Automobiles - InvestmentGuruIndiavid.investmentguruindia.com/report/2020/May/Auto... · Nishant Vass [email protected] +91 22 6637 7260 Pratit Vajani [email protected]

Please refer to important disclosures at the end of this report

Equity Research May 18, 2020

BSE Sensex: 30029

ICICI Securities Limited is the author and distributor of this report

Sector update

Automobiles

Geographical deep dive into Covid impact: PV to decline 20%

Research Analysts:

Nishant Vass [email protected] +91 22 6637 7260 Pratit Vajani [email protected] +91 22 6637 7161

INDIA

In this report we take a deeper state/district-wise look into demand and supply

aspects arising from the heterogeneous nature of Covid-19 spread. Key

observations include: 1) FY20 concentration of retail demand in risk areas (Red)

remains high for both PVs and 2Ws at ~36% and ~30% respectively; however,

demand and spread skews across states adds to heterogeneity; (2) state-wise

analysis suggests >30% of wholesale despatches could be disrupted as these

high-risk states remain large contributors to overall volumes; (3) interestingly,

most of the high per-capita income states are facing the worst of the spread

(tables: 4-5) and this could act impact high-ticket discretionary spend; (4) on

supply chain side, we see a meaningful overlap (~80% and 60% in PVs and 2Ws

respectively) between the manufacturing footprint and the risk zones. Impact of

unknowns, e.g. ‘reverse labour migration / rise in infections’ are key monitorables

over the coming period.

Cut in industry growth estimates: We have reduced our volume growth estimates for

the sector. We model PV segment decline of ~20% (from 2% earlier) and 2W segment

decline of ~16% (from 2%). The relatively lower drop in 2Ws is primarily due to: a) lower

demand exposure to risk zones; b) rural incomes likely to hold up better (driven by

essential activities like agriculture) vis-à-vis urban (2Ws draw a higher demand share

from rural); c) affordable mass-market segment is likely to partially benefit from any

public transportation driven demand substitution by mid/low-income travellers. As a

theme, we prefer mass market 2W/tractor vis-à-vis PV/CV companies. Stock calls: Post

the recent rally, we downgrade mass-market 2W stocks Hero Motocorp and Bajaj Auto

to ADD, retain our BUY rating on M&M, TVS and Eicher Motors. We retain SELL rating

on Maruti Suzuki.

Trends in red zone pivotal for retail demand trends: The share of retail sales from

red zones (read highest risk) is nearly ~1/3rd of overall demand in FY20 (tables 2-3).

On segmental basis for PVs and 2Ws, the same is at ~35% and ~30% respectively.

Interestingly, a few states have large skews between share of retails vis-a-vis share

of districts marked in red zone, e.g. Karnataka and Gujarat have only 27% and 10%

of districts in red zones; however, in terms of volume share, these two states account

for ~48% and 52% of overall state retails for PVs. Another large skew is in Bihar (not

in top-10 most affected states) where only 14% of districts are in red zone but those

regions contribute ~38% of overall state PV retails. The red zones with lockdown

extension till 31st May could face further slip in consumer confidence.

Top-5 most affected states; impact on wholesales: Statistics around these states

are quite interesting (tables 4-5); they currently have ~74% of the confirmed Covid-

19 cases with only ~27% of overall country’s population. They however contribute

~40% to per capita income; the average per capita income of these five states is

~67% higher than the national average of Rs126.5k. These five states’ GSDP shares

in the overall country’s manufacturing / services / construction are quite high at ~49%

/ 40% / 36% respectively. However, for agriculture their share is only ~27% of overall

agriculture GDP. The average unemployment across these states has risen sharply

by ~19% YoY to 25% in Apr’20; they contribute ~36%/32% (FY19) of overall demand

in PV/2W segments. In summary, growth/employment and auto sales rebound in

these states would largely depend on services and manufacturing sectors.

Automobiles, May 18, 2020 ICICI Securities

2

Table 1: District distribution of Covid-19 zones

State Red Zone Orange Zone Green Zone Total Red Zone Orange Zone Green Zone

Andhra Pradesh 5 7 1 13 38% 54% 8%

Assam 0 3 30 33 0% 9% 91%

Bihar 5 19 12 36 14% 53% 33%

Chandigarh 1 0 0 1 100% 0% 0%

Chhattisgarh 1 1 25 27 4% 4% 93%

Delhi 11 0 0 11 100% 0% 0%

Goa 0 0 2 2 0% 0% 100%

Gujarat 9 19 5 33 27% 58% 15%

Haryana 2 17 2 21 10% 81% 10%

Himachal Pradesh 0 6 6 12 0% s50% 50%

J&K 4 18 4 26 15% 69% 15%

Jharkhand 1 9 14 24 4% 38% 58%

Karnataka 3 13 14 30 10% 43% 47%

Kerala 2 10 2 14 14% 71% 14%

Madhya Pradesh 9 19 24 52 17% 37% 46%

Maharashtra 13 15 6 34 38% 44% 18%

Manipur 0 0 15 15 0% 0% 100%

Meghalaya 0 1 10 11 0% 9% 91%

Mizoram 0 0 11 11 0% 0% 100%

Nagaland 0 0 11 11 0% 0% 100%

Odisha 3 6 20 29 10% 21% 69%

Puducherry 0 1 3 4 0% 25% 75%

Punjab 3 15 4 22 14% 68% 18%

Rajasthan 8 19 6 33 24% 58% 18%

Sikkim 0 0 4 4 0% 0% 100%

Tamil Nadu 12 23 0 35 34% 66% 0%

Telangana 6 18 9 33 18% 55% 27%

Tripura 0 2 6 8 0% 25% 75%

Uttar Pradesh 19 36 20 75 25% 48% 27%

Uttarakhand 1 2 10 13 8% 15% 77%

West Bengal 10 5 8 23 43% 22% 35%

Total 128 284 284 696 18% 41% 41%

Source: MoHFW, I-Sec research

Table 2: Retail volume share distribution among zones – PV

State FY20 Volume

Red Orange Green FY15 FY16 FY17 FY18 FY19 CAGR (%)

Assam 0% 3% 97% 46,934 48,992 54,985 68,881 68,628 10.0% Bihar 38% 37% 25% 38,935 40,623 43,384 60,036 63,949 13.2% Chandigarh 100% 22% 0% 17,520 17,393 17,042 17,996 16,782 -1.1% Chhattisgarh 20% 0% 75% 57,214 51,596 53,011 61,794 66,177 3.7% Delhi 88% 0% 12% 1,70,084 1,73,236 1,70,224 1,81,607 1,62,474 -1.1% Gujarat 52% 38% 10% 2,63,349 2,75,874 2,92,249 3,30,609 3,19,447 4.9% Haryana 12% 50% 39% 1,95,368 1,70,998 1,66,945 1,89,894 2,04,006 1.1% Himachal Pradesh 0% 12% 88% 31,385 35,991 41,627 47,761 50,555 12.7% J&K 20% 71% 8% 36,760 42,559 38,139 58,172 68,800 17.0% Jharkhand 37% 36% 27% 36,489 40,129 44,632 56,047 60,563 13.5% Karnataka 48% 16% 36% 2,45,024 2,47,283 2,59,626 2,57,295 2,51,658 0.7% Kerala 5% 22% 72% 1,83,378 1,94,078 2,18,425 2,42,257 2,38,641 6.8% Maharashtra 53% 19% 29% 3,53,523 3,46,901 3,53,033 4,14,269 3,80,818 1.9% Meghalaya 0% 60% 40% 7,166 7,354 7,933 9,451 9,714 7.9% Odisha 8% 7% 85% 36,826 40,314 42,860 52,921 56,527 11.3% Puducherry 0% 34% 66% 5,933 6,315 7,320 9,039 8,400 9.1% Punjab 28% 42% 30% 1,32,860 1,21,058 1,11,809 1,21,886 1,33,111 0.0% Rajasthan 38% 40% 23% 2,08,750 2,01,729 1,99,873 2,19,368 2,27,313 2.2% Tamil Nadu 26% 24% 50% 1,73,859 1,81,298 2,05,303 2,22,270 2,22,432 6.4% Tripura 0% 21% 79% 3,676 3,731 3,831 5,010 4,938 7.7% Uttar Pradesh 37% 38% 25% 40,040 41,531 42,100 49,305 48,412 4.9% Uttarakhand 8% 47% 45% 3,11,339 3,00,622 3,27,644 3,66,966 4,16,113 7.5% West Bengal 32% 14% 55% 81,447 79,432 85,483 93,483 98,277 4.8%

Total 36% 28% 36% 26,77,859 26,69,037 27,87,478 31,36,317 31,77,735 4.4%

Source: Vahan, I-Sec research; data for Andhra Pradesh, Telangana and Madhya Pradesh is not yet available on Vahan


3

Table 3: Retail volume share distribution among zones – 2W

State FY20 Volume

Red Orange Green FY15 FY16 FY17 FY18 FY19 CAGR (%)

Assam 0% 8% 92% 1,89,008 2,17,860 2,49,817 3,29,568 3,76,483 18.8% Bihar 17% 43% 39% 5,28,908 6,13,691 6,66,361 9,16,976 10,08,599 17.5% Chandigarh 100% 0% 0% 27,437 27,350 27,100 28,293 27,474 0.0% Chhattisgarh 15% 5% 80% 3,94,612 3,78,019 4,01,281 4,62,546 5,04,159 6.3% Delhi 88% 0% 12% 3,78,889 4,35,653 4,71,297 4,81,926 4,81,116 6.2% Gujarat 52% 40% 8% 11,21,175 11,30,960 11,85,550 13,17,878 12,70,284 3.2% Haryana 7% 45% 48% 4,42,913 4,67,695 4,86,192 5,26,707 5,74,253 6.7% Himachal Pradesh 0% 16% 84% 61,866 64,494 71,585 79,847 76,248 5.4% J&K 21% 72% 6% 57,277 63,549 73,784 98,610 98,125 14.4% Jharkhand 17% 41% 42% 2,80,280 3,31,639 3,80,310 4,86,550 4,94,048 15.2% Karnataka 42% 20% 38% 12,08,196 12,34,341 12,46,963 12,14,787 12,88,170 1.6% Kerala 4% 21% 75% 6,37,513 6,14,704 6,66,273 7,31,679 7,35,292 3.6% Maharashtra 49% 24% 27% 17,01,507 18,04,831 17,97,056 19,86,676 18,89,259 2.7% Meghalaya 0% 48% 52% 8,770 8,908 10,969 15,584 17,151 18.3% Odisha 13% 12% 75% 4,39,305 4,99,787 5,47,603 6,78,872 7,16,885 13.0% Puducherry 0% 31% 69% 45,614 46,067 47,467 55,298 54,704 4.6% Punjab 26% 37% 37% 5,98,267 6,12,862 6,15,197 6,42,721 6,49,794 2.1% Rajasthan 32% 44% 24% 10,43,258 10,15,162 10,49,486 10,75,229 11,44,273 2.3% Tamil Nadu 23% 23% 53% 14,13,527 14,21,929 16,00,678 16,05,246 17,76,111 5.9% Tripura 0% 21% 79% 21,462 24,537 27,410 40,791 51,528 24.5% Uttar Pradesh 33% 42% 25% 1,50,224 1,66,047 1,72,501 2,01,272 2,03,101 7.8% Uttarakhand 11% 32% 57% 19,60,678 20,76,785 22,93,903 24,95,428 27,71,616 9.0% West Bengal 24% 19% 56% 6,31,049 7,11,434 8,04,633 8,85,473 9,85,793 11.8%

Total 30% 30% 40% 1,33,41,735 1,39,68,304 1,48,93,416 1,63,57,957 1,71,94,466 6.5%

Source: Vahan, I-Sec research; data for Andhra Pradesh, Telangana and Madhya Pradesh is not yet available on Vahan

Table 4: Wholesale volume snapshot and per capita distribution across states – PV

State Confirmed

Cases

2019 Population

(mn)

FY19 Per capita

income(Rs) FY15 FY16 FY17 FY18 FY19 CAGR (%)

FY19 share of

total volume

Maharashtra 33,053 122 1,91,827 3,40,508 3,54,503 3,96,428 3,72,662 3,54,480 1.0% 10.4%

Gujarat 11,380 65 1,97,447 2,26,097 2,30,353 2,58,455 2,85,547 2,84,763 5.9% 8.4%

Tamil Nadu 11,224 77 1,93,750 1,69,172 1,77,211 2,13,220 2,19,638 2,19,628 6.7% 6.5%

Delhi 9,755 18 3,65,529 1,93,715 1,99,436 2,00,797 2,02,025 1,93,922 0.0% 5.7%

Rajasthan 5,202 80 1,10,606 1,44,862 1,42,588 1,45,392 1,61,192 1,72,020 4.4% 5.1%

Madhya Prad. 4,977 84 90,998 99,411 93,299 98,590 1,24,031 1,36,142 8.2% 4.0%

Uttar Pradesh 4,464 233 66,512 2,33,033 2,33,004 2,42,327 2,87,350 2,99,816 6.5% 8.8%

West Bengal 2,677 99 1,09,491 1,05,758 94,786 95,878 1,05,817 1,04,819 -0.2% 3.1%

Andhra Prad. 2,380 53 1,51,173 1,57,686 90,333 86,735 94,014 1,08,437 -8.9% 3.2%

Punjab 1,964 30 1,54,996 1,03,109 96,285 96,122 1,09,844 1,11,220 1.9% 3.3%

Telangana 1,551 39 2,04,488 - 90,597 1,20,646 1,22,185 1,27,909 12.2% 3.8%

Bihar 1,320 122 43,822 44,374 44,087 39,933 58,047 66,747 10.7% 2.0%

J&K 1,226 14 91,882 2,07,811 2,17,988 2,38,549 2,24,966 2,27,300 2.3% 6.7%

Karnataka 1,147 67 2,10,887 49,538 44,992 51,214 62,507 67,210 7.9% 2.0%

Haryana 910 28 2,36,147 1,64,822 1,57,881 1,68,531 1,74,586 1,87,671 3.3% 5.5%

Odisha 828 46 95,164 2,02,472 1,95,381 2,29,683 2,52,019 2,52,639 5.7% 7.4%

Kerala 602 35 2,04,105 42,833 43,020 45,729 63,837 85,657 18.9% 2.5%

Jharkhand 223 38 76,019 26,157 25,318 29,721 32,805 33,444 6.3% 1.0%

Chandigarh 191 1 3,29,209 41,950 41,802 45,888 55,873 61,188 9.9% 1.8%

Tripura 165 4 1,10,102 5,002 3,817 4,178 5,180 5,558 2.7% 0.2%

Assam 101 35 82,078 37,876 38,874 40,589 51,072 52,119 8.3% 1.5%

Uttarakhand 92 11 1,98,738 58,579 57,842 69,157 80,439 85,657 10.0% 2.5%

Chhattisgarh 85 29 96,887 29,712 32,687 34,408 37,607 39,480 7.4% 1.2%

Himachal Pra. 80 7 1,79,188 37,039 35,074 37,366 45,182 53,278 9.5% 1.6%

Goa 29 2 4,58,304 7,996 8,196 8,933 9,680 10,364 6.7% 0.3%

Puducherry 17 1 2,20,461 4,692 4,945 6,314 6,982 7,015 10.6% 0.2%

Meghalaya 13 3 89,024 18,620 17,192 20,747 23,874 22,205 4.5% 0.7%

Manipur 7 3 69,978 3,445 3,788 3,536 5,062 5,782 13.8% 0.2%

Arunachal P. 1 2 1,39,588 2,267 2,343 3,878 4,767 4,621 19.5% 0.1%

Mizoram 1 1 1,68,626 2,165 1,838 2,085 2,609 3,993 16.5% 0.1%

Nagaland - 2 1,16,882 4,547 4,323 5,186 5,381 6,474 9.2% 0.2%

Sikkim - 1 3,57,643 3,017 2,766 2,689 2,874 3,741 5.5% 0.1%

India 95,665 1,353 1,26,521 27,68,265 27,86,549 30,42,904 32,89,654 33,95,299 5.2%

Source: MoHFW, RBI, SIAM, I-Sec research


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Table 5: Wholesale volume snapshot and per capita distribution across states – 2W

State Confirmed

Cases

2019 Population

(mn)

FY19 Per capita

income(Rs) FY15 FY16 FY17 FY18 FY19 CAGR (%)

FY19 share

of total volume

Maharashtra 33,053 122 1,91,827 17,86,765 18,53,745 19,09,293 20,26,463 18,95,853 1.5% 9.0%

Gujarat 11,380 65 1,97,447 11,46,995 11,23,140 11,74,075 13,83,994 13,06,516 3.3% 6.2%

Tamil Nadu 11,224 77 1,93,750 14,32,917 12,62,140 16,01,649 16,72,969 18,32,899 6.3% 8.7%

Delhi 9,755 18 3,65,529 3,79,519 4,47,022 4,74,459 5,12,814 4,97,775 7.0% 2.4%

Rajasthan 5,202 80 1,10,606 10,42,218 10,39,273 10,00,962 11,14,854 11,89,572 3.4% 5.6%

Madhya Prad. 4,977 84 90,998 8,39,433 8,51,065 8,87,518 11,27,164 13,08,354 11.7% 6.2%

Uttar Pradesh 4,464 233 66,512 20,27,592 20,72,286 21,14,538 27,39,616 30,02,936 10.3% 14.2%

West Bengal 2,677 99 1,09,491 6,56,052 7,44,444 8,46,891 9,88,084 9,90,344 10.8% 4.7%

Andhra Prad. 2,380 53 1,51,173 13,66,387 10,18,903 11,58,332 11,67,760 11,44,009 -4.3% 5.4%

Punjab 1,964 30 1,54,996 6,25,253 5,94,793 6,22,310 6,79,121 7,09,596 3.2% 3.4%

Telangana 1,551 39 2,04,488 - 3,54,077 3,51,334 5,90,232 7,51,479 28.5% 3.6%

Bihar 1,320 122 43,822 41,364 54,207 68,828 84,563 78,043 17.2% 0.4%

J&K 1,226 14 91,882 11,26,054 11,25,740 11,63,797 12,35,405 13,05,613 3.8% 6.2%

Karnataka 1,147 67 2,10,887 5,74,562 6,51,983 7,44,861 9,51,141 10,48,867 16.2% 5.0%

Haryana 910 28 2,36,147 4,91,417 4,97,619 5,15,476 5,75,848 6,18,996 5.9% 2.9%

Odisha 828 46 95,164 6,19,578 6,03,844 6,57,310 7,51,979 7,31,678 4.2% 3.5%

Kerala 602 35 2,04,105 4,54,608 5,16,942 5,54,563 7,13,366 7,25,073 12.4% 3.4%

Jharkhand 223 38 76,019 35,844 29,794 31,720 33,336 32,717 -2.3% 0.2%

Chandigarh 191 1 3,29,209 3,00,113 3,47,414 3,92,611 4,84,341 5,17,196 14.6% 2.5%

Tripura 165 4 1,10,102 23,840 27,806 33,459 37,770 45,567 17.6% 0.2%

Assam 101 35 82,078 1,24,090 2,13,088 2,57,662 1,75,560 1,83,064 10.2% 0.9%

Uttarakhand 92 11 1,98,738 2,62,409 2,81,079 3,11,255 4,11,532 4,73,181 15.9% 2.2%

Chhattisgarh 85 29 96,887 59,616 55,302 65,265 75,327 64,320 1.9% 0.3%

Himachal Pra. 80 7 1,79,188 4,07,216 3,74,687 3,80,482 4,97,612 5,39,498 7.3% 2.6%

Goa 29 2 4,58,304 2,877 2,656 3,257 4,067 3,935 8.1% 0.0%

Puducherry 17 1 2,20,461 21,096 1,15,781 36,508 36,729 32,906 11.8% 0.2%

Meghalaya 13 3 89,024 54,513 49,335 46,040 52,656 41,104 -6.8% 0.2%

Manipur 7 3 69,978 6,306 11,353 9,954 14,284 15,778 25.8% 0.1%

Arunachal P. 1 2 1,39,588 19,105 6,857 3,422 4,551 4,855 -29.0% 0.0%

Mizoram 1 1 1,68,626 5,104 4,709 7,183 9,390 11,913 23.6% 0.1%

Nagaland - 2 1,16,882 2,103 3,437 3,565 3,992 4,180 18.7% 0.0%

Sikkim - 1 3,57,643 - - - 4 5 0.0% 0.0%

India 95,665 1,353 1,26,521 1,59,34,946 1,63,34,521 1,74,28,579 2,01,56,524 2,11,07,822 7.3%

Source: MoHFW, RBI, SIAM, I-Sec research

Table 6: Steep rise in unemployment rates across high income manufacturing states

States Confirmed Cases Per Capita Apr-19 Mar-20 Apr-20 MoM (%) YoY(%)

Maharashtra 33,053 1,91,827 4.1 5.8 20.9 15.1 16.8

Gujarat 11,380 1,97,447 3.0 6.7 19 12.1 15.7

Tamil Nadu 11,224 1,93,750 1.23 6.3 49.8 43.5 48.6

Delhi 9,755 3,65,529 8.37 17.04 16.68 -0.4 8.3

Rajasthan 5,202 1,10,606 12.58 11.81 17.7 5.9 5.1

Madhya Pradesh 4,977 90,998 6.47 2.25 12.36 10.1 5.9

Uttar Pradesh 4,464 66,512 11.06 10.11 21.54 11.4 10.5

West Bengal 2,677 1,09,491 6.55 6.92 17.41 10.5 10.9

Andhra Pradesh 2,380 1,51,173 4.02 5.72 20.51 14.8 16.5

Punjab 1,964 1,54,996 7.51 10.32 2.86 -7.5 -4.7

Telangana 1,551 2,04,488 2.66 5.79 6.25 0.5 3.6

Bihar 1,320 43,822 12.19 15.41 46.64 31.2 34.5

J&K 1,226 91,882 10.62 15.5 12.23 -3.3 1.6

Karnataka 1,147 2,10,887 0.53 3.47 29.84 26.4 29.3

Haryana 910 2,36,147 26.39 25.05 43.22 18.2 16.8

Odisha 828 95,164 6.38 13.08 23.76 10.7 17.4

Kerala 602 2,04,105 8.79 8.99 16.99 8.0 8.2

Jharkhand 223 76,019 12.23 8.25 47.09 38.8 34.9

Tripura 165 1,10,102 25.43 29.95 41.23 11.3 15.8

Assam 101 82,078 5 4.77 11.06 6.3 6.1

Uttarakhand 92 1,98,738 6.36 19.85 6.48 -13.4 0.1

Chhattisgarh 85 96,887 3.44 7.73 3.41 -4.3 0.0

Himachal Pradesh 80 1,79,188 19.64 18.76 2.2 -16.6 -17.4

Goa 29 4,58,304 9.3 5.25 13.31 8.1 4.0

Meghalaya 13 89,024 2.28 1.58 10.03 8.5 7.8

Source: MoHFW, CMIE, RBI, I-Sec research


5

Supply chain worries likely to surface as reopening’s start in red zones: As

automotive supply chains start to resume operations (tables 7-8), our discussions

with OEMs and suppliers suggest concerns around how operational structures like

Just in Time (JIT) would be implemented under the current uncertain environment.

The key worries we heard were: a) ramp-up of capacity and manpower in red zone

locations; b) possible start-stop at key suppliers could disrupt OEM production

schedules; c) availability of temporary workers (due to reverse labour migration)

post ramp-up in plants in low-risk manufacturing zones; d) deviation of policy

interpretation at local authorities level. We have tried to map the existing OEM

capacities across the various zones to evaluate the possible risks that could

emerge in the future. Overall, keeping in the mind the above-mentioned risks, we

believe productivity improvement across the entire value chain is likely to delayed,

as costs scale.

Table 7: Auto production commentary

Company Effective Date

Commentary

Maruti Suzuki 18-May Resumes production at Gurugram plant

Suzuki Motorcycles 18-May Resumes manufacturing operations at Haryana plants

Honda Motorcycles (HMSI) 15-May

Dispatched 21,000 units since reopening of dealerships

Tata Motors 13-May Resumes production at Pantnagar and Sanand plants. Reopens 600 dealerships across India

Ashok Leyland 13-May Restart production at all plants, ramp-up to be gradual as per supply chain readiness

Maruti Suzuki 12-May Restart production at Manesar plant on one shift basis with 50% workforce.

Hero Motocorp 10-May

Starts retail operations from 1st week May, with the reopening of more than 1,500 customer touchpoints including authorised dealerships and service centres; Retails 10k units in 1st week.

TVS Motors 08-May Restarts production in Hosur, Mysuru and Nalagarh plants

Hyundai 08-May Resumes production at Sriperumbudur, Chennai plant; Rolls out 200 cars on first day of operations

BMW 07-May Resumes production in Chennai plant

Volvo 07-May Resumes production in Chennai plant

Daimler ICV 07-May Resumes production in Chennai plant

Hero Motocorp 07-May Restarts production at Gurugram, Dharuhera and Haridwar plants

Maruti Suzuki 06-May 600 dealerships reopened

Daimler 06-May Restarts production at Chakan plant

Eicher Motors 06-May Royal Enfield to start production at Oragadam plant

Escorts 06-May Resume operations at Faridabad plant

Isuzu Motors 05-May To restart production at plant in Chitoor, AP

Hyundai 05-May 250 dealer outlets resume operations and retail sales

SML Isuzu 04-May Restarts manufacturing at Shahid Bhagat Singh Nagar (Punjab) plant

CEAT Tyres 04-May Resumes manufacturing at Nashik, Nagpur and Halol plants

Apollo Tyre 24-Apr Resumes production at Kalamsassery (Kerala) and Limda (Gujarat) plants

Suppliers Effective Date

Commentary

Bridgestone 13-May Resumes operations at Pune and Indore plants

Bosch 07-May

Resumes production in plants at Bengaluru, Naganathapura, Bidadi in Karnataka and Nashik plant in Maharashtra

Gabriel India 06-May Resumes production in Chakan, Sanand and Hosur plants

MRF Tyre 06-May Resumes production at most plants

TVS Srichakra 06-May Resumes production at Madurai and Uttarakhand plant

Bharat Forge 05-May Restarts manufacturing at Baramati plant

Federal-Mogul Goetze 05-May Resumes partial production in Patiala plant

Sandhar Group 04-May

To restart production at manufacturing facilities at Haridwar, Bawal, Jaipur, Nalagarh and Berhampur (Gurugram)

Minda Corporation 30-Apr Resumes operations at Pithampur (MP), Pantnagar (Uttarakhand) and Waluj (Maharashtra) plants

Varroc Group 28-Apr Restarts production at Chakan, Pantnagar and Waluj plants

Subros Ltd 28-Apr Restarts production at Manesar (Haryana) and Karsanpura (Gujarat) plants

Rico India 27-Apr

Starts production at Dharuhera and Bawal plant in double shift and Halol and Pathredi plant in single shift while Haridwar plant to work in three shifts

Endurance Tech. 27-Apr Resumes production at Pantnagar and Waluj plants

Ramkrishna Forgings 21-Apr Resumes production at Saraikela, Jharkhand plant

Source: Company data, I-Sec research


6

Table 8: Auto production mapping

State District Containment

Zone OEM

Production Capacity

Share of production in Red zone (%)

Rajasthan Alwar Orange Ashok Leyland 5,400

47%

Tamil Nadu Chennai (Ennore) Red Ashok Leyland 20,000

Tamil Nadu Kancheepuram (Pillaipakkam) Red Ashok Leyland 1,00,000

Tamil Nadu Krishnagiri (Hosur) Green Ashok Leyland 55,000

Tamil Nadu Pudukottai (Viralimali) Orange Ashok Leyland 1,800

Tamil Nadu Pudukottai Orange Ashok Leyland 400

Uttarakhand Uddham Singh Nagar (Pantnagar) Green Ashok Leyland 75,000

Maharashtra Aurangabad (Waluj) Red Bajaj Auto 6,60,000

70% Maharashtra Aurangabad (Waluj) Red Bajaj Auto 24,00,000

Maharashtra Pune (Chakan) Red Bajaj Auto 12,00,000

Uttarakhand Uddham Singh Nagar (Pantnagar) Green Bajaj Auto 18,00,000

Maharashtra Pune (Chakan) Red Daimler 20,000 100%

Tamil Nadu Chennai (Oragadam) Red Daimler India CV 73,500

Madhya Pradesh Dhar (Pithampur) Red Force Motors 33,000 100%

Maharashtra Pune (Chakan) Red Force Motors 30,000

Gujarat Ahmedabad (Sanand) Red Ford 2,40,000 100%

Tamil Nadu Chennai (Maraimalai Nagar) Red Ford 1,39,000

Gujarat Vadodara Red Hero Motocorp 12,00,000

42%

Haryana Dharuhera Green Hero Motocorp 21,00,000

Haryana Gurugram Orange Hero Motocorp 21,00,000

Rajasthan Alwar (Neemrana) Orange Hero Motocorp 11,00,000

Uttarakhand Haridwar Red Hero Motocorp 27,00,000

Gujarat Ahmedabad Red HMSI 12,00,000

19% Haryana Gurugram (Manesar) Orange HMSI 16,00,000

Karnataka Kolar (Narsapura) Green HMSI 24,00,000

Rajasthan Alwar (Tapukara) Orange HMSI 12,00,000

Rajasthan Alwar Orange Honda Cars 1,20,000 50%

Uttar Pradesh Gautam Buddh Nagar Red Honda Cars 1,20,000

Tamil Nadu Chennai (Kancheepuram) Red Hyundai 7,00,000 100%

Andhra Pradesh Chitoor Red Isuzu Motors 50,000 100%

Andhra Pradesh Anantapur Orange Kia Motors 3,00,000 0%

Maharashtra Pune (Chakan) Red KTM 1,00,000 100%

Maharashtra Mumbai (Kandivali) Red M&M 60,000

92%

Maharashtra Nashik Red M&M 2,10,000

Maharashtra Pune (Chakan) Red M&M 7,50,000

Telangana Medak (Zaheerabad) Orange M&M 1,00,000

Uttarakhand Haridwar Red M&M 1,00,000

Madhya Pradesh Dhar (Pithampur) Red Mahindra 2W 5,00,000 100%

Gujarat Ahmedabad Red Maruti Suzuki 5,00,000

25% Haryana Gurugram (Udyog Vihar) Orange Maruti Suzuki 7,00,000

Haryana Gurugram (Manesar) Orange Maruti Suzuki 8,00,000

Gujarat Panchmahal (Halol) Red MG Motor 80,000 100%

Maharashtra Baramati Orange Piaggio 3,80,000 0%

Tamil Nadu Chennai (Oragadam) Red Renault Nissan 4,80,000 100%

Tamil Nadu Chennai (Oragadam) Red Royal Enfield 6,00,000 100%

Tamil Nadu Kancheepuram (Vallam Vadagal) Red Royal Enfield 6,00,000

Maharashtra Aurangabad Red Skoda 89,000 100%

Maharashtra Pune (Chakan) Red Skoda 1,30,000

Punjab Shahid Bhagat Singh Nagar Orange SML Isuzu 18,400 0%

Haryana Gurugram Orange Suzuki Motorcycles 7,50,000 0%

Gujarat Ahmedabad (Sanand) Red Tata Motors 2,50,000

60%

Jharkhand Jamshedpur Green Tata Motors 55,000

Karnataka Dharwad Orange Tata Motors 90,000

Uttar Pradesh Lucknow Red Tata Motors 1,92,000

Uttarakhand Uddham Singh Nagar (Rudrapur) Green Tata Motors 5,00,000

Maharashtra Pune Red Tata Motors/JLR 5,44,000

Karnataka Bengaluru (Ramanagara) Red Toyota 3,10,000 100%

Himachal Pradesh Solan (Nalagarh) Orange TVS Motors 5,00,000

36% Karnataka Mysuru Red TVS Motors 17,00,000

Tamil Nadu Krishnagiri (Hosur) Green TVS Motors 25,00,000

Madhya Pradesh Dhar (Pithampur) Red VECV 84,000 100%

Karnataka Bengaluru (Hoskote) Red Volvo 2,500

Haryana Faridabad Red Yamaha 9,00,000

100% Tamil Nadu Kancheepuram Red Yamaha 9,00,000

Uttar Pradesh Gautam Buddh Nagar (Surajpur) Red Yamaha 6,00,000

Source: Company data, MoHFW, I-Sec research


7

We anticipate delayed rebound in big-ticket spends, while entry level and

tractor segments could fare better: Automotive purchases have two

quintessential requirements: a) favourable consumer sentiment, and b) easy

access to financing. Across the spectrum of customers, we believe a need for

cheap mobility is likely to arise out of the health threat of the spread and the same

could provide some support to used vehicle market and entry level segments, e.g.

2Ws. Tractor segment also could relatively outperform due to supportive farm

income and easy credit support to farmers. However, segments like PVs, which

have high discretionary aspect to purchases, are likely to witness longer purchase

deferments and delayed demand rebound cycle. We believe, fresh PV purchases

even in entry level segment might not get a boost in the current health risk

environment as the key focus point for customers would revolve around ‘cheapest

solution’ – and PV affordability has remained a challenge over past few years in

the entry segment.

Additional key risk on demand is that majority (55%) of the wedding season dates

having already passed and next period of auspicious dates start only in Dec’20.

The wedding season typically is a key demand driver for the consumer auto

space, especially in the Northern regions.

Chart 1: Consumer sentiment for non-essential spend

-10

0

10

20

30

40

50

60

Sep-1

5N

ov-

15Ja

n-1

6M

ar-

16

May-

16

Jul-16

Sep-1

6N

ov-

16Ja

n-1

7M

ar-

17

May-

17

Jul-17

Sep-1

7N

ov-

17Ja

n-1

8M

ar-

18

May-

18

Jul-18

Sep-1

8N

ov-

18Ja

n-1

9M

ar-

19

May-

19

Jul-19

Sep-1

9N

ov-

19Ja

n-2

0M

ar-

20

Current Perception One year ahead Expectation

Source: RBI, I-Sec research


8

Volume declines likely to persist till Q4FY21; growth to stabilize in FY21: We

again reiterate our existing view that demand recovery is likely to be a delayed ‘U’

with the current lockdown likely to have serious ripple effect across consumers.

Challenges ranging from job uncertainties to low business activity could make

consumers risk-averse, hence spending less. We have tried to map a possible

glide path of quarterly growth trajectory for the industry till FY21 (charts 2-3).

Chart 2: Domestic PV industry demand forecast trajectory

2.8

2.2

2.6

-74%

-46%-32%

-20%

206%

53%

28%18%

-100%

-50%

0%

50%

100%

150%

200%

250%

-

0.5

1.0

1.5

2.0

2.5

3.0

FY20 Q1FY21 6MFY21 9MFY21 FY21 Q1FY22 6MFY22 9MFY22 FY22

Source: SIAM, I-Sec research

Chart 3: Domestic 2W industry demand forecast trajectory

17.4

14.7

16.9

-70%

-40%-26%

-16%

155%

39%22% 15%

-100%

-50%

0%

50%

100%

150%

200%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

FY20 Q1FY21 6MFY21 9MFY21 FY21 Q1FY22 6MFY22 9MFY22 FY22

Source: SIAM, I-Sec Research


9

Table 9: Valuation summary

Company CMP (Rs) TP (Rs) Rating PE (x) EV/EBITDA Market Cap

FY21E FY22E FY21E FY22E (Rs bn) (US$ bn)

OEMs Bajaj Auto 2,480 2,692 ADD 17.1 13.1 11.7 8.2 717 9.44 Eicher Motors 12,966 17,815 BUY 24.8 17.6 21.1 14.8 354 4.66 Hero Motocorp 2,070 2,251 ADD 17.3 13.9 10.6 8.6 413 5.4 TVS Motors 306 394 BUY 51.0 18.2 13.0 9.2 145 1.91 Maruti Suzuki 4,723 3,413 SELL 45.5 27.7 19.6 12.9 1,427 18.8 M&M 377 483 BUY 17.2 13.1 3.8 2.8 449 5.92

EV/Sales (x) P/B (x) P/CEPS (x) RoE (%) RoCE (%) CAGR (FY20-22E) (%)

FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E Revenue EBITDA PAT

OEMs Bajaj Auto 1.9 1.5 2.5 2.3 15.8 12.2 15.4 18.3 15.3 18.2 -0.8 0.4 1.0 Eicher Motors 4.9 3.8 4.3 3.6 17.5 12.9 17.2 20.2 15.3 19.2 5.9 5.6 4.0 Hero Motocorp 1.4 1.2 3.0 2.9 12.7 10.6 17.6 21.2 18.1 21.7 1.9 10.0 -0.5 TVS Motors 1.3 1.1 3.7 3.2 17.2 10.4 7.3 18.7 7.2 10.3 3.4 -4.0 6.6 Maruti Suzuki 1.8 1.5 2.8 2.7 20.5 15.1 6.3 9.9 3.1 6.6 -1.9 -1.0 -4.5 M&M 0.5 0.4 1.1 1.1 8.6 7.2 6.9 8.6 8.5 10.6 -0.4 -1.9 -3.4


Target price and rating changes

We align our estimates and recommendations based on the expectation of prolonged impact of Covid-19 related weak demand environment in most of CY20. We believe rural markets will remain a key monitorable for faster recovery.

Bajaj Auto – Valuation and earnings estimates

BAL continues to innovate in mass-market segments with strong cost focus and its

efforts to improve contribution margins of its entry level domestic offerings are

reflecting in the recent improvement in performance. This makes us more optimistic

over the company’s medium-term margin structure. We value BAL at a target multiple

of 15x FY22E EPS and downgrade the stock to ADD from Buy with a revised target

price of Rs2,692 (earlier: Rs2,542).

Table 10: Earnings revision

(Rs mn)

FY21E FY22E

Previous New Chg (%) Previous New Chg (%)

Sales 2,69,469 2,26,827 (15.8) 3,15,300 2,99,663 (5.0) EBITDA 40,739 34,526 (15.3) 49,427 51,972 5.1 PAT 41,308 36,424 (11.8) 49,046 51,926 5.9 EPS (Rs) 143 126 (11.8) 169 179 5.9


Eicher Motors – Valuation and earnings estimates

We believe strong brand for RE’s products coupled with rising financing penetration is

likely to support a relatively tougher environment in FY21. Over the medium-to-long

term, we believe the premiumisation theme will play out in 2Ws albeit at a slower pace

vis-a-vis PVs. We trim our EPS estimates for RE by ~25%/16% for FY21E/FY22E

(model ~2.8% EPS CAGR FY19-FY22E), while we maintain our RE-multiple at 21x

FY22E EPS. Maintain BUY on the stock with a revised target price of Rs17,815

(earlier: Rs21,436).


10

Table 11: Valuation by SoTP methodology

(Rs mn)

FY22E Remarks

2-wheeler business – Royal Enfield

EPS (Rs) 822

Target P/E multiple(x) 21 We maintain our multiple on near-term growth concerns

Per share value (Rs) 17,271

Target market cap (Rs mn) 4,69,093

CV business – VECV

EPS (Rs) 39

Target P/E multiple(x) 14 In line with industry target multiple

Per share value (Rs) 543

Target market cap (Rs mn) 14,757

Total target market cap (Rs mn) 4,83,850

Per share value (Rs) 17,815


Table 12: Estimates revision (standalone)

(Rs mn, year ending March 31)

FY21E FY22E


Sales 97,179 79,907 (17.8) 1,12,710 1,03,457 (8.2) EBITDA 24,773 18,476 (25.4) 30,410 26,281 (13.6) PAT 21,082 15,873 (24.7) 26,547 22,338 (15.9) EPS (Rs) 776 584 (24.7) 977 822 (15.8)


Hero MotoCorp – Valuation and earnings estimates

We believe the company will benefit from the need for ownership of personal vehicle in

the post Covid-19 way of travel along with better rural recovery due to high motorcycle

market share in key rural states; thus, volume growth momentum could improve from

H2FY21. However, we remain cautious on the mass-market 2W segment as trends of

scooterisation, electrification and premiumisation are likely to gain pace in the next

decade. We revise our growth estimate for FY21E/FY22E to

-24%/-16% respectively, and upgrade our target multiple to 15x (earlier: 14x) FY22E

EPS. In light of the recent price rally, we downgrade the stock to ADD from Buy with a

revised target price of Rs2,251 (earlier: Rs2,501).

Table 13: Earnings revision

FY21E FY22E


Sales 3,13,407 2,71,484 (13.4) 3,40,155 3,07,209 (9.7) EBITDA 42,631 34,618 (18.8) 47,755 42,234 (11.6) PAT 31,563 24,034 (23.9) 35,674 29,970 (16.0) EPS (Rs) 158.1 120.4 (23.9) 178.6 150.1 (16.0)

Source: I-Sec research

TVS Motors – Valuation and earnings estimates

We continue to like TVSM’s capability in delivering better-than-industry growth from its

rising brand equity, high customer focus and superior technology. However, factoring-

in the impact of Covid-19 related lower growth in H1FY21, we cut our FY21E/FY22E

standalone EPS estimates by ~31%/8%, respectively. We maintain our BUY rating

and value TVSM’s standalone business at 21x (earlier: 22x) FY22E EPS

(Rs375/share) (earlier: Rs428/share) and TVS Credit Services at 1.0x trailing BV

(Rs19/share) leading to our target price of Rs394/share (earlier: Rs447/share).


11

Table 14: Earnings revision (standalone)

(Rs mn)

FY21E FY22E




Table 15: Earnings revision (consolidated)

(Rs mn)

FY21E FY22E




M&M – Valuation and earnings estimates

Rural demand improvement is likely to remain the key positive trigger for M&M’s stock

as FES business remains the cash cow. We trim our earnings estimates by

28.5%/13.3% for FY21E/FY22E, respectively. We value the business at reduced 4.5x

(earlier: 5.5x) FY22E core EBITDA of Rs270/share (earlier: Rs353) and value

subsidiaries at Rs213/share (earlier: Rs294). This works out to an SoTP-based target

price of Rs483/share (earlier: Rs647). Maintain BUY.

Table 16: Valuation by SoTP methodology

(Rs mn)

Business

(FY22E) (Rs mn)

EV/E (x)

Current market value

(Rs mn) Stake

(%) Rs/

Share Remarks

M&M + MVML EBITDA 60,107 4.5 2,70,483 218

Value of outstanding debt/net cash (64,979) (52)

Value of equity (M&M+MVML) 3,35,462 270

Listed Strategic Investments/Subsidiaries CMP/ Target Price Market Value

Mahindra Life Spaces (Listed) 195 51 10,004 51.4% 4 At CMP

M&M Finance (Listed) 190 618 117,374 51.2% 48 At I-Sec target price

Mahindra CIE/CIE Spa (Listed) 10,060 8 At I-Sec target price

M&M Holidays & Resorts (Listed) 136 134 18,163 67.3% 10 At CMP

Saangyong (Listed) 79 150 11,777 74.7% 7 At CMP

Tech Mahindra (Listed) 635 965 612,966 26.1% 129 At I-Sec target price

Mahindra Logistics (Listed) 340 71 24,303 58.5% 11 At I-Sec target price

Other subsidiaries and JVs 1,18,967 48 At 0.5x book Value

Equity Value of subsidiaries/investments

2,63,795 213 20% holding company discount

Total value (Post 20% group discount) 5,99,257 483

Source: Bloomberg, Company data and I-Sec research


12

Table 17: Earnings revision (M&M + MVML)

(Rs mn, year ending March 31)

FY21E FY22E




Price charts

Bajaj Auto Eicher Motors Hero Motocorp

1,350

1,850

2,350

2,850

3,350

3,850

May-1

7

No

v-1

7

May-1

8

Nov-1

8

May-1

9

Nov-1

9

May-2

0

(Rs)

10,000

15,000

20,000

25,000

30,000

35,000

May-1

7

Nov-1

7

May-1

8

Nov-1

8

May-1

9

Nov-1

9

May-2

0

(Rs.)

1,200

1,700

2,200

2,700

3,200

3,700

4,200

May-1

7

No

v-1

7

May-1

8

No

v-1

8

May-1

9

Nov-1

9

May-2

0

(Rs)

TVS Motors Maruti Suzuki M&M

100

200

300

400

500

600

700

800

900

Ma

y-1

7

Nov-1

7

Ma

y-1

8

Nov-1

8

May-1

9

Nov-1

9

Ma

y-2

0

(Rs.)

1,000

3,000

5,000

7,000

9,000

11,000

May-1

7

Nov-1

7

Ma

y-1

8

Nov-1

8

Ma

y-1

9

Nov-1

9

Ma

y-2

0

(Rs.)

100

300

500

700

900

1100

May-1

7

Nov-1

7

May-1

8

Nov-1

8

May-1

9

Nov-1

9

May-2

0

(Rs.)

Source: Bloomberg


13

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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)

BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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