India Equity Research | Automobiles Sales Update

AUTOMOBILES
Ending 2010 on a high note

„ Bajaj Auto: Steady volumes January 3, 2011

Bajaj Auto’s (BAL) two wheeler sales (up 11% Y-o-Y, down 8% M-o-M) remained
steady with exports posting positive growth. Pulsar and Discover continued to
contribute over 70% to total sales. Three wheeler sales jumped 5% Y-o-Y and
dipped 3% M-o-M. The company raised prices by up to INR 1,500 varying across
Deepak Jain
models w.e.f. January 1, 2011, to mitigate rising raw material costs.
+91-22-6623 3313
deepak.jain@edelcap.com
„ Hero Honda: Growing on a higher base
Hero Honda (HH) reported strong volumes of 501,111 units (up 33% Y-o-Y, 16% Chetan Vora
M-o-M). Volumes are particularly impressive considering the seasonality +91-22-6620 3101
(December is generally weaker than November). This strong growth may have chetan.vora@edelcap.com
reflected a certain degree of restocking with dealers. The company has effected
price hikes in the INR 500-1,500 range in the domestic market.

„ Mahindra & Mahindra: Sturdy growth across all segments

Mahindra & Mahindra (M&M) reported sturdy volumes across segments with
overall volumes growing 13% M-o-M and 38% Y-o-Y. Within the automotive
segment, four wheel pickups (up 47% Y-o-Y, 32% M-o-M) were extremely strong,
possibly on account of the sub tone Maxximo being rolled out across the country.
Utility vehicles (up 24% Y-o-Y, 29% M-o-M) reflected the strong underlying
demand even as tractor volumes (up 31% Y-o-Y) were better than expected.

„ Tata Motors: Strong MHCV and LCV sales

MHCVs (up 14% Y-o-Y, 18% M-o-M) and LCVs (up 35% Y-o-Y, 21% M-o-M) led
overall growth. MHCVs rebounded strongly after two months of sluggish sales
(post change in emission norms) whereas LCVs registered the highest ever
monthly sales. Passenger vehicles, particularly the small car Indica (down 25% Y-
o-Y) continued to disappoint. Nano sales revived in December (5,784 units sold)
albeit from a low base.

„ Outlook: Growth rates may slow in 2011

The auto industry ended 2010 on a high note with buoyant sales across segments.
Going into CY11, despite potential headwinds (higher interest rates and crude oil
prices) as well as a higher base, we expect volume growth to continue backed by
a strong economy. The growth rates though may moderate to the mid teens
across segments (from the 25%+ levels in CY10). Top picks in the space are
Mahindra & Mahindra and Tata Motors while we are cautious on MSIL.

Sales performance
Units Dec-10 Dec-09 % Change YTD FY11 YTD FY10 % Change
Bajaj Auto 276,803 252,004 9.8 2,875,734 2,043,723 40.7
Hero Honda 501,111 375,840 33.3 3,948,013 3,413,596 15.7
Mah. & Mah. 50,396 36,440 38.3 423,711 336,208 26.0
Tata Motors* 67,441 55,237 22.1 566,937 436,280 29.9
*Excluding Fiat sales

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 Auto Sales Update

„ Bajaj Auto: Steady

• Two wheeler sales (up 11% Y-o-Y and down 8% M-o-M) were broadly in line. Pulsar
and Discover continued to contribute over 70% to total sales.

• Three wheeler sales jumped 5% Y-o-Y and dipped 3% M-o-M.

• The company raised prices by up to INR 1,500 varying across models w.e.f. January
1, 2011, to mitigate rising raw material costs.

Table 1: Bajaj Auto

Volume (units) Dec-10 Dec-09 % Change Nov-10 % Change YTD FY11 YTD FY10 % Change
Motorcycles 243,675 219,920 10.8 265,036 (8.1) 2,550,350 1,794,455 42.1
Scooters-ungeared 0 509 (100.0) 0 0.0 27 4,613 (99.4)
Total two wheelers 243,675 220,429 10.5 265,036 (8.1) 2,550,377 1,799,068 41.8
Three wheelers 33,128 31,575 4.9 34,195 (3.1) 325,357 244,655 33.0
Total 276,803 252,004 9.8 299,231 (7.5) 2,875,734 2,043,723 40.7
Export (included above) 95,388 91,369 4.4 90,869 5.0 926,575 676,627 36.9
Source: Company

„ Hero Honda: Growing on a higher base

• HH’s volumes, at 501,111, were up 33% Y-o-Y and 16% M-o-M. Sequentially, sales
were particularly good considering historically sequential sales are negative.

• The company has effected price hikes in the INR 500-1,500 range in the domestic
market.

• During the month, the Hero Group and Honda signed a MoU enabling the former to
acquire the latter’s 26% stake in Hero Honda.

• Post change in management control, Crisil has reaffirmed its rating of ‘AAA’ on the
debt programmes of Hero Honda, reflecting the company’s robust business and
financial risk profiles.

Table 2: Hero Honda

Volume (units) Dec-10 Dec-09 % Change Nov-10 % Change YTD FY11 YTD FY10 % Change
Total 501,111 375,840 33.3 421,366 18.9 3,948,013 3,413,596 15.7
Source: Company

„ Mahindra & Mahindra: Sturdy growth across segments

• Sales were strong across all product segments—UVs (up 23% Y-o-Y), pickups
including Gio and Maxximo (up 47% Y-o-Y), three wheelers (up by over 100% Y-o-
Y) and tractors (up 31% Y-o-Y)—reflecting the underlying strong demand.

• The company launched the off roader Thar CRDe during the month at INR 5.99 lakh
(ex-showroom Delhi) to target the offroading enthusiasts, retro look seekers &
people wanting to make a unique statement.

• M&M is contemplating increasing prices of its vehicles by nearly 1% across all

products to combat rising raw material costs, especially steel and rubber.

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 Auto Sales Update

Table 3: Mahindra & Mahindra

Volume (units) Dec-10 Dec-09 % Change Nov-10 % Change YTD FY11 YTD FY10 % Change
Utility vehicles 14,705 11,904 23.5 11,447 28.5 122,527 109,212 12.2
4 Wheeler pickups 10,161 6,933 46.6 7,699 32.0 73,972 49,002 51.0
LC Vs 856 700 22.3 678 26.3 8,275 7,188 15.1
Logan 896 308 190.9 876 2.3 6,720 3,889 72.8
3 Wheelers 5,928 2,909 103.8 4,468 32.7 44,471 31,910 39.4
Total automotive
32,546 22,754 43.0 25,168 29.3 255,965 201,201 27.2
(domestic)
Exports 1,516 1,247 21.6 1,500 1.1 13,480 7,338 83.7
Total automotive 34,062 24,001 41.9 26,668 27.7 269,445 208,539 29.2
Tractors
Tractors (domestic) 15,135 11,517 31.4 16,975 (10.8) 145,493 121,528 19.7
Exports 1,199 922 30.0 1,018 17.8 8,773 6,141 42.9
Total tractors 16,334 12,439 31.3 17,993 (9.2) 154,266 127,669 20.8
Grand total 50,396 36,440 38.3 44,661 12.8 423,711 336,208 26.0
Source: Company

„ Tata Motors: Strong MHCV and LCV sales

• On the Commercial vehicle front, both MHCV (up 14% Y-o-Y and 18% M-o-M) and
LCV (up 35% Y-o-Y, 21% M-o-M) led overall growth. MHCVs rebounded strongly
after two months of sluggish sales post implementation of emission norms. LCV
sales registered highest ever monthly sales.

• On the passenger car front, while Indica (compact segment) sales continued to
disappoint (down 25% Y-o-Y), Indigo range (sedan segment) sales were marginally
postive (up 3% Y-o-Y). Nano sales revived on the back of various promotional
schemes, registering sales of 5,784 units.

• The company also announced increase in prices on some of its passenger vehicles
and all commercial vehicles w.e.f. January 1, 2011, on back of rise in input costs.

• To boost sagging sales of Nano, the company is offereing four year manufacturers
warranty or 60,000 km (whichever is earlier) against the earlier scheme of 18
months warranty or 24,000 km whichever is earlier.

• TTMT is devloping a double-trailer truck in its prima range of world trucks for the
overseas market which is expected to be ready FY12 end.

• The company plans to invest around INR 4 bn to develop a new set of fuel efficient
engines for its light commerical vehicles (turcks), helping it increase sales in
overseas markets.

Table 4: Tata Motors

Volume (units) Dec-10 Dec-09 % Change Nov-10 % Change YTD FY11 YTD FY10 % Change
Domestic
M&HC V 17,368 15,302 13.5 14,703 18.1 134,611 101,147 33.1
LC V 24,558 18,217 34.8 20,376 20.5 180,966 154,061 17.5
UV 2,765 1,710 61.7 3,106 (11.0) 28,361 22,076 28.5
C ars 11,157 12,944 (13.8) 11,725 (4.8) 133,579 117,939 13.3
Nano 5,784 3,610 60.2 509 1,036.3 46,760 17,534 166.7
Total domestic 61,632 51,783 19.0 50,419 22.2 524,277 412,757 27.0

Exports 5,809 3,454 68.2 4,203 38.2 42,660 23,523 81.4

Total 67,441 55,237 22.1 54,622 23.5 566,937 436,280 29.9
Source: Company

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 Auto Sales Update

Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021,
Board: (91-22) 2286 4400, Email: research@edelcap.com

Vikas Khemani Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206

Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): Auto & Auto Components

Auto: Ashok Leyland, Bajaj Auto Ltd, Exide India, Hero Honda Motors, Mahindra & Mahindra, Maruti Suzuki, Tata Motors

EW indices Recent Research

1,400 Date Company Title Price (INR) Recos

01-Dec-10 Auto Sales Strong & Steady

1,250 Update

1,100
30-Nov-10 Escorts Disappointing quarter; 190 BUY
Result Update

950 09-Nov-10 Tata JLR surprise yet again; 1,270 BUY

Motors Monthly Update

800 01-Nov-10 Auto Sales Strong festival demand;

Update Monthly Update
31-Dec-09 30-Jun-10 31-Dec-10

EW Auto Index Nifty

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 116 45 12 176 Buy appreciate more than 15% over a 12-month period

* 3 stocks under review

Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 110 53 13

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