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Sector Update | 9 January 2012

Automobiles
Auto Expo 2012: Focus shifts from small cars to UVs/MPVs
Two-wheelers, especially scooters, also saw increase in competitive intensity
We attended the Auto Expo 2012 in Delhi to get a pulse of things to come in the Indian automobile sector. The first two days of the Auto Expo, which we attended, were business days. There were more than 100,000 visitors over these two days. A large number of these were non-business attendees, which indicates high level of interest for automobiles among people in general and demonstrates significant latent demand. Key takeaways: A marked shift in focus from small cars towards UVs/MPVs was visible. Against 8 new UVs/MPVs, only one new small car was showcased. The number of new cars showcased declined from four in the earlier Auto Expo to just one, which indicates peaking of competitive intensity in the small car segment in FY12. The two-wheeler segment saw much activity, with 10 new motorcycles/scooters showcased. There were four motorcycle launches and six scooters were showcased. Most interesting launches, in our view, were Maruti's Ertiga, Ford's Ecosport and Bajaj's RE60. Among the interesting concepts showcased were Maruti's XA Alpha (compact SUV), Hyundai's Hexa Space (MPV) and Hero Motocorp's Leap (hybrid scooter). Our view: Auto Expo 2012 highlights increasing competitive intensity in UVs/MPVs and scooters, and the peaking of it in small cars. Given our positive view on interest rates and stable commodity prices, we believe that fourwheelers could see a revival in performance. We prefer Tata Motors and Maruti Suzuki. In two-wheelers, we prefer Hero MotoCorp, as margins are set to improve.
Key launches in Auto Expo 2012
Company Motor Cycle HMSI Hero MotoCorp Hero MotoCorp Suzuki Scooter HMSI Hero MotoCorp Suzuki Piaggio Yamaha Hero MotoCorp Car Bajaj Auto GM UV/MPV Maruti Suzuki Tata Motors Nissan Ford GM AL Hyundai Maruti Suzuki LCVs Tata Motors Tata Motors Ashok Leyland Dream Yuga 110cc Ignitor 125cc Passion X-Pro Hayate 110cc New Dio 110cc Maestro 110cc Swish 125cc Vespa 125cc Ray - Concept (125cc) Leap - Concept RE60 (200cc) Sail Ertiga Safari Storme Evalia Ecosport MPV concept Stile Hexa Space XA Alpha 714 (7 ton) 1017 (10 ton) Partner (6 ton) Apr-May12 2HFY13 1HFY13 NA Feb-Mar12 1QFY13 Mar-12 1HFY13 2HFY13 Concept 2HFY13 1QFY13 1QFY13 1HFY13 Oct-12 2HFY13 Concept Concept Concept Concept NA NA NA Hero MotoCorp Hero MotoCorp Hero MotoCorp Hero MotoCorp HMSI HMSI HMSI HMSI HMSI HMSI NA Maruti Suzuki M&M M&M M&M M&M M&M M&M M&M M&M Tata Motors Tata Motors Tata Motors Looks very similar to existing product in that segment Sporty looking product, supplied by Honda Variant of Passion with more features Another similar looking executive segment bike New Dio with upgraded engine Targeted at male population; plugs gap in HMCLs scooter portfolio Priced at INR45,431 ex-showroom Delhi Retro looks with powerful 125cc engine Feminine looking product, with 125cc engine Good looking concept hybrid scooter Interesting product - competes with 3W or taxi? Positioned in premium small car segment & sourced from China JV 7-seater based on R3 concept showcased in 2010 Auto Expo Refreshed Safari on new platform with ~85% new parts MUV targeted at Toyota Innova Would be launched in 1ltr Petrol & 1.5ltr diesel & also be exported MPV concept based on product from China JV Based on Nissan Evalia 7-seater Concept MUV Compact SUV with sub 4mtr length Based on World LCV platform and new generation 3ltr and 5ltr engines 6 Ton LCV developed with Nissan Source: Company/MOSL Model Launch by Segment leader Remarks

Jinesh Gandhi (Jinesh@MotilalOswal.com); Tel: +91 22 3982 5416 Mansi Varma (Mansi.Varma@MotilalOswal.com); Tel: + 91 22 3982 5418

Automobiles

Focus shifts to UVs/MPVs UVs/MPVs were in the limelight there were 8 new launches (including concepts) v/ s just three in the earlier Expo (2010). This segment has grown at 11% in FY12YTD (v/s -3.5% for cars). Competitive intensity is low, with M&M being the market leader. The key launches in this segment include Maruti Ertiga (7-seater MUV), Ford Ecosport (compact SUV) and Nissan Evalia (7-seater MUV). Among the interesting concepts showcased were Marutis XA Alpha (compact SUV), GMs MPV concept (from China JV), Hyundais Hexa Space (MUV) and Ashok Leylands Stile (based on Nissan Evalia platform). While M&M did not have any new models of its own on display, it showcased products from Ssangyongs portfolio Actyon Sport, Rexton, ICEV2 (EV based on Korando platform) and XIV concept.
Key launches in Auto Expo 2012
Company UV/MPV Maruti Suzuki Tata Motors Nissan Ford GM AL Hyundai Maruti Suzuki Ertiga Safari Storme Evalia Ecosport MPV concept Stile Hexa Space XA Alpha 1QFY13 1HFY13 Oct-12 2HFY13 Concept Concept Concept Concept M&M M&M M&M M&M M&M M&M M&M M&M 7-seater based on R3 concept showcased in 2010 Auto Expo Refreshed Safari on new platform with ~85% new parts MUV targeted at Toyota Innova Would be launched in 1ltr Petrol & 1.5ltr diesel & would also be exported MPV concept based on product from China JV Based on Nissan Evalia 7-seater Concept MUV Compact SUV with sub 4mtr length Source: Company/MOSL Model Launch by Segment leader Remarks

MSIL Ertiga - a 7 seater MUV

Tata Motors Safari Storme

Nissan Evalia MUV targeted against Toyota Innova

Ford Ecosport - A compact SUV

9 January 2012

Automobiles

Chevrolet MPV Concept from China JV

AL Stile based on Nissan Evalia

Hyundai's Hexa Space - a new global MPV Concept

Maruti's XA Alpha - Sub-4-meter compact SUV concept

Two-wheelers, especially scooters, witnessed increase in competitive intensity The two-wheeler segment witnessed hyper-activity, with 10 new launches/showcases. The scooter segment, which is growing faster than motorcycles (~26% v/s 15% in FY12YTD), witnessed six new launches, including entry of new players like Yamaha and Piaggio. In motorcycles, there were three new launches HMSIs Dream Yuga (110cc), Hero MotoCorps Ignitor (125cc) and Suzukis Hayate (110cc). The scooter segment witnessed a slew of launches, including new entrants like Yamaha and Piaggio. HMSI launched Dio (110cc), Hero MotoCorp launched Maestro (110cc) and Suzuki launched Swish (125cc concept). Yamaha entered the scooter segment with Ray (125cc). Piaggio showcased Vespa 125cc, a retro-looking scooter, its debut product in the Indian two-wheeler market. Hero MotoCorp showcased its hybrid scooter, Leap (concept), developed entirely by it along with global consultants. Surprisingly, Bajaj Auto did not showcase motorcycles at the Auto Expo and focused only on its four-wheeler, RE60. Bajaj would be launching new Pulsar, new Discover and KTMs Duke 200, which were expected to be showcased at the Auto Expo, in 1HCY12.

9 January 2012

Automobiles

Key launches in Auto Expo 2012


Company Motor Cycle HMSI Hero MotoCorp Hero MotoCorp Suzuki Scooter HMSI Hero MotoCorp Suzuki Piaggio Yamaha Hero MotoCorp Dream Yuga 110cc Ignitor 125cc Passion X-Pro Hayate 110cc New Dio 110cc Maestro 110cc Swish 125cc Vespa 125cc Ray - Concept (125cc) Leap - Concept (Hybrid) Apr-May12 Hero MotoCorp 2HFY13 1HFY13 NA Feb-Mar12 1QFY13 Mar-12 1HFY13 2HFY13 Concept Hero MotoCorp Hero MotoCorp Hero MotoCorp HMSI HMSI HMSI HMSI HMSI HMSI Looks very similar to existing product in that segment Sporty looking product, supplied by Honda Variant of Passion with more features Another similar looking executive segment bike New Dio with upgraded engine Targeted at male population; plugs gap in HMCLs scooter portfolio Priced at INR45,431 ex-showroom Delhi Retro looks with powerful 125cc engine Feminine looking product, with 125cc engine Good looking concept hybrid scooter Source: Company/MOSL Model Launch by Segment leader Remarks

HMSI - Dream Yuga 110cc

HMCL Ignitor 125cc

HMCL Impluse

HMCL Passion X-Pro

Suzuki's Hayate

HMSI - New Dio

9 January 2012

Automobiles

HMCL Maestro

Suzuki Swish 125cc

Yamaha Ray 125cc

HMCL Leap Hybrid Concept

HMSIs launches fail to impress yet; plans to compete with India-focused product at India pricing We had expected HMSI to leverage the Auto Expo platform to make an impression after its exit from the Hero Honda JV, by showcasing relevant products for India. Based on limited available details, its new launches 110cc motorcycle Dream Yuga and 110cc scooter Dio do not appear to be differentiated products to compete with segment leaders. To better connect with the Indian consumer, HMSI has changed its brand slogan in India to Sach Kar Denge Sapne, which is derived from its global brand slogan, The Power of Dreams. The management indicated that for the parent, India is a central focus market for at least the next 10 years. It is setting up R&D facility in India, with focus on faster new launches and objective to be number-1 in India. The management indicated to us that it is focused on competing in the Indian market with relevant products made for India at India pricing. In our interactions, the management indicated that it does not plan to launch the USD650 bike, which it developed for Africa and manufactures in China, in India, as it is not relevant for the Indian market. Also, it initially wants to focus entirely on the domestic market and explore export opportunities later.

9 January 2012

Automobiles

HMSI's new brand slogan for India "Sach Kardenge Sapne"

Only one small car launch as against four in 2010 Unlike the last Auto Expo, where the focus was entirely on small cars (four launches), only one small car was launched. Chevrolet launched Sail, positioned in the premium hatchback segment. Sail hatchback is the first product GM has launched in India from its China JV. Bajaj Auto showcased its small car RE60, which it is positioning in the taxi segment, aiming to replace the existing three-wheeler population. While it seems to be an interesting product, we would await more clarity on its positioning and target market (permit or non-permit based). We overheard many people commenting, It looks like a rickshaw with four wheels. Honda, Toyota and Volkswagen did not showcase any new launches. Maruti also showcased three 650cc Suzuki cars MR Wagon, Solio and Palette SW. However, the company does not have any immediate plans to launch these in India. While we expect few more launches in the small car segment in the next 12-15 months, we believe worst of the competitive intensity in the small car segment is behind us, with peak new small car launches in CY11.
Key launches in Auto Expo 2012
Segment Car Car (Hatchback) Company Bajaj Auto GM Model RE60 (200cc) Sail Launch by 2HFY13 1QFY13 Segment leader NA Maruti Suzuki Remarks Interesting product - competes with 3W or taxi? Positioned in premium small car segment & sourced from China JV Source: Company/MOSL

Bajaj RE60 with functional dashboard having gear knob and meter on the dashboard

9 January 2012

Automobiles

Chevrolet Sail hatchback

Tata Pixel concept

Considerable public interest indicative of significant latent demand potential The first two days of the Auto Expo, which we attended, were business days. There were over 100,000 visitors, with a large number being non-business attendees. The organizers expect Auto Expo 2012 to be the most attended ever (over 2m footfalls in 2010). The considerable non-business visitor attendance in the first two days indicates high level of interest for automobiles among people in general and demonstrates significant latent demand. It was common to see families (including kids) posing in front of their dream machines for photographs. While we observed several such instances, we would like to highlight two: (1) teenage girls posing in front of Hero MotoCorps Pleasure, and (2) 10-12 year old boys demanding more details (including launch dates and pricing) about HMSIs Dio.
Considerable interest in Auto Expo from non-business attendees

Outlook and view Auto Expo 2012 highlights increasing competitive intensity in UVs/MPVs and scooters, and the peaking of it in small cars. Two-wheeler stocks and M&M have corrected meaningfully from recent peaks due to probable slowdown in rural demand and increasing competitive intensity. Given our positive view on interest rates and stable commodity prices, we believe that four-wheelers could see a revival in performance. We prefer Tata Motors and Maruti Suzuki. In two-wheelers, we prefer Hero MotoCorp, as margins are set to improve, driving EPS growth of 24% in FY13.
9 January 2012 7

Automobiles

Financials and Valuations


Vol. gr. (%) EPS (INR) EPS Gr. (%) P/E (x) P/CEPS (x) EV/EBITDA(x) P/B(x) RoE (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E Bajaj Auto 18.6 13.6 110.2 125.1 21.9 Hero Honda 16.1 12.2 121.5 142.3 20.8 Maruti Suzuki* -14.8 15.8 46.8 69.3 -43.3 Mahindra* 22.0 11.3 44.3 57.6 7.3 Tata Motors*# 6.7 10.3 17.4 21.3 11.1 *Consolidated; #Normalized EPS (for R&D capitalization) 13.5 17.1 48.7 13.1 12.6 13.2 14.3 20.3 14.8 11.7 11.7 12.2 13.7 11.4 9.5 12.7 9.8 11.6 1.0 11.2 8.6 8.7 1.0 8.6 8.5 9.8 6.7 1.3 7.0 6.7 6.7 5.3 1.0 8.6 11.7 2.0 1.9 0.7 6.4 8.7 1.8 1.6 0.5 55.5 61.0 8.5 22.4 37.6 48.0 53.6 11.5 21.4 31.1

Other interesting launches/showcasing at Auto Expo 2012


Tata's 7 ton LCV based on World LCV platform Tata's 10 ton LCV based on World LCV platform

AL Partner LCV is based on Nissan Capstar

VW XL1 hybrid concept gives mileage of ~110kmpl

Jaguar C-X16 concept

Mercedes Benz Concept A-class

9 January 2012

Automobiles

LR Evoque

LR Defender concept

LR Defender Sports concept

Ssangyong XIV Concept

BMW Vision ConnectedDrive 2 seater concept

Suzuki Japan's Palette SW

Suzuki Japan's Solio

Suzuki Japan's MR Wagon

9 January 2012

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