April Cars UVs

1
April 2020
Cars & UVs
© 2018 CRISIL Ltd. All rights reserved.

Presentation Flow
Short Term
Demand Long Term

Exports
Competitive Scenario
Profitability
Supply
Ratings Summary
2
3
Demand Estimation

4
Short term

Domestic demand forecast
2020-21 P 2020-21 P 2020-21 P

2018-19 A 2019-20 A
(Optimistic) (Base) (Pessimistic)
Units Growth Units Growth Growth Growth Growth
('000) (%) ('000) (%) (%) (%) (%)

Passenger Vehicles 3,378 3 2,772 (18) (14)-(16) (24)-(26) (34)-(36)
Passenger Cars 2,219 2 1,698 (24) (14)-(16) (23)-(25) (31)-(33)
Small Cars 2,031 3 1,591 (22) (13)-(15) (22)-(24) (30)-(32)
Large Cars 188 (9) 107 (43) (29)-(31) (36)-(38) (43)-(45)
Utility Vehicles and Vans 1159 4 1075 (7) (15)-(17) (25)-(27) (39)-(41)
Utility Vehicles 942 2 943 0 (14)-(16) (25)-(27) (41)-(43)
Vans 217 13 132 (39) (16)-(18) (23)-(25) (31)-(33)
Source: SIAM, CRISIL Research
5
Cost of acquisition parameters remain high in fiscal 2020
Parameters Impact
Fiscal 2019 Fiscal 2020 Fiscal 2021P
Overall demand 2.7% (17.9)% (24)-(26)%
Demand side variables
-- Real GDP growth 7.0% ~5% ~1.8%
-- CPI growth 3.4% 4.8% 4.4%
-- Crop Value index N F* F*
-- Average Car Price growth 6% 2-4% 1-3%

Cost of ownership
-- Petrol Prices (Rs./ liter)** 78.3 75 74-76
-- Diesel Prices (Rs./ liter)** 70.7 68 66-68
-- Car finance rates N N N
Supply side variables & financing
-- Finance Penetration 77.5% 77-79% 78-80%
-- LTV 74.5% 70-73% 70-73%

-- Model launches NF F N
-- Regulations/taxes NF N N
-- Capacity expansion/constraints N N N
NOTE : NF: Not favorable, N: Neutral, F: Favorable (GDP Forecasts are subject to downward revision)
CPI index base 2000-01 ; *Fiscal 2021 crop value index favorable assuming normal monsoon; **assuming taxes will stay at the current level and benefit of reduction in crude oil price will be passed to customer
Source: CRISIL Research
6
6
Current slowdown in passenger vehicle sales has been the longest in the
past eighteen years
PV sales, which have been largely immune to downturns, have now seen a longer slowdown as compared to the previous 5 quarter slowdown during FY13-FY14
2Q 5Q 7Q
50% Farm loan waiver,
6th pay
commission, excise
duty cut Weak economy, high cost of
30% ownership, excise duty hike
on large cars and SUVs,
Lower ED subsequently

10%
-10%
-30%
Q1
Q4
Q1
Q2
Q3
Q4
Q4
Q1
Q2
Q3
Q3
Q4
Q1
Q2
Q2
Q3
Q4
Q1
Q1
Q2
Q3
Q4
Q4
Q1
Q2
Q3
Q2
Q3
Q4
Q1
Q2
Q3
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Passenger vehicles
Note: Arrows represent period of negative growth for passenger vehicles

Source: CRISIL Research nQ – ‘n’ consecutive quarters of negative growth
7
25 clusters account for ~70% COVID-19 cases in India; more than 1/3rd PV
demand from these centers hit and at risk of lockdown extension
• Higher share of urban in Cars & UVs (~57-62%) to significantly
Cluster with more than 5% share in pan- India cases
impact demand as COVID-19 is observed more in urban
regions.
Dehi(11%) Cluster with between 2 to 5% share in pan- India cases
Cluster with around 1% share in pan- India cases • Share of replacement, exchange and additional buyers at ~60%,
Bharatpur(1%)
Gautam Buddha Nagar (1%) this segment can postpone purchasing decisions
Agra(1%)
Jaipur(3%) Lucknow(1%) • Also, this segment has high finance penetration at ~75-80% and
amidst income uncertainty due to economic slowdown,
Jodhpur(1%)
consumers would be averse to take loans.

Ahmedabad(7%) Kota(1%)
• Smooth BS-IV transition as well as higher stocking in Mar’20 on
Bhopal(1%)
Indore(5%) expectation of higher sales has resulted in inventory days (~30-
Vadodra(1%)
35 day) resuming to normal levels and hence, no inventory
Surat(2%) Kolkata (1%) build-up is estimated once the lockdown is lifted.
Thane (2%)
Mumbai (16%)
Hyderabad (2%)
Guntur(1%)
Pune(3%)
Kurnool (1%) Small
UVs Cars
Bangalore(1%)
Chennai (2%)
Kasargode (1%)
Coimbatore(1%) Tiruppur (1%)
COVID Ca s es a s of 22nd Apri l, 2020
8
Launch of new models and lower increase in TCO for small cars to
result in lower decline in fiscal 2021 compared to UVs
New launches to remain robust in FY21 Lower TCO & TCA beneficial for Small Cars
(Market Share) (No. of major launches)
12% Compact UV
Mobilio, Xcent,
Venue, Small Car
i10 Grand, Jazz, KUV100, Seltos, S-
Elite Baleno Brezza, 7% 7%
Presso,
i20,Celerio, Creta, Baleno Venue,
Ciaz, Ecosport Elite i20, Tiago, Seltos, S-
Triber, 7% 4-6%
Sonet, Aura,
20% Ciaz Creta Presso, 8 6%
7 Altroz 6%
18% Triber, XUV-
7
16% 300
WR-V, 6
14% 5 5 Brezza, Ignis,
6-8 5 0-2% 1-3%
12%

10% 3 4
Nexon 5
8% 3 (1)-1%
6% -1% -3%
1 2
4%
2% 1
17% 17% 18% 9% 3% 16% 13-15%
0% 0 FY 19 E FY 20 P FY 21 P
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 P
FY 19 E FY 20 P FY 21 P
TCO TCA TCO TCA
Note: A vehicle is considered a new launch for a year and a half post its launch
Note: Cost hike is calculated for compact segment (Dzire Base Model) & compact-UV segment (Creta)
A new launch grabbing at least 1% share of total PV sales in that fiscal is considered a major launch
TCA – Total Cost of Acquisition; TCO – total Cost of Ownership
Source: SIAM, CRISIL Research Source: SIAM, CRISIL Research
• Multiple launches (mainly UVs) in FY20 have gained significant • In FY20, TCO fell despite increase in price due to lower fuel prices and
market share and aided growth in UV segment LTV
• Expected new launches is H1FY21 is estimated to be deferred to • This has resulted in significant hike in upfront costs; alongwith hike in
H2FY21. registration costs resulting in higher TCA impacting consumer
sentiments
• However, continued traction of models launched in FY20 to cushion
steeper decline in volumes • In FY21, TCO & TCA for Small Cars are expected to be lower than UVs;
and as such, to result in higher demand within the lower-priced segment
• New model launches within Passenger Car segment like S-Presso,
Altroz & Aura expected to gain significant market share • However, cumulative impact of increase in TCA will deter any significant
uptick in demand
9
10
Long term

FY21 volumes estimated to be at decade old level
For the first time in a decade, consecutive years of decline in volumes
‘000 units Cars & UVs sales

4,000
3,500
3,000
2,500
2,000
1,500

1,000
500
-
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
• Compared to slowdown due to global financial crisis in fiscal 2009, the current scenario seems much gloomier as day-to-day activities have been
brought to a standstill impacting both supply and demand dynamics.
• Nationwide lockdown has resulted in plant shutdown impacting supply dynamics whereas income uncertainty due to economic slowdown is
expected to impact consumer sentiments.
• Post significant decline in fiscal 2020, outbreak of COVID-19 is estimated to take industry volumes to pre-2011 levels in fiscal 2021
11
Moderate growth post fiscal 2021 over low base
Cost is most important factor for driving Cars & Utility vehicle volumes
Million
units New Launches - Launch of One-time event - Pay
5.0 Innova, Sumo, Indigo, Verna, commission disbursement
Regulation - Excise for Low Base – Consecutive years of double-digit
i10, Swift; SUV increased but then One-time event - Demonetisation decline is estimated to boost wholesale over
decreased subsequently impact in 2016-17 decade-low base of FY21
Regulation - Fiscal
Regulations - Excise duties for
stimulus, cut in excise
small cars reduced duties Regulation - Slightly lower tax rates
4.0 post GST in 2017-18

3.4 3.3
3.0 2.8
2.5
2.1 Total PV domestic demand

1.9
0% CAGR
2.0 (2010-11 to 2013-14)
1.5
Cost of ownership: Cost of Ownership Cost of ownership: GDP is

1.0 Cost of ownership: Cost of ownership:
2% CAGR 3% CAGR ~1-3% CAGR proxy for
5% CAGR 8% CAGR
income
Real GDP: Real GDP: Real GDP: Real GDP: Real GDP: growth
9.4% CAGR 8.1% CAGR 5.1% CAGR 7.2% CAGR <6% CAGR
0.0
FY 05
FY 12
FY 19
FY 06
FY 07
FY 08
FY 09
FY 10
FY 11
FY 13
FY 14
FY 15
FY 16
FY 17
FY 18
FY 20
FY21 P
FY 25 P
12
Expected fuel cost rationalization, lower interest rates and increase in fuel
efficiency to restrict higher TCO growth in next 5 years
Cost of ownership to not rise substantially in long term Huge potential exists in India in terms of cars per 1000
700 car penetration vs GDP per capita

(₹ '000)
180 600
158 Italy
160 143 147 8 500
140 134 6 6 14 Germany
122 122 126 13 UK
6 12 Japan
120 5 6 6 11 400
9 10 10 51
100 55 56
51 300 USA
47

80 49 45
S Korea
China
60 200 Brazil
40 72 85
59 62 64 66 70 100 India
20 Mexico
- Thailand
0
FY 15 E FY 16 E FY 17 E FY 18 E FY 19 E FY 20 P FY 21 P FY 22 P FY 23 P FY 24 P FY 25 P
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Loan Repayment Fuel Cost Insurance Cost Maintenance Cost
Note: Numbers above the bar graphs represents total annual expenditure (cost of ownership) for an entry level
Note: X-axis represents cars per 1000 population, Y-axis represents GDP per capita
petrol car. assuming taxes will stay at the current level and benefit of reduction in crude oil price will be passed
Source: CRISIL Research, OICA (2015), World Bank
to customer
• Muted short-term demand due to increase in TCA over the last 2 fiscals as well as in fiscal 2020 would slowdown participation from car buyers
• Subdued 1-3% cost of ownership in the long term as petrol prices rationalize, expected increase in fuel efficiency due to CAFE norms from FY23
onwards and lower interest rates to lead to long term demand
• Domestic potential to remain high given reasonably low penetration levels (23 cars/1000 people as of FY19). It is expected to reach 27 in fiscal 2024.
13
UVs and small cars to drive sales growth in long term
PV industry is expected to grow post fiscal 2021 UVs’ contribution to overall sales to increase
20% 13-15%
11-13% 11-13%
10%
8% 29% 34%
1%
39% 39% 41%
0%
8%
-1% 6% 4% 4%
-10% (2)-(4)% 2%
-20% -15%
(22)-(24)%
-30% (25)-(27)% (24)-(26)% 63% 60% 57% 57% 58%

-40%
(36)-(38)%
-50%
FY 15-20
FY 15-20
FY 15-20
FY 15-20
FY 21-25 P
FY 20-21 P
FY 21-25 P
FY 20-21 P
FY 20-21 P
FY 21-25 P
FY 20-21 P
FY 21-25 P
FY 15 P FY19 FY 20 FY 21 P FY 25 P
Small cars Large Cars UV+Vans Overall Small Cars Large Cars UV+Vans
NOTE : YTD – April-December

• UVs and Vans to grow at higher pace in the long term

 The segment is expected to grow due to popular models, entry of new players & shift in preferences to UVs from Large & mid-size car segment
 Compact UV segment growth trajectory gained momentum in the last 5 years with aggressive pricing, premium features as well as launches of
petrol variants.
• The growth for small cars in the long run is expected to be aided by rising income and traction in premium hatchback segment
• Demand for large cars will be impacted by intense competition from Compact UVs and as such, expected to decline
14
15
Exports

Exports forecasts
2020-21 P 2020-21 P 2020-21 P

2018-19 A 2019-20 A
(Optimistic) (Base) (Pessimistic)

Units Growth Units Growth Growth Growth Growth
('000) (%) ('000) (%) (%) (%) (%)
Passenger Vehicles 676 (10) 677 0 (12)-(14) (17)-(19) (22)-(24)
16
Exports to decline in fiscal 2021 due to COVID-19 outbreak
Exports to decline as global economy grapples with COVID-19 Share of exports improving in newer geographies
(%)
Exports (million units) Exports Growth
16% 39% 39%

42%
60% 60% 56%
63%
10% 5%
4% 5%
7% 4% 4%
4% 5% 4% 5% 5%
4%
3% 5%
3% 3% 3% 2% 11% 10%
2% 4%
-1% 7% 7% 3% 12%
9% 12% 14%

3%
0% 3% 11%
14%
16% 29%
-10% 26% 24% 23%
20%
8% 13%
FY 15
FY 16
FY 17
FY 18
FY 19
9M FY19
9M FY20
(17)-(19)%
0.56 0.60 0.62 0.65 0.76 0.75 0.68 0.68
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY21P MEXICO SOUTH AFRICA USA CHILE ALGERIA SAUDI ARAB Others
Source: SIAM, CRISIL Research Source: DGFT, CRISIL Research
• Exports had grown ~5% y-o-y in Apr-Feb 2020 as OEMs focused on exports amid slowdown in domestic markets
• However, outbreak of COVID-19 virus & subsequent nationwide lockdown and global slowdown resulted in ~44% y-o-y decline in March’2020
• Exports have remained flat in fiscal 2020 in volume terms as a consequence of significant decline in March’2020
• In FY21, exports are expected be hit significantly as economies are grappling with COVID-19 leading to weak demand & trade restrictions
• Share of exports in top 10 countries affected by COVID-19 virus is ~18-20% with US’s share the largest at ~14%
• With comparatively lower COVID-19 cases in Mexico, African and Middle-East countries, we expect some demand from these regions
17
Post fiscal 2019, Hyundai continues to gain significant market share in fiscal 2020
OEMs focusing on improving exports Share of exports in overall production rising for Hyundai and Maruti
(%)
5% 4% 6% 7% 100% 100%
10% %
17% 16% 10% 9% 90%
12%
6% 9% 11% 11% 71%
9% 10%
12% 11% 12% 8% 68%
16% 68%
19% 16% 16% 15% 61% 63%
17% 21% 24% 24% 19%

25% 22% 20% 24% 25% 23% 26%
23%
17%
FY19
FY 16
FY 17
FY 18
FY 20
6%
6%
PV industry Hyundai Maruti Suzuki Nissan Ford India Volkswagen General

Hyundai Ford Maruti Volkswagen GM Nissan Motor India Pvt. Ltd. Others FY 17 FY 18 FY19 FY 20 Motors
• Maruti and Hyundai, which account for ~65-70% of India’s domestic sales, account for ~40% of India’s exports in fiscal 2020
• Hyundai’s share is expected to sustain as they have added 50,000 units capacity in fiscal 2019 & increasing exports of Verna, Creta, Santro & Venue
• Significant growth (~29% y-o-y) has been observed in large car segment due to higher sales of Nissan Sunny and Hyundai Verna
• Exports have also been aided by contribution from new models like Kia Seltos, Hyundai Venue, Renault Triber and Maruti S-Presso
• Declining demand for Ecosport, Figo and Figo Aspire are impacting export volumes of Ford
• Non-asian OEM’s Ford, Nissan and VW continue to treat India as their key base for exporting to other countries
18
19
Competitive scenario

Competitive pressures has increased significantly in UV Segment
Launch of multiple models in UV reflects intense competition in the segment
FY14 FY15 FY16 FY17 FY18 FY19 FY20
7941
6909
6709
4615
4049 4167
3072
2946 3019
2115 1826
20081882 1777 1587

Small Cars Large Cars UVs Vans PV
Notes: Score represent HHI index; lower value indicates higher competition
Maruti extends its market share across PV segment, Kia now 4 th largest player in UV within 8 months of launch
11% 5%
23% 25% 17% 37% 5% 25%
32% 33% 6% 33% 28%
18% 47% 3%
61% 56% 9% 8% 7%
21% 21% 74% 10%
13% 17% 18%
29% 19% 15%
84% 90%
65% 8% 20% 42% 13% 19%
56% 55% 54% 47% 51%
42%
24% 30% 24% 26% 25%
12%
2%
FY17
FY14
FY20
FY14
FY20
FY14
FY20
FY17
FY14
FY17
FY20
FY14
FY17
FY20
FY17
Small Cars Large Cars UVs Vans Passenger Vehicles
Maruti Suzuki India Ltd. Hyundai Motors India Ltd. Mahindra & Mahindra Ltd. Kia Motors India Ltd Others
20
Entry of new players is expected to keep competition intense
Model per player is declining as low-selling models are discontinued
- Exit of Renault in FY 15 - Entry of Tata Motors & Volvo Cars in FY 14 - Exit of VW in FY 16 & Ashok Leyland in FY 17
- Baleno, Figo Aspire, Kwid launched in FY 16 - Exit of Hindustan Motors in FY 16 - VW and Fiat entered the segment in FY 18 & GM in FY 19
- Ignis, Ameo, Tigor launched in FY 17 - Exit of Tata Motors in FY 17 & Renault in FY 18 - Marazzo, XUV300, Kicks and Harrier launched in FY 19
- Exit of GM in FY 19 - Exit of GM in FY 19 - Rexton & Sumo discontinued in FY19 and FY20 respectively
- Santro, Freestyle, Amaze launched in FY 19 - Accord, Cruze discontinued in FY19 - Venue, Kona, Seltos, XL6, Triber ZS EV, Carnival, Velfire, Velfire, Gurkha
- Vibe, Tour S, Indica, Indigo discontinued in FY 19 - Yaris & Civic launched in FY 19 and Hector launched in FY 20
- Altroz, Aura, Glanza and S-Presso launched in FY 20 while - Beetle discontinued in FY 20
Brio, Etios, Eon, Polo & Nano discontinued
67
56 59 56 57

50 51
42 42 42
34 33 37 35 34 35
30 32 29 26 25 24 21 20
13 14 14 14 13 16 16 16 15 14 16 15 17
12 12 12 12 12 12 12 12 11 11 11
FY20
FY20
FY20
FY 13
FY 17
FY 18
FY 13
FY 14
FY 18
FY 14
FY 14
FY 15
FY 16
FY 19
FY 15
FY 16
FY 17
FY 19
FY 13
FY 15
FY 16
FY 17
FY 18
FY 19
Small Cars Large Cars UVs and Vans
No. of players No of models
• Korean Kia Motors & Chinese MG Motors (part of SAIC) are the new entrants in FY20.
• Market Share gained by all new launches as of FY20 is ~16%, significantly contributing to volumes
• New models like S-Presso, Glanza, Aura & Altroz have been introduced in the small car segment
• In FY21, launch of new models expected to be deferred in the second half due to outbreak of COVID-19 virus
21
22
Supply

Subdued demand and lower production to impact utilisation in fiscal 2021
Utilization levels on a declining trend Top players running on optimum capacity
Effective Capacity
Player estimate (as on 31st Production (FY20) Capacity utilization in Capacity utilization in
Mar 2020) (in '000 (in '000 units) FY19 FY20
units)
Maruti 1900 1553 100% 82%
Hyundai 763 648 93% 85%
Tata Motors 564 149 40% 26%
75% 72% 75% 73% Ford India
69% 66% 66% 440 193 58% 44%
60%
Renault-Nissan

43-45% 480 201 38% 42%
General Motors 165 70 46% 42%
Toyota 310 100 52% 32%
Honda 300 98 60% 33%
FY13 E
FY17 E
FY18 E
FY14 E
FY15 E
FY16 E
FY19 E
FY20 E
FY21 P
Volkswagen 179 78 51% 44%
Total 5745 3433 73% 59%
Source: CRISIL Research Source: CRISIL Research
Estimated capacity additions

Capacity
• Utilisation levels decline on account of subdued demand growth and
Player Location Investment Commissioning
mn units
capacity additions in fiscal 2020.
Kia Motors* Anantpur AP 0.3 Rs 70 bn In progress
MG** Halol, Gujarat 0.80 Rs. 20 bn FY 20 • Utilisation to be ~43-45% in fiscal 2021 as demand to decline
Maruti Suzuki Mehsana Gujarat 0.25 Rs 100 bn In progress significantly on account of COVID-19 outbreak
PSA Tiruvallur , TN 0.1 Rs 7 bn FY 22
Note: *Capacity for Kia will be incremental 0.1 mn each year; **MG has taken over GM’s Halol plant.
23
24
Profitability

Low share of fixed cost entails operational breakeven at lower utilization levels
Fixed Cost head Share

Employee expenses 3-5%
Rent 0-2% ● Share of traded goods have increased from ~12-17%
Repair & maintenance 0-2% in FY18 to ~30-35% post complying with safety and
Insurance 0-2%
BS-VI norms
Miscellaneous 2-4%

Total 8-12% ● Higher proportion of variable costs enables OEM to
Variable Cost head Share cut costs to protect margins
Raw Material 45-50% ● This enables OEMs to absorb impact of BS-VI price
Traded goods 30-35% hike / offer significant discounts to boost sales once
Consummables 1-3% lockdown is lifted
Power & Fuel 1-3%
● Operational breakeven at ~36-40% capacity
Royalty 3-5%
utilization vis-à-vis estimated capacity utilization for
Advertising & Sales 1-3%
Freight 1-3% FY21 at ~52-56% (for four players considered in
Total 88-92% profitability calculation)

Note:- Share of costs is estimated as % of operating costs only for Maruti (FY20)
Source: Company Reports, CRISIL Research
25
Operating margins to fall in FY21
Gross margins seems higher as share of traded goods increase Operating margin (%) for players
75% 262 300 Player FY 16 FY 17 FY 18 FY19
246 250 239 248 235-245 275
234 Maruti Suzuki 15.5 15.3 15.0 12.7
65% 207 210-220 250
225
55% 200 Hyundai 9.9 11.8 11.7 11.2
54-58% 175 Tata Motors 6.4 3.4 7.2 8.3
45% 150
43-47% 125
35% 100 Ford India 5.7 (9.3) (2.5) 7.1
39% Higher share of 75
35% Toyota 8.9 7.5 10.5 8.7
25% 31% 32% traded goods 50
27% 28% 25
15% 25% 0 Honda 10.1 9.5 9.2 7.1
FY15 E
FY16 E
FY17 E
FY18 E
FY19 E
FY20 E
FY13 E
FY14 E
FY21 P
Volkswagen 6.6 7.5 9.2 NA

Fiat 10.7 22.8 13.0 11.5
Raw material index Gross margin Industry 13.0 13.8 13.4 11.7
Note: The above data represents the financials of Maruti Suzuki, Hyundai Motors, Honda Cars and Fiat Source: Company Reports, CRISIL Research
India. Raw material prices indexed to 100 for fiscal 2002.
Operating margin to decline on account of muted demand and low utilisation

16.0% 110%
• As a consequence of increase in share of traded goods over the past fiscals,
87% 89% 92% 91%
14.0% 76% 77%
82%
74% 90% higher gross margins witnessed optically
12.0% 13.8% 13.4% 70%
13.0% 52-56%
10.0% 11.5% 11.7% 50% • Softening of raw material prices is offset by increase in cost due to safety-
8.0% 9.7% 30% related and BS-VI upgradation impacting the margins in FY20
8.1% 8-9%
6.0% 10%
4.0%
5.5-6.5%
-10% • With lower utilisation and subdued demand, operating margins are expected to
FY13 E FY14 E FY15 E FY16 E FY17 E FY18 E FY19 E FY20 E FY21 P
Op Margin Capacity Utilisation

significantly decline in fiscal 2020 and fiscal 2021
Note: For industry EBITDA, we have considered financials of Maruti Suzuki, Hyundai Motors, Honda Cars and • Margins for fiscal 2021 are estimated to be lower than that of fiscal 2009 (~7)%
Fiat India. Maruti operating margin – 10% in 9MFY20 vis-à-vis 13.5% in 9MfY19
26
RoCE to decline in fiscal 2021 as demand declines substantially
RoCE to remain under pressure RoCE (%) for players
Player FY 16 FY 17 FY 18 FY19
26.7% 26.6% Maruti Suzuki 27.6 29.9 28.7 24.1
23.7%
21.0% Hyundai 24.1 33.5 30.4 30.9
19.8%
15-17% Tata Motors 5.1 (2.6) 2.5 13.0
15.2% 15.7%
11-13% Ford India 0.0 0.9 10.1 6.8
Toyota 16.1 13.0 15.4 10.7

Honda 9.2 5.9 12.5 11.3
Volkswagen 8.2 11.0 11.0 NA

FY15 E
FY18 E
FY20 E
FY13 E
FY14 E
FY16 E
FY17 E
FY19 E
FY21 P
Fiat 11.8 9.2 11.6 8.1
Industry 23.7 26.7 26.6 18.6
Source: CRISIL Research Source: Company Reports, CRISIL Research
Note: The above data represents the financials of Maruti Suzuki, Hyundai Motors, Honda Cars
and Fiat India
• RoCE to decline significantly in fiscal 2020 and 2021 impacted by significant drop in margins and lower volumes
• With capacity utilisation at ~52-54% levels, future capacity expansions plans are expected to be deferred
27
Working capital cycles to remain under pressure in fiscal 2020 and fiscal 2021
WC cycle to be impacted in fiscal 2021 as OEMs extend credit to dealers as well as disburse timely payment to suppliers
Working Capital
(Days)
(10)-(15)
(15)-(20)
-21.9 -23.4 -23.1
-24.3 -24.7
-27.3
-29.9

FY15 E
FY19 E
FY13 E
FY14 E
FY16 E
FY17 E
FY18 E
FY20 P
FY21 P
Working Capital days deteriorated as sales have been impacted in fiscal 2019
FY 13 E FY 14 E FY 15 E FY 16 E FY 17 E FY 18 E FY 19 E
Days inventory 21.2 22.6 24.3 27.7 25.9 22.9 22.3
Debtor days 11.9 13.1 9.1 10.1 9.2 12.0 14.0
Creditor days 55.0 59.0 57.7 60.9 62.5 64.8 61.0
WC Cycle -21.9 -23.4 -24.3 -23.1 -27.3 -29.9 -24.7

Note: 1. The above data represents the financials of Maruti Suzuki, Honda Cars India, Fiat India and Hyundai Motors.
28
Ratings Summary
Long Term Rating Summary Median Long Term Credit Rating (Rated entities = 2)
Nov-19 Nov-18
AA AAA
Median Short term credit rating (Rated entities = 3)

50% 50% 50% 50%
Nov-19 Nov-18
A1 A1
AAA
BBB
C
BB
B
AA
D
Nov-18 Nov-19
• During last one year, there was no change in the outstanding ratings for the sector.
• The outlook for the rated entities within the sector remains the same as last year.
29
30
Annexure

Safety regulatory norms applicable on all the existing models
Cost escalations
Timeline
• Installation of airbags, seat belt reminders, reverse parking sensors, speed limit reminders and a manual Rs 6,000 -
July override switch for central locking systems mandatory for existing models
Safety norms – All 8,000
2019 models
• Norms for full frontal impact, offset frontal impact and lateral or side impact mandatory for existing
models Rs 3,000 -
Oct • OEMs need to make structural changes along with use of robust exterior design

Crash test norms - • In Maruti’s range, the cars that already meet the norms include Swift, Dzire, Celerio, Ertiga, Brezza, Ciaz, 6,000
2019 All models Baleno, Ignis and the S-Cross
Refer next
April • Bharat Stage VI (BS-VI) emission norms.
slide
Emission norms -
2020 All models
Rs 3,000 -
Oct • Pedestrian safety norm mandatory for existing models
6,000
• OEMs need to make few cosmetic changes and change the material type in the vehicle design
2020 Safety Norms
31
BS VI regulations demand major reduction in PM and NOX levels; new
components will be added and upgraded to comply with the norms
Key pollutant reduction targets under BS IV to BS VI transition Pollutant Devices / Subsystems to be included to reduce the Pollutants
Type of Vehicle Unit BS IV BS VI Change
 Exhaust Gas Recirculation
Diesel  Selective Catalytic Reduction
NOX- Nitrous oxide
HC gm/km 0.3 0.17 -43%  3 way catalyst
 Lean NOx Trap
NOx gm/km 0.25 0.08 -68%
 Secondary Air Injection
PM gm/km 0.025 0.0045 -82%
 3 way catalyst
Petrol HC- Hydrocarbons  Diesel Oxidation Catalyst

 Purge Control Valve
HC - - - -
 Canister
NOx gm/km 0.08 0.06 -25%
PM- Particulate
 Diesel Particulate Filter
PM gm/km - 0.0045 Newly added matter
 Gasoline Particulate Filter
System in a diesel vehicle Devices / Subsystems to be included to reduce the Pollutants Impact on diesel PVs
Engine management ECU, Injector, Purge Control Valve, sensors  Diesel vehicles account for ~20% of total PV sales
Air- fuel flow control Mass Air Flow Sensor, Fuel pump, e-Throttle body, turbocharger (VGT)  High
After-treatment systems Diesel particulate filter, EGR, Catalyst, SCR  Cost escalations by Rs. 40,000-50,000 for small car and Rs.
70,000-90,000 for Large cars and UVs
On- board diagnostics For tracking emissions
System in a Petrol vehicle Devices / Subsystems to be included to reduce the Pollutants Impact on petrol PVs
Engine management ECU, Injector, Purge Control Valve, sensors  Low
Air- fuel flow control Fuel pump, e-Throttle body, turbocharger  Cost escalations by Rs. 8,000 - 10,000 for small car and Rs.
After-treatment systems Gasoline particulate filter, EGR, Catalyst, SCR/LNT 15,000-20,000 for Large cars and UVs
On- board diagnostics For tracking emissions
32
BS-VI price hike lower than anticipated
Passenger
Segment Small Cars Large Cars Compact Uvs Other Uvs Vans
vehicle
Sales proportion of total domestic PV
57% 5% 26% 8% 4% 100%
sales (fiscal 2020 estimate)
Estimated average price of vehicle (in

400-600 800-1000 650 - 950 1400-1600 350-450 650-800
'000 Rs.)

Fuel type Petrol Diesel Petrol Diesel Petrol Diesel Petrol Diesel Petrol Diesel Petrol Diesel
Estimated proportion of vehicles sold

85% 15% 65% 35% 40% 60% 15% 85% 90% 10% 65% 35%
- Fuel typewise
Price hike estimated - Fuel type wise

10-15 22-37 10-15 45-55 15-25 40-50 35-45 45-55 15-25 35-45 10-20 35-45
(in '000 Rs)
BS VI cost escalations estimated-

10-20 30-40 30-40 45-55 20-25 20-25
Segment wise (in '000 Rs)
% price increase due to BS VI

2-4% 2-4% 3-5% 2-4% 5-7% 2-4%
norms
33
EV penetration to reach ~4% in fiscal 2025 from current ~0.1% in fiscal 2019
TCO & COA of EVs for cab aggregator lower due to higher running TCO & COA of EVs for personal car remain a challenge
(₹ '000s) (₹ '000s) Cost of Acquisition (RHS) (in ‘0000 Rs.)
Cost of Acquisition (RHS) (in ‘0000 Rs.) 600 280
600 150
500 500
140 230
400 400
130
300 300 180
120 200
200
130
110 100

100
- 100 - 80
FY20 (Pre pudget) FY20 FY24 FY20 FY24
TCO Diesel TCO Petrol TCO CNG TCO BEV TCO Petrol TCO BEV
• Total Cost of Ownership (TCO) and Cost of Acquisition (COA) of Electric Vehicles (EVs) for cab aggregators are lower compared to diesel or CNG alternatives
• Taxi segment accounts for ~10-15% of sales within passenger cars and within taxi segment, cab aggregators are expected to lead adoption of Electric vehicles resulting
in an estimated ~25% adoption of Electric vehicles by fiscal 2025
• FAME-2 subsidy is incentivised only towards commercial use and no benefits are provided to personal car owners
• TCO and COA of EVs for personal car is still higher (~35% and ~27% respectively) compared to petrol alternative due to their low running and as such, not a viable
use-case for adoption of electric vehicle
• Thus, the share of EVs to total passenger car sales expected to remain low (~4%) in fiscal 20254; current penetration is ~0.1% in fiscal 2019.
• Currently, charging infrastructure, range anxiety and lack of large OEM presence is hindering EV adoption.
34
Electric vehicles are still at a nascent stage in India
 Economies of scale and Localization of manufacturing to
 Lack of charging infrastructure
Hindrances for reduce costs
 High initial costs
users  Low traversable distance per charge Triggers for  Improvement in battery technology (lower costs with higher
increase in EV durability)
 Lack of government policy penetration  Innovative methods to reduce upfront costs like leasing of
Hindrances for
 Lack of charging infrastructure battery
OEMs  High upfront R&D costs  Increasing awareness and promote usage of EVs
OEM’s are preparing for Electric Vehicle (EV) revolution

- Plans to launch WagonR electric in end 2019 or start 2020 and target cab aggregators
- Maruti Suzuki has setup lithium-ion battery manufacturing plant in Hansalpur, Gujrat in a joint venture with Toshiba Corp and Denso Corp from fiscal 2021
Maruti Suzuki - It will source technology from Toyota Motor Corp. and Denso Corp. for the development of a compact and ultra high -efficiency powertrain
- Aims to produce ~35,000 electric cars annually from fiscal 2021; Suzuki plans to set up the full lithium-ion battery ecosystem, before Maruti begins selling the vehicles in India
- Hyundai Motor is planning to introduce multiple electric vehicles in India in fiscal 2020 and has earmarked ~Rs. 7000 Crs. over a period of 7 years for developing EVs
- Global Kona has a range of 482 kms on a single charge and 64KWh battery capacity, launched in India in August 2019
Hyundai - Expected to test EV-based mobility solutions on ride-sharing and car rental platforms Ola and Revv respectively
- Prioritizing Conventional Hybrids Over Pure Electric Cars

Toyota - To jointly develop electric vehicles with Maruti Suzuki and come out with better hybrid solutions for the Baleno and Vitara Brezza
- Toyota and Panasonic to setup a JV for producing batteries for EVs
- Renault to launch electric Kwid in India by 2020 and price around 6-10 lakhs to compete directly with the Maruti WagonR EV, Tiago EV
Renault - The battery and battery management system are under development in China
- The second generation Nissan Leaf is expected to make its India debut in 2019; Leaf will be imported as a CBU unit and homologation procedure is in progress
Nissan - Keen to bring the ENote to India but will wait till the ecosystem grows a comprehensively for Electric car in India
- M&M launched Glyd, premium tech-based mobility service solution with 10 eVeritos in Mumbai
Others - Tata to enter EV space with launch of multiple models – H2X EV, Tiago EV and Tigor EV
- MG Motor has launched ZS EV models in fiscal 2020
35
EV Assessment framework
Total Cost of Ownership (TCO) Cost of Acquisition (COA) Charging Infrastructure

Battery Prices
• Battery prices have been falling sharply over the last 10 years at a rate of ~20% annually. This fall is
expected to continue at a rate of ~10% annually over the next five years. Presently, a battery is priced at
around $260 per kWh and is expected to fall to around $143 per kWh in the next five years. • Globally, ~90% of cars are charged at
• Moreover, going forward, we believe battery production will take place in India although cell home and hence, it is not a deterrent
manufacturing will still be done outside India. This will also further reduce the battery prices. for adoption.
• However, considering that taxis run
more than they are stationary, they
Dependence on subsidy would require public charging
• India provides 50% lower incentive than the countries with lowest global incentives. EV subsidy is a lower infrastructure.
priority as compared to other social subsidies of the government as per market interactions.
• FAME II subsidy announced but it is expected to be exhausted by FY22; however, it is available only for
commercial use (taxi segment)
36
37
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1

© 2018 CRISIL Ltd. All rights reserved.

Demand Long Term

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2020-21 P 2020-21 P 2020-21 P

Units Growth Units Growth Growth Growth Growth

('000) (%) ('000) (%) (%) (%) (%)

© 2018 CRISIL Ltd. All rights reserved.

Passenger Cars 2,219 2 1,698 (24) (14)-(16) (23)-(25) (31)-(33)

Small Cars 2,031 3 1,591 (22) (13)-(15) (22)-(24) (30)-(32)

Large Cars 188 (9) 107 (43) (29)-(31) (36)-(38) (43)-(45)

Utility Vehicles 942 2 943 0 (14)-(16) (25)-(27) (41)-(43)

Vans 217 13 132 (39) (16)-(18) (23)-(25) (31)-(33)

Source: SIAM, CRISIL Research

© 2018 CRISIL Ltd. All rights reserved.

-- Finance Penetration 77.5% 77-79% 78-80%

-- LTV 74.5% 70-73% 70-73%

© 2018 CRISIL Ltd. All rights reserved.

Note: Arrows represent period of negative growth for passenger vehicles

© 2018 CRISIL Ltd. All rights reserved.

Coimbatore(1%) Tiruppur (1%)

COVID Ca s es a s of 22nd Apri l, 2020

© 2018 CRISIL Ltd. All rights reserved.

© 2018 CRISIL Ltd. All rights reserved.

‘000 units Cars & UVs sales

© 2018 CRISIL Ltd. All rights reserved.

Source: SIAM, CRISIL Research

© 2018 CRISIL Ltd. All rights reserved.

2.1 Total PV domestic demand

Cost of ownership: Cost of Ownership Cost of ownership: GDP is

700 car penetration vs GDP per capita

© 2018 CRISIL Ltd. All rights reserved.

© 2018 CRISIL Ltd. All rights reserved.

NOTE : YTD – April-December

• UVs and Vans to grow at higher pace in the long term

© 2018 CRISIL Ltd. All rights reserved.

2020-21 P 2020-21 P 2020-21 P

© 2018 CRISIL Ltd. All rights reserved.

Passenger Vehicles 676 (10) 677 0 (12)-(14) (17)-(19) (22)-(24)

16% 39% 39%

© 2018 CRISIL Ltd. All rights reserved.

Source: SIAM, CRISIL Research Source: DGFT, CRISIL Research

17% 21% 24% 24% 19%

© 2018 CRISIL Ltd. All rights reserved.

PV industry Hyundai Maruti Suzuki Nissan Ford India Volkswagen General

Source: SIAM, CRISIL Research Source: SIAM, CRISIL Research

© 2018 CRISIL Ltd. All rights reserved.

© 2018 CRISIL Ltd. All rights reserved.

Source: SIAM, CRISIL Research

© 2018 CRISIL Ltd. All rights reserved.

No. of players No of models

Source: CRISIL Research

© 2018 CRISIL Ltd. All rights reserved.

© 2018 CRISIL Ltd. All rights reserved.

Source: CRISIL Research Source: CRISIL Research

Estimated capacity additions

© 2018 CRISIL Ltd. All rights reserved.