MONTHLY AUTO DECEMBER 2019

2019 was indeed one of the worst years for the Auto Industry that witnessed increasing inventory and decreasing sales. For major

part of the year, the auto industry was in distress and with dwindling sales in all the segments be it, PVs, 2W or CVs. Actually

the signs of a slowdown in the industry were indicated right from the festive season of 2018 which peaked in 2019. During the

April-November 2019, the industry reported a drop of 16% in volumes to 15.7 million units as per SIAM data. PV sales declined

by 17.98% in the same period.

Factors of slowdown: Some of the reasons which grappled the industry leading to a non revival year for the sector include:

Slowdown in the economy

Liquidity crunch and NBFC Crisis

Change in Axle load norms

Increase in third party Insurance and road tax

Uncertainty and confusion arising out of inventory liquidation prior to the BS-VI transition

Expectations of a possible GST reduction

Slowdown in Rural demand

Preference of Uber / Ola: change in mind-set of millennial

Several worker strikes and plant shutdowns

Was there anything positive?

Indeed in the clutches of negatives there were a few positives in the year. Roll out of FAME 2 scheme (the first phase was rolled

out in 2015 investing ~Rs3000-4000cr) which would provide Rs10,000cr incentives to the EV space was one of them. Entry of

Bajaj Auto into EVs with the Chetak brand alleviated the sentiment towards the sustainability of EV. The Hyundai Kona Electric

was also a big EV launch of the year. The government also took steps in 2019 to encourage EVs by cutting the GST rate from

12% to 5%.

Some of the key partnerships announced during the year include FCA-PSA Group merger (PSA would arrive in India in 2020

with Citroen brand), BMW-JLR (collaboration for EV development). For India, it was the JV of Mahindra and Ford which would

give rise to seven new models, ranging from SUVs to EVs.

Walk ins and Walk outs:

There were shutters pulled down by many of the established players in India like Fiat India, the age old brand Premier, General

Motors to mention a few. On the flip, inroads into the SUV space were made by Korea’s Kia Motors and the British brand

Morris Garages (MG) surprising the industry with the kind of demand witnessed. Kia actually captured 5% of market share with

a single brand Seltos launch in just 4 months. MG came in with Hector which also garnered good response.

Going forward- 2020:

Some strategies adopted:

Discounts, exchange offers and easier finance strategies adopted by OEMs

Companies exploring consolidation options to increase efficiency and reduce cost

Quick adjustments to production changes

Focus on retail sales (as against the traditional method of focusing on wholesale dispatches)

New launches: Dozens of new launches are being planned for 2020 by passenger cars and two-wheeler makers, including EVs.

Notable list includes Hyundai Aura, Tata Nexon EV, SUV Gravitas, hatchback Altroz, Skoda Karoq SUV, Octavia, Land Rover

Defender, Audi e-Tron, Nissan Leaf EV and Kia Carnival.

BSIV to BSVI transition:

From April 2020, all cars in the country will have to comply with BS-VI emission regulations and 2019 proved to be the year of

major transition. Crucial is to see how customers respond to the increased vehicle pricing post BS-VI, especially in the diesel car

market. An incentive-based vehicle scrappage scheme would be effective in reducing the cost of acquisition of vehicles and

creating demand. Implementation of BS-VI norms would lead to clearing of all old inventory and building on new inventory,

which will give some upside to the production and sales but then with vehicle cost going up by 8-10% due to technology ramp

up, industry fears that it could further lead to volume loss.

When is revival expected?

Most of the players who are facing the music are of the belief that the industry should turn around from H2CY20 with the BS-VI

settling down. Government incentives to buy vehicles coupled with steps taken to address liquidity crunch, economic growth and

infrastructure spending are expected to boost the auto industry's prospects going forward.

Expectations as per SIAM:

As per SIAM despite the slowdown the worst is behind the automobile industry, keeping in mind that no sudden policy change

happens that would derail the industry growth. This reiterates the fact that the Auto industry requires a long-term stable policy

environment to grow sustainably. SIAM also expects that the industry should start reviving from the second quarter of the next

financial year. Impetus to the rural demand especially for two wheelers and light commercial vehicles would be the upcoming

Rabi season with better prospects due to higher reservoir levels.

Overall, we feel that the industry should turnaround from the H2CY20, obvious with a few pointers to be cautious of; but

definitely a better year awaited.

Auto Sector Monthly Update December 2019

“ Yearly Wrap-up: Stars Not Right In 2019 ”

Page No 1

Our coverage in the Auto Parts & Equipments:

Monthly Sales (Domestic & Export in no. of units)

Company December

2019

December

2018

YOY

Passenger Vehicles

Maruti Suzuki 133296 128338 3.9%

Hyundai Motor India 50135 55638 (9.9%)

Mahindra & Mahindra* 15691 15091 4.0%

Honda Cars India* 8412 13139 (36.0%)

Toyota Kirloskar 7769 12489 (37.8%)

Tata Motors* 12785 14260 (10.3%)

Commercial Vehicles

Bajaj Auto Ltd 51253 47344 8.3%

Tata Motors 34082 40015 (14.8%)

Mahindra & Mahindra* 16018 16906 (5.3%)

Ashok Leyland 11168 15490 (27.9%)

Two Wheelers

Hero Motorcorp 424845 453985 (6.4%)

Bajaj Auto 284802 298855 (4.7%)

TVS Motors 215619 258709 (16.7%)

Eicher Motors (Royal

Enfield) 50416 58278 (13.5%)

Three Wheelers

TVS Motors 15952 12686 25.7%

Mahindra & Mahindra* 5372 4693 14.5%

Atul Auto 4100 4332 (5.4%)

Tractors

M&M 17990 17404 3.4%

Escorts 4114 4598 (10.5%)

Auto Sector Monthly Update December 2019

“ The Year Ended Sluggish ”

Outlook:

The December Auto sales numbers continued with the

legacy of downtrend that the sector has been following for

months .The cumulative effect of inventory management for

BS-VI transition, year ending shutdown impact and

seasonality especially after the festive adjustments can be

clearly seen in the numbers of the month.

Maruti ended the year with an overall positive growth of 4%

for the month of December. The volumes have upgraded to

compact car segment. Pre-buying ahead of annual price

revision also pushed the volumes for the month. On the

other hand, Honda Cars reported a drop of 36% for the

month. M&M PV segment reported an increase of 4% for

the month. Tata Motors reported a drop of 10.3% in

domestic passenger vehicles. Toyota Kirloskar reported an

overall drop of 38% for the month majorly due to

liquidating BS-IV stocks to maintain a lean inventory before

shifting to BSVI.

For the CVs, the sales are mostly impacted due to the same

liquidation of inventory factor being practised across the

different segments, setting gears for BS-VI. In the CV

segment, Bajaj Auto reported an increase of 8.3% majorly

led by the 26% growth clocked in the domestic sales. Tata

Motors reported drop of 14.8%. M&M also declined by

5.3%. Ashok Leyland, the second largest CV maker reported

a drop of 27.9%.

In the three-wheeler segment, TVS clocked growth of 26%;

Atul Auto reported a drop of 5.4% and M&M reported a

growth of 14.5%.

In the two wheelers space, Bajaj Auto reported an overall

drop of 5% with a 21% drop in the domestic space, but the

highest ever sales in export registering a growth of

13% y-o-y. TVS Motors registered drop of 17%. Eicher

Motors reported a drop of 14% for the month. Hero

Motocorp, the world’s largest two-wheeler manufacturer,

reported a drop of 6.4% for the month.

For the tractors, Escorts Ltd. sold 3,806 tractors in the

domestic market, drop of 9.6% from the year-ago, with a

further 20.2% drop in exports; thus registering an overall

sales drop of 10.5%. M&M grew by 4% with sales of

17,213 tractors in Dec 2019. As per the management, Trac-

tor demand looks positive in the near term led by the

expectation of a better Rabi output, supported by crop prices

and government thrust on irrigation, rural Infra & Agri

sector.

Overall, the year ended as expected as there was nothing

much to bet on in the scenario that prevailed. However, with

the settling of the BS-VI transition, some revival is being

expected across the sector only in the 2HCY20. This would

be a wait and watch and for the fact that nothing new comes

up in the midst of all.

Source: Company Reports: Note :* Marked represents only Domestic Sales.

Company Reco Price Target Price Comments

Alicon Castalloys Ltd 288 650 Manufacturer of aluminium castings for automotive & non-automotive

The Hi-Tech Gears Ltd 298 300 Manufacturer of gears and transmission components

Munjal Showa Ltd 191 191 Manufacturer of shock absorbers and struts

Remsons Industries Ltd 104 130 Manufacturer of Gear Shift Systems, Shafts, Control Cables

Page No 2

Auto Sector Monthly Update December 2019

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