Monthly Update | July 2011

August 2, 2011 Yaresh Kothari

+91 22 39357800 Ext: 6844 yareshb.kothari@angelbroking.com

Automobile Sector
A mixed show
Auto sales showed a mixed trend for July 2011, as two-wheelers, utility vehicles (UV) and light commercial vehicles (LCV) maintained their volume momentum; however, passenger car and medium and heavy commercial vehicles (M&HCV) continued to be affected by macro headwinds in the form of higher interest rates and fuel prices. Mahindra and Mahindra (M&M) reported better-than-expected volumes, driven by the strong performance of its automotive segment, while Maruti registered a decline in sales due to sluggish domestic demand and production loss. Going ahead, we expect the two-wheeler segment to sustain its volume momentum, albeit at a slightly lower rate. The passenger vehicle (PV) segments demand is likely to improve with the onset of the festival season. Tata Motors (TML) registered a 6.2% yoy decline (4.2% mom) in total volumes to 63,573 units primarily due to a 36.8% yoy (21% mom) decline in passenger vehicle volumes. Within the CV space, volumes grew by 15.8% yoy (4.5% mom), led by strong 24.4% yoy (9.5% mom) growth in LCV sales. In the PV space, sales volume continued to disappoint; Nano sales plunged 64% yoy and Indigo and Indica sales declined by 30% and 32% yoy, respectively. Maruti reported weak total sales, posting a 25.3% yoy (6.2% mom) dip to 75,300 units. As per management, volumes were affected by the discontinuation of dispatches of old Swift, as the company is planning to rollout the new version of Swift in August 2011. The shifting of manufacturing of Swift Dzire from Manesar to Gurgaon also led to loss of 5,471 units of Dzire. Total domestic volumes fell by 26.2% yoy (5% mom), while exports volume dipped by 18.1% yoy (14.4% mom). M&M reported robust volume growth of 33.6% yoy (down 3.4% mom) in total sales to 56,351 units, aided by better-than-expected 43.6% yoy (11.4% mom) growth in automotive sales and in-line 14.6% yoy growth (down 26.4% mom) in tractor sales. Strong growth in the automotive segment was driven by an impressive 91% yoy (16.5% mom) jump in the four-wheeler pick-up segment and 29.9% yoy (7.8% mom) growth in the passenger UV segment. Exports maintained their strong momentum, growing by 78.2% yoy (27.5% mom). Two-wheelers and three-wheelers: Bajaj Auto (BAL) posted in-line volume growth of 14.2% yoy (flat qoq) to 363,712 units on account of 13.7% yoy (down 1.5% mom) growth in the motorcycle segment and a 18.1% yoy (4.1% mom) increase in the three-wheelers segment. Hero MotoCorp volumes grew by in-line 14.8% yoy (down 4.1% mom) to 491,036 units, led by robust performance across all segments. TVS reported 15.5% yoy (5.2% mom) growth in total volumes to 192,000 units, owing to strong growth in the scooters and motorcycles segments, which grew by 23.9% (12.9% mom) and 18.8% yoy (3.8% mom), respectively.

Please refer to important disclosures at the end of this report

Auto Sector Update | July 2011

Tata Motors
CV volumes continue to be driven by the LCV segment; PV sales disappoint TML posted a 6.2% yoy (4.2% mom) decline in total volumes to 635,573 units, as PV volumes witnessed a sharp 36.8% yoy (21% mom) decline in sales. CV sales were slightly ahead of our expectations, posting healthy growth of 15.8% yoy (4.5% mom) to 45,640 units. The CV segments growth continued to be driven by the LCV segment, which registered strong 24.4% yoy growth (9.5% mom). The M&HCV segment grew by 3.8% yoy (down 2.8% mom). The PV segments sales continued to disappoint; volumes declined as Nano dispatches fell by 64% yoy, Indica and Indigo volumes declined by 32% and 30% yoy, respectively. Total exports, however, grew by robust 31.6% yoy (9.6% mom).

Exhibit 1: Tata Motors Sales trend

Segment Total sales M&HCV LCV Total CV Utility vehicles Cars Total PV Export (Included above) Source: Company, Angel Research July 2011 63,573 17,068 28,572 45,640 3,246 14,687 17,933 5,583 July 2010 67,799 16,449 22,967 39,416 3,320 25,063 28,383 4,241 % chg (6.2) 3.8 24.4 15.8 (2.2) (41.4) (36.8) 31.6 YTD FY2011 256,611 66,183 105,605 171,788 13,873 70,950 84,823 20,469 YTD FY2010 249,510 63,862 82,491 146,353 13,128 90,029 103,157 16,484 % chg 2.8 3.6 28.0 17.4 5.7 (21.2) (17.8) 24.2

Exhibit 2: CV segment Monthly sales trend

(units) 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume(LHS) yoy growth (RHS) (%) 160 140 120 100 80 60 40 20 0

Sep-09

Nov-09

Sep-10

May-10

Nov-10

May-11

Jan-10

Jan-11

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

August 2, 2011

Mar-11

Jul-11

Auto Sector Update | July 2011

Exhibit 3: PV segment Monthly sales trend

(units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume(LHS) yoy growth (RHS) (%) 80 60 40 20 0 (20) (40) (60)

Nov-09

Nov-10

May-10

May-11

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

Maruti
Sluggish domestic demand and loss in production led to a dip in overall sales Maruti reported weak volume numbers for July 2011; volumes declined by 25.3% yoy (6.2% mom) to 75,300 units, as volumes were affected by the discontinuation of dispatches of old Swift and shifting of manufacturing of Swift Dzire from Manesar to Gurgaon. Domestic and export volumes continued to see sluggish demand, registering a 26.2% and 18.1% yoy decline, respectively. As per the new SIAM classification, volumes in the mini, compact and super compact segments declined by 15.6%, 56% and 64.4% yoy, respectively.

Exhibit 4: Maruti Sales trend

Segment Total sales Mini: M800, A-star, Alto, Wagon R Compact: Swift, Estilo, Ritz Super Compact: Dzire Mid-Size: SX4 Executive: Kizashi Total passenger vehicles UV - Gypsy, Grand Vitara Vans: Omni, EeCo Total domestic sales Total exports Source: Company, Angel Research July 2011 38,028 9,099 3,021 2,303 32 52,483 642 13,379 66,504 8,796 July % chg 2010 45,068 (15.6) 20,691 (56.0) 8,492 (64.4) 1,860 386 13,617 23.8 66.3 (1.7) YTD FY2012 356,826 160,080 64,750 28,116 7,820 149 260,915 2,144 54,128 317,187 39,639 YTD FY2011 384,181 158,297 % chg (7.1) 1.1 75,300 100,857 (25.3)

Mar-11

Sep-09

Sep-10

Jan-10

Jan-11

84,881 (23.7) 33,364 (15.7) 5,946 282,488 47,138 333,001 31.5 (7.6) 14.8 (4.7)

76,111 (31.0)

3,375 (36.5)

90,114 (26.2) 10,743 (18.1)

51,180 (22.5)

August 2, 2011

Jul-11

Auto Sector Update | July 2011

Exhibit 5: PV segment Monthly sales trend

(units) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Volume(LHS) yoy growth (RHS) (%) 80 60 40 20 0 (20) (40)

Nov-09

Nov-10

May-10

May-11

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

Mahindra & Mahindra

M&M reported robust sales driven by strong performance of automotive sales M&M reported robust volume growth of 33.6% yoy (down 3.4% mom) in total sales to 56,351 units, aided by better-than-expected 43.6% yoy (11.4% mom) growth in automotive sales (39,633 units) and in-line 14.6% yoy growth (down 26.4% mom) in tractor sales to 16,718 units. In the automotive segment, the four-wheeler pick-up segment grew by an impressive 91% yoy (16.5% mom) as GIO and Maxximo continued to drive performance, passenger UV volumes grew by 29.9% yoy (7.8% mom) and Logan sales continued the strong momentum, registering growth of 116.8% yoy (7.9% mom). Within the tractors space, domestic sales reported a healthy 16% yoy (down 27.2% mom) increase in volumes to 15,699 units (15,925), while exports volumes declined marginally by 3.7% yoy (down 13.5% mom).

Exhibit 6: Mahindra & Mahindra Sales trend

Segment Total sales Passenger utility vehicles (UV) Four-wheel pick-up (GIO + Maxximo) Three-wheelers Logan/Verito LCV/M&HCV Exports Total automotive sales Tractor sales Domestic Tractor sales Exports Total tractor sales Source: Company, Angel Research July 2011 56,351 15,682 13,472 5,395 1,630 1,144 2,310 39,633 15,699 1,019 16,718 July 2010 42,191 12,073 7,053 5,418 752 1,007 1,296 27,599 13,534 1,058 14,592 % chg 33.6 29.9 91.0 (0.4) 116.8 13.6 78.2 43.6 16.0 (3.7) 14.6 YTD FY2012 60,089 44,528 19,453 5,437 4,096 8,027 72,943 3,927 76,870 YTD FY2011 50,935 30,047 17,586 2,068 3,985 5,521 61,250 3,490 64,740 % chg 24.9 18.0 48.2 10.6 162.9 2.8 45.4 28.6 19.1 12.5 18.7 218,500 174,882

141,630 110,142

August 2, 2011

Mar-11

Sep-09

Sep-10

Jan-10

Jan-11

Jul-11

Auto Sector Update | July 2011

Exhibit 7: UV segment Monthly sales trend

(units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) yoy growth (RHS) (%) 140 120 100 80 60 40 20 0 (20)

Jul-09

Jul-10

Mar-10

Nov-09

Nov-10

Mar-11

Sep-09

Sep-10

May-10

Source: Company, Angel Research; Note: UV+Four-wheel pick-up combined from September 2010

Exhibit 8: Tractor segment Monthly sales trend

(units) 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) yoy growth (RHS) (%) 180 160 140 120 100 80 60 40 20 0 (20)

Sep-09

Nov-09

Sep-10

May-10

Nov-10

May-11

Jan-10

Jan-11

Jul-09

Jul-10

May-11

Jan-10

Jan-11

Mar-10

Source: Company, Angel Research

August 2, 2011

Mar-11

Jul-11

Jul-11

Auto Sector Update | July 2011

Bajaj Auto
BAL reported in-line volume growth of 14.2% yoy; three-wheeler segment posted the highest-ever sales BAL reported in-line volume growth of 14.2% yoy (flat mom) to 363,712 units, on account of 13.7% yoy growth (down 1.5% mom) in the motorcycle segment and an 18.1% yoy (4.1% mom) increase in the three-wheeler segment. Pulsar and Discover accounted for ~65% of the overall motorcycle sales, with Discover registering 125,000 units and Pulsar reporting 81,000 units. Three-wheeler sales stood at 45,617 units, the highest ever for BAL. Exports also continued their strong momentum, reporting 34.8% yoy (1.3% mom) growth to 143,996 units.

Exhibit 9: Bajaj Auto Sales trend

Segment Total sales Motorcycles Three-wheelers Exports (Included above) July 2011 363,712 318,095 45,617 143,996 July 2010 318,415 279,781 38,634 106,794 % chg 14.2 13.7 18.1 34.8 YTD FY2012 1,456,527 1,281,146 175,381 571,360 YTD FY2011 1,246,751 1,108,172 138,552 430,693 % chg 16.8 15.6 26.6 32.7

Source: Company, Angel Research

Exhibit 10: Motorcycle segment Monthly sales trend

(units) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Volume (LHS) % yoy growth (RHS) (%) 120 100 80 60 40 20 0 (20)

Sep-09

Nov-09

Sep-10

May-10

Nov-10

May-11

Jan-10

Jan-11

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

August 2, 2011

Mar-11

Jul-11

Auto Sector Update | July 2011

Exhibit 11: Three-wheeler segment Monthly sales trend

(units) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) % yoy growth (RHS) (%) 120 100 80 60 40 20 0 (20)

Nov-09

Nov-10

May-10

May-11

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

Hero MotoCorp
Hero MotoCorp reported 14.8% yoy growth, in-line with our expectation Hero MotoCorp reported in-line 14.8% yoy growth (down 4.1% mom) in sales volume to 491,036 units, led by momentum across all the product segments. New product launches and refreshed product ranges continued to drive the companys volume performance. July sales, however, were at the lowest levels in FY2012. During the month, the companys Haridwar plant was shut down for a few days due to supply constraints.

Exhibit 12: Hero MotoCorp Sales trend

July 2011 Total sales Source: Company, Angel Research July 2010 % chg YTD FY2012 YTD FY2011 % chg 21.6 491,036 427,686 14.8 2,020,613 1,661,725

Exhibit 13: Two-wheeler segment Monthly sales trend

(units) 600,000 500,000 400,000 300,000 200,000 100,000 0 Volume(LHS) yoy growth (RHS) (%) 80 70 60 50 40 30 20 10 0 (10)

Mar-11

Sep-09

Sep-10

Jan-10

Jan-11

Jul-09

Jul-10

Mar-10

Nov-09

Nov-10

Mar-11

Sep-09

Sep-10

May-10

Source: Company, Angel Research

August 2, 2011

May-11

Jan-10

Jan-11

Jul-11

Jul-11

Auto Sector Update | July 2011

TVS Motor
TVS continues to perform well on the scooters and exports front TVS reported in-line 15.5% yoy (5.2% mom) growth to 192,000 units, led by 15.6% yoy (5.5% mom) growth in two-wheelers. Motorcycle sales grew by 18.8% yoy (3.8% mom) to 72,500 units, while the scooter segment registered strong 23.9% yoy (12.9% mom) growth to 50,000 units. Three-wheeler sales posted modest 12.6% yoy (down 8.4% mom) growth, selling 3,500 units. Exports volume continued to see strong traction, registering 29.3% yoy (4.3% mom) growth to 27,500 units.

Exhibit 14: TVS Motor Sales trend

Segment Total sales Motorcycles Scooters Mopeds Total two-wheelers Exports (Included above) Three-wheelers Source: Company, Angel Research July 2011 192,000 72,500 50,000 66,000 188,500 27,500 3,500 July 2010 166,214 61,051 40,357 61,698 163,106 21,273 3,108 % chg 15.5 18.8 23.9 7.0 15.6 29.3 12.6 YTD FY2012 728,130 287,551 167,523 258,133 713,207 105,302 14,923 YTD FY2011 630,054 261,409 135,843 221,895 619,147 74,550 10,907 % chg 15.6 10.0 23.3 16.3 15.2 41.3 36.8

Exhibit 15: Scooter segment Monthly sales trend

(units) 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume (LHS) yoy growth (RHS) (%) 100 90 80 70 60 50 40 30 20 10 0

Nov-09

Sep-09

May-10

Nov-10

Sep-10

May-11

Jan-10

Jan-11

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

August 2, 2011

Mar-11

Jul-11

Auto Sector Update | July 2011

Exhibit 16: Motorcycle segment Monthly sales trend

(units) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume (LHS) yoy growth (RHS) (%) 60 50 40 30 20 10 0 (10) (20) (30)

Nov-09

Nov-10

May-10

May-11
3.4 8.9 7.4 6.3 8.2 3.2 4.6

Jul-09

Jul-10

Mar-10

Source: Company, Angel Research

Outlook
Considering the near-term macroeconomic challenges, we expect the auto industry to register moderate volume growth of 1213% for FY2012. However, we believe low penetration levels coupled with a healthy and sustainable economic environment and favourable demographics supported by increasing per capita income levels will drive long-term growth of the Indian auto industry. As such, we prefer stocks that have strong fundamentals, ability to deliver a strong top-line performance and are available at attractive valuations. We continue to prefer companies with a strong pricing power and high exposure to rural and exports markets.

Exhibit 17: Relative valuation and recommendation

Companies Ashok Leyland Bajaj Auto Hero Honda Maruti M&M Tata Motors TVS Motor Reco. Buy Neutral Neutral Accumulate Accumulate Buy Buy CMP (`) 26 1,486 1,806 1,212 718 956 52 TP (`) 31 1,322 804 1,103 62 Sales (`cr) FY12E 12,792 19,717 22,511 41,039 27,025 145,042 7,502 14,497 22,544 25,192 46,685 30,583 161,960 8,585 P/E (x) 11.5 15.4 16.3 13.5 15.5 6.0 11.2 9.2 14.7 14.8 11.9 14.0 5.5 9.9 P/BV (x) 1.2 7.1 9.4 2.1 3.7 2.0 2.1 1.1 5.8 8.2 1.8 3.1 1.5 1.9 RoE (%) 14.9 51.3 65.3 16.8 25.1 40.6 20.5 17.3 43.5 59.2 16.0 23.9 30.7 20.0 EV/EBITDA (x) 4.1 10.0 9.1 7.9 9.9 3.8 5.5 FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY11-13E EPS CAGR (%) 9.2 3.0 10.2 13.3 9.3 9.6 13.8

Source: Company, C-line, Angel Research; Note: Price as on August 2, 2011

August 2, 2011

Mar-11

Sep-09

Sep-10

Jan-10

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Auto Sector Update | July 2011

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement

Analyst ownership of the stock Ashok Leyland Tata Motors Maruti Suzuki Mahindra & Mahindra Bajaj Auto Hero Honda TVS Motor No No No No No No No Angel and its Group companies ownership of the stock No No No No No No No Angel and its Group companies' Directors ownership of the stock No No No No No No No Broking relationship with company covered No No No No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 2, 2011

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Auto Sector Update | July 2011

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