian auto industry. As such, we prefer stocks that have strong fundamentals, ability to deliver a strong top-line performance and are available at attractive valuations. We continue to prefer companies with a strong pricing power and high exposure to rural and exports markets.

Exhibit 14: Relative valuation and recommendation


Companies Ashok Leyland Bajaj Auto Maruti M&M Tata Motors* TVS Motor Reco. CMP (`) TP (`) Sales (`cr) FY12E P/E (x) P/BV (x) RoE (%) EV/EBITDA (x) FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY11-13E EPS CAGR (%)

Buy Neutral Accumulate Neutral Neutral Neutral

27 1,719 2,081 839 192 66

31 -

12,344 19,722 22,863 34,279 28,066 7,512

14,178 22,964 26,260 39,863 32,081 8,589

13.6 16.1 17.9 17.5 17.9 6.8 13.8

10.4 14.8 16.0 13.2 15.7 6.2 12.3

2.4 8.0 9.6 2.0 4.2 3.0 2.8

2.2 6.2 6.9 1.8 3.5 2.5 2.4

12.8 55.5 63.7 12.3 25.0 44.6 19.2

15.5 47.0 50.2 14.2 24.3 42.8 20.3

7.4 11.2 10.7 10.9 11.8 4.7 6.7

6.1 9.4 8.9 7.5 9.7 4.4 5.8

4.6 10.4 18.8 4.4 11.1 3.7 11.8

Hero MotoCorp Neutral

1,123 1,190

- 146,181 164,393

Source: Company, C-line, Angel Research; Note: Price as on November 2, 2011; *Consolidated financials

November 2, 2011

Auto Sector Update | October 2011

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E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement


Analyst ownership of the stock Ashok Leyland Tata Motors Maruti Suzuki Mahindra & Mahindra Bajaj Auto Hero MotoCorp TVS Motor No No No No No No No Angel and its Group companies ownership of the stock No No No No No No No Angel and its Group companies' Directors ownership of the stock No No No No No No No Broking relationship with company covered No No No No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 2, 2011

Auto Sector Update | October 2011

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