“Woo customers with products”- Mantra of Expo!content.icicidirect.com/mailimages/IDirect_Auto_Sector... · · 2016-12-05“Woo customers with products”- Mantra of Expo!

ICICI Securities Ltd. | Retail Equity Research

February 12, 2014

Sector Update

“Woo customers with products”- Mantra of Expo! Overall, FY14E has again been disappointing for the automotive industry with demand, both on the consumer/commercial space, remaining especially weak. The overall industry year to date (YTD) has struggled for growth (3% YoY) with demand spectrum being understandably worst for CVs (18% decline YTD) while the scooter segment was a shining beacon (20% growth YTD). In this backdrop, Auto Expo 2014 can be termed a success as it has seen OEMs trying their level best to bring a host of new products to prop up the customer’s demand sentiment. The show witnessed nearly 70 launches/concept unveilings. It outnumbered the earlier edition of the event held in New Delhi where about 47 vehicles were showcased and launched. The change of venue had a positive effect on the event and now pushes domestic expo into one of very best in the world. The gloom in the domestic industry was also somewhat reflected as visitor’s rate dropped ~25% to 561,000. Key launches and highlights of event-

• Automatic transmission to reach masses: This auto expo would be always be marked in the history of India as the first time automatic transmission (AMT) module found its way in the affordability index. Maruti launched the automatic version at just a price difference of ~40,000 between the base models, which is much below the average of 80,000-100,000 vis-à-vis other models. Also, the efficiency is being certified to be similar to the manual version unlike other current versions. Tata Zest will also sport the AMT transmission and is expected to be also priced attractively. We expect the customer response, at least in top urban cities, to be strong considering the present driving conditions

• Hatchback/small car makes return along with petrol variants: The auto expo also witnessed the revival of focus on the small car/hatchback space (Celerio, Datsun, Bolt, Beat etc.), which was missing in the last couple of years due to strong diesel demand. Also, pure petrol variants made a comeback in the form of products like Maruti Celerio as Tata Motors also launched its 1.2 litre “Revotron” petrol engine

• Dzire/ XUV-500 need to watch out : Attractive models like Hyundai XCent and Suzuki Cross are early warning signals to established market leader models in segments Dzire, XUV-500 that competitive intensity is not expected to reduce in the most profitable segments

• Attractive launches in two wheeler space: The two-wheeler space saw strong launches from Bajaj Auto, Hero Honda, Honda motorcycles. The standouts remained the Pulsar 400 SS, Pulsar 400CS and Hero Hastur, which had ample signs of capabilities of the domestic manufacturers to take the fight against the “Honda’s/Yamahas” to their own turf. The fastest growing scooter space also saw some additions from Honda (New Honda Activa-125 cc), Yamaha Alpha, which will continue to provide decent alternatives to the customer

Industry Outlook The industry along with the rest of the economy is keenly awaiting the kick start of reforms post general elections. At present, considering the overall scenario, we expect FY15E overall growth to remain at ~7-8% with the PV segment witnessing ~8-10% growth, CV space expected to grow at 3-5% and 2-W space expected to grow at ~7-8%.

Auto Expo 2014Sector View

Over weight

Share price returns

Company 1 month 3 months 1 year

BSE Sensex -3 1 5

BSE Auto 0 3 10

Maruti Suzuki -7 5 7

Tata Motors 1 6 27

M&M 1 2 2

Hero motocorp -3 -3 16

Bajaj Auto 3 -3 -6

Return (%)

Source: Company, ICICIdirect.com Research

Segment wise product launches & concepts

OEM's Participation No. of launches/concepts

Passenger vehicles 23 46

Two wheelers 14 21

Commercial vehicles 10 2*

Three wheeler 3 -

Electric Vehilce 6 2Source: Company, ICICIdirect.com Research Numbers are estimates from media sources * Family of CV’s

Segmental volume growth

Segmental volume growth FY12 FY13 FY14*

Passenger vehicles 6.1 3.3 -3.8

Cars 4.4 -3.7 -3.6

UV 16.7 52.3 0.7

Two wheelers 15.7 2.4 5.7

Motorcycles 13.9 0.1 3.1

Scooters 25.9 13.6 20.0

Commercial vehicles 18.9 -3.2 -17.9

M&HCV 7.2 -23.9 -23.8

LCV 29.0 11.8 -15.0 Source: Company, ICICIdirect.com Research * YTD

Peer valuation

FY14E FY15E FY14E FY15E FY14E FY15E

Maruti Suzuki 18.5 14.4 8.0 6.4 2.1 1.8

Tata Motors 8.2 6.9 3.5 3.4 1.9 1.4

M&M 15.4 14.6 10.3 9.2 3.0 2.5

Hero MotoCorp 19.1 14.7 12.1 11.0 5.3 4.3

Bajaj Auto 16.7 13.9 14.3 11.6 4.7 3.9

P/B(x)

Company

PE(x) EV/EBITDA

Source: Company, ICICIdirect.com Research

Analyst’s name

Nishant Vass [email protected]

Venil Shah [email protected]


Page 2

Maruti Suzuki Unchanged

An automatic small car at the right time…future pipeline to be strong! Maruti Suzuki India (MSIL) showcased and launched the strongly awaited Celerio in both the automatic and manual versions. It unquestionably is the most important launch in the Auto Expo 2014 considering the automatic product offering is a first in its class in the small car space with such cost effectiveness. The automatic version, which is based on the EZ drive technology has led to the automatic version becoming attractive as the price gap (~40,000) between automatic and manual has nearly halved vis-à-vis other models across categories. Exhibit 1: Celerio looks impressive

Source: Company, ICICIdirect.com Research * All prices are Ex-showroom Delhi, Google.com

MSIL also showcased a couple of concepts like the S-cross and the CIAZ of which we have been more enthused by the former considering the volume potential of this product category. This S-cross would likely pit itself against M&M-XUV-500, Nissan-Terrano, and Tata Safari. However, considering the probable launch of XA-Aplha next year in the sub-10 lakh segment pricing may not be very inexpensive on this product. Exhibit 2: S-cross concept to compete in higher end SUV space


Key product features:

• Provides customer with affordable automatic product

• Engine - 1 Lit K Series, 67 BHP Power, 90 NM Torque.

• Sub-4 metre, fuel tank – 35 litre, boot space – 235 litre

• ABS, Dual Airbags, Height Adjustable Driver Seat

• Price range –Manual | 3.9 lakh-4.96 lakh Automatic | 4.29 lakh-4.59 lakh


• Provides possible entry for MSIL into the high value C-

category against competitors like XUV 500.

• Distinctive crossover styling.

• Double sliding glass sunroof

• 5-Star safety rating in Euro NCAP


Page 3

Tata Motors Unchanged

Excruciating wait for new products in PV space comes to an end! Tata Motors had under the vision of the Late Karl Slym finally brought out its first new products from the Horizonext strategy, which focuses on the quality (both interior/exterior) and comfort from the customers perspective. It again has launched products in most popular spaces; both the hatchback/sedan space. The Bolt and Zest though are based on the old Vista X1 platform but that is where the commonality ends. Massive changes have taken place from design of sheet metals, new body panel to frontal styling. Exhibit 3: Finally Zest to give customers a good option


The Bolt hatchback differs from the Zest compact sedan post the rear doors the sedan comes with LED day-time running lights at the front, which the hatchback does not have. The Zest sedan will also come with the automated manual transmission first in the small sedan space. However, one of the key highlights also remains on the use of electronics in both the cars. These cars feature the HARMAN infotainment and audio system and with “MapmyIndia” for satellite navigation. Moreover, the Zest and Bolt also has a five-inch touch screen multimedia system with Bluetooth, phone-enabled navigation, social media integration, touch phone controlled interface and others. Both products will go on the sales from H2FY15E probably around the festive season. Exhibit 4: Bolt makes hatchback space fierier!



• A sedan which can compete effectively with the likes

of MSIL-Dzire, Honda Amaze

• Engine-1.2 litre in-house Revotron Petrol engine, 1.3

litre Diesel. 85 PS Power, 140 NM Torque (Petrol)

• ABS, Electronic power steering, touch screen display

• Sub-4 metre, fuel tank – 44 litre • Price range –Manual NA Automatic NA


• A hatch, which can compete with MSIL-Swift/Celerio

etc., Hyundai Motors-i10

• Engine-1.2 litre in-house Revotron Petrol engine, 1.3ltr

Diesel. 85 PS Power, 140 NM Torque (Petrol)

• ABS, Electronic power steering, touch screen display

• Sub-4 metre, fuel tank – 44 litre

• Price range –Manual NA


Page 4

Bajaj Auto Unchanged

The pure play motorcycle guy gets cheeky with the U-Car! BAL showcased new 400 cc Pulsar (SS/CS) models, which were impressive but the wow came in from the U-car concept. Exhibit 5: Pulsar 400SS looks feels all right.. Just hope pricing is as good!


Exhibit 6: CS-400 no slouch either!


Exhibit 7: The surprise package—U-car


Key probable product features:

• 400 SS is a marked with aggressive styling and fussy

design. As per the company, it is production ready.

• Twin projector headlights, LED pilot lamps and LED

indicators. • Liquid cooled 375 cc single-cylinder engine


• The 400CS is a sort of a power cruiser on the lines of the

Ducati Diavel and carries a low-slung silhouette.

• Liquid cooled 375cc single-cylinder engine. As per

company it is production ready.

• Electronic fuel injection, ABS


• Makes way for an all new product category which might

give Nano competition

• Distinctive styling

• Sliding doors


Page 5

Hero MotoCorp Unchanged

Products showcase mixed bag!

HMCL continued to show us a glimpse of product development of the future, which was marked by strong Hastur/Ion and weak RNT concept. Exhibit 8: Street fighter Hastur looks strong..


Exhibit 9: Hero ION! One for the future…


Exhibit 10: A design disappointment!



• Hastur is a street fighter but does not seem to be

production ready

• The twin projector beam headlights feature LED running

lights, integrated LED winkers and LED tail lights

• Engine-620 cc,9600 RPM Power,72 NM Torque

• The weight is ~160 kg, which when production

happens will make it strong competition in the middle-weight motorcycle segment


• The ION concept is really a unique one as it is run on

hydrogen-fuel cell. Long way away from being

production ready in near future

• Hubless wheels equipped with electric traction motors,

which use magnetic levitation for zero friction from

ground

• Touch screen controls, Display panels on drivers


• Diesel scooter with liquid cooled turbo hybrid

• 150 cc, 13.5 PS Power, 35 NM torque.

• Detachable headlamps, Sari guard

• Though we realise that the product is focused more on

mass market considering the scooter segment and

relative aesthetic appeal of competitor products, we feel the design is pretty unappealing


Page 6

Other key launches

Exhibit 11: Ford compact sedan concept

Source: Company, ICICIdirect.com Research, Google.com

Exhibit 12: Hyundai X-cent sedan


Exhibit 13: New Honda Activa 125 cc

Source: Company, ICICIdirect.com Research Google.com

Exhibit 14: Yamaha Alpha scooter

Source: Company, ICICIdirect.com Research ,Google.com

Exhibit 15: Yamaha R-25


Exhibit 16: Honda CBR 500 R



Page 7

ICICIdirect.com Research Universe (Auto) CMP M Cap(|) TP(|) Rating (| Cr) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

Amara Raja (AMARAJ) 352 380 Hold 6,007 16.8 22.3 24.6 21.0 15.8 14.3 12.0 9.6 8.4 33.6 36.2 32.4 27.1 27.8 24.7Apollo Tyre (APOTYR) 118 119 Hold 5,926 12.2 18.2 17.0 9.7 6.5 6.9 4.8 3.8 3.6 18.7 20.5 18.3 18.0 21.5 16.8Ashok Leyland (ASHLEY) 16 15 Hold 4,164 -1.5 0.2 0.7 -10.2 77.3 21.6 202.5 12.6 7.8 -4.0 3.2 7.5 -10.3 1.4 4.9Bajaj Auto (BAAUTO) 1,935 2,450 Buy 56,003 105.2 115.9 139.5 18.4 16.7 13.9 14.3 14.3 11.6 43.5 43.5 41.6 38.5 35.1 34.9Balkrishna Ind. (BALIND) 357 350 Hold 3,446 37.6 50.2 50.7 8.8 6.6 6.6 7.4 6.1 5.5 16.2 16.4 14.4 25.5 16.2 16.4Bharat Forge (BHAFOR) 347 362 Hold 8,091 10.6 15.4 24.7 32.7 22.6 14.0 12.3 9.5 6.9 9.1 12.4 17.9 11.0 14.0 19.0Eicher Motors (EICMOT)` 4,431 5,400 Buy 11,968 148.7 227.7 305.5 29.8 19.5 14.5 19.0 9.4 6.4 19.4 23.8 26.3 19.2 23.4 24.5Escorts (ESCORT)* 122 85 Sell 1,455 14.1 15.5 17.1 6.8 6.2 5.6 3.5 3.1 2.5 9.9 11.2 10.8 9.4 9.6 9.7Exide Industries (EXIIND) 105 90 Sell 8,887 6.1 5.2 5.5 17.0 20.0 19.1 11.0 11.4 10.9 19.6 16.7 15.7 15.3 12.0 11.6Hero Mototcorp (HERHON) 2,000 2,100 Hold 39,935 106.1 104.7 136.1 18.9 19.1 14.7 11.0 12.1 11.0 42.8 39.7 42.9 42.3 33.9 35.2JK Tyre & Ind (JKIND) 147 174 Hold 604 44.9 73.2 87.2 3.3 2.0 1.7 4.5 2.8 3.0 14.5 21.4 19.2 22.4 26.2 24.0M&M (MAHMAH) 894 1,033 Buy 52,786 51.2 58.2 61.3 17.5 15.4 14.6 11.3 10.3 9.2 22.4 20.5 19.3 22.9 21.6 19.4Maruti Suzuki (MARUTI) 1,766 1,663 Hold 51,037 79.2 91.5 117.0 21.3 18.5 14.4 10.1 8.0 6.4 11.9 14.3 15.6 12.9 13.1 14.6Motherson (MOTSUM) 209 239 Buy 18,392 8.0 12.2 15.0 26.0 17.1 13.9 8.5 6.7 5.1 22.0 26.1 30.0 26.3 32.4 32.2Tata Motors (TELCO) 364 475 Buy 108,417 31.0 44.7 52.7 11.7 8.2 6.9 4.7 3.5 3.4 23.2 23.8 23.5 26.3 26.5 25.8Bosch (MICO) 9,095 9,360 Hold 28,559 319.6 350.7 437.1 27.6 25.1 20.2 17.3 15.7 12.6 15.8 15.3 16.6 16.2 15.2 16.9

Sector / CompanyRoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)

Source: ICICIdirect.com Research *Year ending September `Calendar Year ending


Page 8

RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Sector view: Over weight compared to index Equal weight compared to index Under weight compared to index Index here refers to BSE 500

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]

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“Woo customers with products”- Mantra of Expo!content.icicidirect.com/mailimages/IDirect_Auto_Sector... · · 2016-12-05“Woo customers with products”- Mantra of Expo!