Automobiles

Channel Check Update

October 30, 2019 Stock-out at RE in key west and north markets!
Quick pointers

PL Coverage  Our interaction with RE channel partners indicate stock out situation in key
Company Name Rating CMP (Rs) TP (Rs) western (Maharashtra, Gujarat and Rajasthan) and northern region (UP).
Ashok Leyland HOLD 79 73
 Festive demand during Dhanteras grew in mid single digit for PV and 2Ws.
Bharat Forge HOLD 463 430
This was led higher discounts and aggressive financing. Sustenance of the
Bajaj Auto Reduce 3,181 2,922
CEAT Sell 967 827
same is the key going forward.
Eicher Motors Reduce 22,049 16,810
Our interaction with leading 2W and PV channel partners indicate sharp retail
Exide Industries Acc 183 208
demand recovery post Navratri in key leading regions. These was led by
Hero Motocorp Acc 2,702 2,856
higher discounts/incentives, aggressive financing and positive sentiments
M&M Hold 612 563
Maruti Suzuki BUY 7,721 7,809 due to monsoon. 2W retails during Dhanteras festive grew in mid-single digit
Motherson Sumi Acc 123 113 for 2W and PV. RE’s retails in key western (Maharashtra, Rajasthan and
Tata Motors HOLD 172 138 Gujarat) and Northern (UP) witnessed stock-out situations. While PV retails
TVS Motors HOLD 479 439 also saw positive festive momentum led by new product launch, CV sales
Source: Company, PL continues to remain weak.

Going forward, wholesales to be guided by inventory management in a run-

up to BS6 transition. Key takeaways from our channel check are-

Royal Enfield: Stock out in key western and northern

regions

 Our interaction with Royal Enfield channel partners indicate stock out in key
western (Maharashtra and Gujarat) and Norther markets (UP) v/s ~30 days’
inventory three months before.

 RE has seen sharp demand up-tick momentum in second half of Navratri and
Diwali leading to festive-festive volume up-tick of 10-15%. The confidence is
more robust in semi urban/ tier 2 and 3 towns v/s metro markets.

 However, inventory in southern market still at ~25-30 days as inquiries to

conversion continues to remain weak.

2W: Inventory decline led by better retails in festive

 Our interaction with 2W channel partners indicate sharp up-tick in rural demand
post Navratri festival. Retails in rural areas have increased by 8-10% while it
remained flat to positive in urban markets.

 We note reduction in 2W inventory by 10 days at ~40-45 days now (v/s 55-60

days) for festive uptick. Going ahead, inventory management due to BS6
transition to influence wholesales in 3QFY20.
Deep Shah
deepshah@plindia.com | 91-22-66322235
 The sharp up-tick in sales was led by higher incentives and aggressive finance

Amber Shukla
schemes by financiers. For example, share of finance has increased from
ambershukla@plindia.com | 91-22-66322426 average ~40-45% to ~70% this festive at some of the key dealerships.

October 30, 2019 1

 Automobiles

PV: Positive momentum continues, post festive demand

sustainability is key

 Our interaction with leading channel partners indicate while key festive like
Dussehra and Diwali should aid to current demand momentum, they expect
festive season sales to remain negative YoY.

 The positive impact of better than expected rainfall is already visible in key rural
markets of western, central, northern and southern regions as we note
increased inquiries to conversion leading to 6-7% growth in retails.

 Inventory levels at MSIL increased but remain comfortable level at ~30-35 days
(v/s ~25-30 days earlier).

 Waiting period for new launch – a) Kia Seltos – strong booking momentum
continues with waiting period now at ~4-5 months, b) XL6 waiting period at ~4-
6 weeks and same for new Ertiga as well, c) S-presso waiting period increased
to ~6-7 weeks (from ~4-6 weeks earlier).

 Upcoming launch – a) MSIL to launch Petrol variant of Brezza by end of CY19,

b) MM to launch BS6 compliant vehicles soon.

CV: Demand weak but inventory correction visible

 CV demand continues to remain under pressure led by extended rain/ flood

like situation delaying infrastructure projects and decline in institutional
requirements led by delay in government tenders for bulk cargo applications.

 We note decline in AL inventory level at ~20-25 days (v/s 30-35 days) while
TTMT CV inventory declined to ~30-40 days (v/s ~50 days).

View:

 PV: MSIL sales is expected to decline 6.6% YoY while grow 11.8% MoM. MM
automotive sales is expected to decline 15.7% YoY (+13.6% MoM).

 2W: BJAUT, HMCL and TVSL dispatches are expected to decline 20%, 19%
and 17% respectively YoY.

 CV: We expect AL and TTMT CV wholesales to decline 40.6% and 37% YoY,
respectively.

 Tractor: MM tractors sales are expected to decline 0.8% YoY at 47kunits.

October 30, 2019 2

 Automobiles

Snapshot of volume for October-19

Company Sales Oct-19 Oct-18 YoY gr. Sep-19 MoM gr. FY20 YTD FY19 YTD YoY gr.
Maruti Suzuki 1,37,100 1,46,766 -6.6 1,22,640 11.8 8,78,011 11,22,093 -21.8
Mahindra & Mahindra 96,250 1,05,792 -9.0 80,354 19.8 5,05,685 5,75,266 -12.1
Tata Motors 38,000 62,173 -38.9 36,376 4.5 2,80,577 4,29,033 -34.6
Hero MotoCorp 5,90,000 7,34,668 -19.7 6,12,204 -3.6 41,24,340 49,73,664 -17.1
Bajaj Auto 4,09,000 5,06,699 -19.3 4,02,035 5.8 28,29,765 30,72,784 -7.9
Ashok Leyland 9,000 15,146 -40.6 8,780 5.9 77,546 1,09,233 -29.0
TVS Motor 3,30,000 3,98,427 -17.2 3,15,912 4.5 21,39,027 24,15,036 -11.4
Eicher Motors
Royal Enfield 64,500 70,451 -8.4 59,500 8.4 4,16,681 5,05,914 -18.0
VECV 3,950 5,980 -33.9 3,784 4.4 28,651 41,003 -30.1

Source: Company, PL

October 30, 2019 3

 Automobiles

Valuation Summary
CMP Sales (Rs bn) EBITDA (Rs bn) PAT (Rs bn) EPS (Rs) RoE (%) PE (x)
Company Names Rating TP (Rs)
(Rs) FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E

Ashok Leyland HOLD 79 73 263.6 290.5 256.4 264.1 29.6 31.4 23.3 22.1 17.4 20.3 12.5 11.1 5.9 6.9 4.3 3.8 26.0 26.0 14.9 13.4 13.4 11.5 18.6 20.9
Bharat Forge HOLD 463 430 83.6 101.5 104.9 110.3 17.2 20.6 21.2 22.1 8.2 10.3 10.4 11.1 17.7 22.2 22.4 23.9 18.8 20.6 18.3 17.3 26.2 20.9 20.7 19.4
Bajaj Auto Reduce 3,181 2,922 252.2 302.5 309.1 338.9 48.4 49.8 50.5 54.2 43.9 46.8 50.3 54.4 151.6 161.8 173.8 187.8 24.3 22.9 21.9 21.3 21.0 19.7 18.3 16.9
CEAT Sell 967 827 62.8 69.8 73.7 80.2 6.1 6.4 6.5 7.2 2.7 3.0 2.1 2.2 67.2 73.4 52.0 53.7 10.8 11.1 7.4 7.2 14.4 13.2 18.6 18.0
Eicher Motors Reduce 22,049 16,810 89.6 98.0 96.0 113.8 28.1 29.0 23.7 27.1 21.0 22.1 18.0 21.1 771.0 811.6 658.9 773.8 34.0 27.8 18.8 19.4 28.6 27.2 33.5 28.5
Exide Industries Acc 183 208 91.9 105.9 111.4 121.6 12.4 14.1 15.4 16.7 7.1 7.4 8.1 9.0 8.4 8.7 9.6 10.5 13.7 12.9 13.0 13.0 21.9 21.2 19.1 17.4
Hero Motocorp Acc 2,702 2,856 322.3 336.5 315.3 363.7 52.8 49.3 42.9 50.2 37.0 33.8 31.5 36.9 185.1 169.5 157.5 184.4 33.8 27.5 23.6 25.4 14.6 15.9 17.2 14.7
Mahindra & Mahindra Hold 612 563 486.9 536.1 502.9 509.4 62.2 66.4 59.7 60.0 40.5 48.2 38.2 37.1 34.0 40.4 32.1 31.2 14.2 14.9 10.9 10.0 18.0 15.1 19.1 19.6
Maruti Suzuki BUY 7,721 7,809 797.6 860.2 790.2 964.6 123.1 108.0 83.1 114.4 79.0 73.6 64.7 85.8 261.4 243.6 214.3 283.9 20.2 16.7 13.7 17.2 29.5 31.7 36.0 27.2
Motherson Sumi Systems Acc 123 113 562.9 635.2 686.1 770.7 51.2 53.5 51.0 67.6 17.2 16.1 14.3 19.8 5.4 5.1 4.5 6.3 19.5 15.9 12.5 15.7 22.7 24.0 27.1 19.6
Tata Motors HOLD 172 138 2,915.5 3,019.4 3,065.0 3,223.4 338.0 297.9 280.8 320.1 77.8 -14.8 14.2 69.0 22.9 -4.4 4.2 20.3 10.1 -1.9 2.3 10.6 7.5 -39.6 41.2 8.5
TVS Motors HOLD 479 439 151.8 182.1 183.0 215.7 11.7 14.3 15.8 18.8 6.6 6.7 7.7 9.6 13.9 14.1 16.2 20.3 25.1 21.5 21.0 22.2 34.3 34.0 29.6 23.6

Source: Company, PL

October 30, 2019 4

 Automobiles
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Ashok Leyland Hold 75 68
2 Bajaj Auto Reduce 2,922 3,163
3 Bharat Forge Hold 430 424
4 CEAT Sell 827 970
5 Eicher Motors Reduce 15,800 18,285
6 Exide Industries Accumulate 209 196
7 Hero Motocorp Accumulate 2,856 2,713
8 Mahindra & Mahindra Hold 563 563
9 Maruti Suzuki BUY 7,809 7,391
10 Motherson Sumi Systems Accumulate 111 99
11 Tata Motors Hold 138 127
12 TVS Motors Hold 439 446

PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

October 30, 2019 5

 Automobiles

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Date: 2019.10.30 09:05:33 +05'30'