FINSTREET

AUTOMOBILE INDUSTRY
EDITION – 11 July’21
INTRODUCTION

AUTOMOBILE INDUSTRY

In 2020, India was the fifth-largest auto market, with ~3.49 million units combined sold
in the passenger and commercial vehicles categories. It was the seventh largest
manufacturer of commercial vehicles in 2019. The two wheelers segment dominate the
market in terms of volume owing to a growing middle class and a young population.
Moreover, the growing interest of the companies in exploring the rural markets further
aided the growth of the sector.

Domestic automobiles production increased at 2.36% CAGR between FY16-20 with

26.36 million vehicles being manufactured in the country in FY20. Overall, domestic
automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million
vehicles being sold in FY20.

automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94%
during FY16-FY20. Two wheelers made up 73.9% of the vehicles exported, followed by
passenger vehicles at 14.2%, three wheelers at 10.5% and commercial vehicles at 1.3%.

The industry has attracted Foreign Direct Investment (FDI) worth US$ 25.40 billion
between April 2000 and December 2020, according to the data released by Department
for Promotion of Industry and Internal Trade (DPIIT).
Government initiative

The Government of India encourages foreign investment in the automobile sector and
has allowed 100% foreign direct investment (FDI) under the automatic route.

• In Union Budget 2021-22, the government introduced the voluntary vehicle

scrappage policy, which is likely to boost demand for new vehicles after removing old
unfit vehicles currently plying on the Indian roads.

• In February 2021, the Delhi government started the process to set up 100 vehicle
battery charging points across the state to push adoption of electric vehicles.

• The Union Cabinet outlaid Rs. 57,042 crore (US$ 7.81 billion) for automobiles & auto
components sector in production-linked incentive (PLI) scheme under the Department
of Heavy Industries.
 FUNDAMENTALS

Automobile Industry PE – 46.83

Mahindra & Mahindra

Market Cap in Crore 95,918.32
2018 2019 2020
Revenue 92,094.00 1,04,721.00 95,179.00
EBITDA 13,857.00 16,292.00 13,627.00
EBITDA Margin 14.86% 15.56% 14.32%
PAT 6,851.00 4,650.00 -1,364.00
PAT Margin 7.35% 4.44% -1.43%
EPS 69.14 48.86 1.15
ROCE 15.43 12.31 5.72
ROE 20.74 12.19 -3.43
Debt to Equity 1.53 1.78 2.08
Current Ratio 1.20 1.18 1.19
Price to Book value Ratio 2.20 1.84 0.80
EV/EBITDA 7.87 8.19 9.12
Market Cap to Sales 0.87 0.70 0.33
Price Earning Ratio 248.69

Mahindra & Mahindra deals in trucks, tractors & SUV segments in Auto Industry.
Revenue of Mahindra & Mahindra has seen decline since last 3 years, with that EPS has also fallen.
With revenue falling, Return on Capital Employed & Return on Equity has also fallen down.
Market cap to sales ratio has seen a decline which is a good sign.
Debt-to-Equity has risen to 2.08 which is a bad sign for a company.
PE ratio is higher than that of the Industry PE, stating that the stock is overvalued.
 Tata Motors
Market Cap in Crore 1,01,707.03
2019 2020 2021
Revenue 3,06,234.00 2,64,338.00 2,53,855.00
EBITDA 27,630.00 20,960.00 34,931.00
EBITDA Margin 9.15% 8.03% 13.98%
PAT -28,933.70 -10,975.23 -13,016.14
PAT Margin -9.58% -4.20% -5.21%
EPS -84.89 -33.55 -35.13
ROCE -14.61 -1.92 -1.27
ROE -37.19 -17.94 -22.17
Debt to Equity 1.76 1.91 2.46
Current Ratio 0.85 0.85 0.93
Price to Book value Ratio 0.98 0.41 2.09
EV/EBITDA -65.55 6.12 9.67
Market Cap to Sales 0.20 0.10 0.46
Price Earning Ratio -

Tata Motors has a wide spread business in Auto Industry making Buses, coaches, cars, trucks
construction vehicles etc.
The biggest relief for the company is reviving sales growth of JLR
Revenue of Tata Motors has seen decline since last 3 years, However the company is improving
on the margin front.
EPS & ROE has been negative for last 3 years which is bad sign for a company.
Market cap to sales ratio is decent when compared to the industry.
Debt-to-Equity ratio has also risen to 2.46 which is not a good sign.
Since the companies EPS is negative the PE ratio is also negative.
 Bajaj Auto
Market Cap in Crore 1,15,628.17
2019 2020 2021
Revenue 30,358.00 29,919.00 27,741.00
EBITDA 6,534.00 6,620.00 6,201.00
EBITDA Margin 21.52% 22.13% 22.35%
PAT 4,578.00 4,890.40 4,551.00
PAT Margin 15.08% 16.35% 16.41%
EPS 170.29 180.11 167.85
ROCE 30.11 28.24 24.16
ROE 20.97 21.79 18.60
Debt to Equity 0.01 0.01 -
Current Ratio 1.45 1.56 2.51
Price to Book value Ratio 3.63 2.70 3.90
EV/EBITDA 12.15 8.82 17.07
Market Cap to Sales 2.78 1.96 3.83
Price Earning Ratio 21.88

Bajaj Auto has an exposure in two-wheeler segment of auto industry

Revenue of Bajaj Auto has seen decline since last 3 years.
EPS when higher is considered better, in case of Bajaj Auto the EPS has been ranging around 170
proving to be a very good sign for the company.
Market cap to sales ratio has seen a rise which is a bad sign.
There is no Debt on the company.
PE ratio is lower than that of the Industry PE, stating that the stock is undervalued.
 Nifty Auto

The NIFTY Auto Index is designed to reflect the behaviour and performance of the Automobiles
segment of the financial market. The NIFTY Auto Index comprises 15 tradable, exchange listed
companies. The index represents auto related sectors like Automobiles 4 wheelers, Automobiles
2 & 3 wheelers. NIFTY Auto Index is computed using free float market capitalization method,
wherein the level of the index reflects the total free float market value of all the stocks in the
index relative to particular base market capitalization value.
Constituents of Nifty Auto
TECHNICALS

• Chart Type – Candle stick

• Chart time frame – Weekly
• Indicators – EMA (51) (Yellow), Bollinger Bands (20,2), RSI (14), MACD
(12,26,9), Volume.
Nifty Auto

Interpretation from Chart:

• Bollinger bands use two parameters- Mean and Standard deviation from
such mean. From the above chart we can infer that the index is taking
support near its mean i.e. 20 period Simple Moving Average (SA).
However, the standard deviation between the Upper band and the price
is very low implying the index might take support at its mean and
bounce back to make a new high after bursting of Bollinger bands.
• In most of the times, RSI has bounced back after touching the levels of 20
and currently, after watching historical supports, it is expected to
bounce back after the levels of 50 taking the index to new highs.
• The Index is constantly making higher lows taking support near 51 EMA.
• The MACD are converged indicating no clear crossover. However, it is
still in positive zones indicating that the uptrend is intact.
 Mahindra & Mahindra

• Currently, the stock is trading has breached its mean and has given a weekly
close below it. The standard deviation between the lower band and the price
is reducing over a period of time indicating a trending downside move to its
immediate weekly support levels.
• RSI is continuously taking support at its mean which is 50 and expected to
move up around the levels of 80.
• The stock has experienced above average buying volumes.
• Here also, after giving a positive crossover to EMA, higher lows are
consistently seen with increase in the stock price.
• MACD has been showing a negative crossover, but not of concern as it is
in the positive zone.
 Tata Motors

• Due to a sell off witnessed by the stock in last week, the stock has breached its mean levels and
gave a weekly closing below it, thereby indicating a reversal of an uptrend. The standard deviation
between the price and lower band is reducing which is showing signs of weakness in the stock in
the near term.
• RSI has been bounced back from the higher levels of 80 and again here support is mean at the
levels of 50.
• The stock has experienced above average buying volumes in the past and currently stock is giving
a pull back.
• There was a great decline seen in the stock since 2017, but it is recovering since the mid of 2020
and had given a positive crossover from the EMA line. The stock being in its growth stage is very
away from the EMA.
• A positive crossover was about to happen in the MACD, but due to a great fall of price in share in
previous week, the crossover got failed.
• Higher volumes and especially higher buying volumes are seen in the stock since past 18 months.
 Bajaj Auto

• Currently, the stock is taking support at its mean levels and is expected to post new highs since an
uptrend is intact and standard deviation between the upper band and price is reducing too.
• RSI is showing a downfall after touching the levels of 80 and is expected to bounce back from the
levels of 45 which are the support levels, making new highs.
• The stock has above average buying volumes.
• After giving a positive crossover in the mid-2020, the stock is touching the EMA and again making
new highs.
• MACD has given a negative crossover but in the positive zone which means that the trend is intact
and not a concern.
 LATEST NEWS

Mahindra partners with Magenta to deploy 100 electric three-wheelers Treo Zor
(8th July-2021)- Mahindra recently collaborated with Magneta to deploy 100 units of
Treo Zor, an electric three-wheeler, to be used for delivery of essential and non-
essential items. Treo Zor will be inducted into the delivery fleet of Magenta’s new e-
mobility platform known as Electric Vehicle Enabled Transport (EVET). Mahindra Treo
Zor has already crossed the sales milestone of 1300 vehicles. It has been recognized as
India’s leading small commercial vehicle and has already gained a market share of 59%
in its category. The sale of electric two and three-wheeler vehicles is expected to
increase significantly in the upcoming 5 years as most e-commerce and food delivery
companies are likely to adopt these vehicles to reduce emission and fuel costs. Thus,
this move by Mahindra will give it a push start in this sector.
Tata Motors Group wholesales up 134% YoY in Q1 FY22 (8th July 2021) – The
global wholesales of Tata Motors increased by 134% in Q1 FY22 as compared to Q1
FY21. The main increase was seen in the sales of Tata Motors' commercial vehicles and
Tata Daewoo, which was higher by 355% in Q1 FY22 as compared to Q1 FY21. Also
passenger vehicles were higher by 102% in Q1 FY22 as compared to Q1 FY21. The auto
major reported net loss of Rs 7,605.40 crore in Q4 FY21 lower than net loss of Rs
9,894.25 crore in Q4 FY20 and total revenue from operations during the quarter
increased 41.8% YoY to Rs 88,627.90 crore.
Bajaj Auto Edges Higher After Sales Jump 24% In June 2021 (1st July 2021) - Baja
Auto reported a total sale of 3,46,136 units in June 2021, compared to 2,78,097 units
in the corresponding month last year, marking a growth of 24% YoY. Bajaj Auto's total
domestic sales in June stood at 1,61,836 units, compared to 1,51,189 units in the same
month last year, recording a growth of 7% on a yearly basis and the total exports stood
at 1,84,300 units in June 2021 compared to 1,26,908 units in June 2020, registering a
45% YoY growth. This resulted in an increase of around 2% of the share price on BSE.
 CONCLUSION

After recovering from the effects of the COVID-19 pandemic, the Indian auto sector is
predicted to develop rapidly in 2021-22. Electric cars, particularly two-wheelers, are
expected to sell well throughout 2021-22. By 2026, the Indian automobile sector
(including component manufacturing) is projected to be worth Rs. 16.16-18.18 trillion
(US$ 251.4-282.8 billion). According to a research conducted by the CEEW Centre for
Energy Finance, there is a US$206 billion opportunity for electric cars in India by 2030.