Automobiles India NEUTRAL FEBRUARY 01, 2017 UPDATE BSE-30: 28,142 PV and CV recover in January 2017. Passenger vehicle volumes recovered sharply in January 2017 and we reckon industry likely grew by double digits yoy. Commercial vehicle industry, particularly heavy truck industry, also likely grew in single digit in January 2017 mainly led by pre-buying ahead of change in emission norms in April 2017. Two-wheeler volumes are likely to remain weak in the near term due to high proportion of cash sales. Passenger vehicles: Maruti reports 26% yoy growth in domestic volumes in January 2017 As per our calculations, passenger vehicle industry volumes grew in strong double digit (on yoy basis) in January 2017. Most of the large OEMs have reported strong yoy growth in wholesale volumes. For Maruti, overall volumes grew by 27% yoy in January 2017 led by 26% yoy growth in domestic volumes and 45% yoy growth in exports. Volumes were strong across all segments; event entry segment volumes were up 11% yoy. We note that inventory levels for Maruti were extremely low at the end of December (34,000 units), so wholesale volumes will likely remain strong over the next two months as well. In terms of other OEMs, Hyundai reported 11% yoy growth in domestic volumes, Toyota volumes were up 21% yoy. Ford, Nissan, Renault and Tata Motors also reported double-digit yoy growth in volumes while Honda s volumes continued to remain weak and declined by 9% yoy. M&M s UV volumes down 9% yoy and tractor volumes up 6% yoy in January 2017 M&M reported 6% yoy decline in total volumes in January 2017 as automotive volumes remain weak even there was some growth in tractor segment. Passenger vehicle segment volumes for the company declined by 9% yoy while commercial vehicle volumes were down 3% yoy. Tractor volumes improved by 6% yoy due to strong rabi sowing season. MHCV industry recovered in January 2017 We reckon MHCV industry volumes (dispatches) grew in low single digits in January 2017 led by pre-buying of trucks due to change in emission norms in April 2017. We could see single-digit growth in industry volumes over the next two months but reckon industry volumes will come under pressure post April 2017 once pre-buying effect is over. In terms of OEMs, Tata Motors reported 8% yoy decline in CV volumes mainly led by steep decline in LCV volumes while Ashok Leyland and Volvo-Eicher CV volumes grew 7% and 11% yoy respectively. Hero Motocorp reported a steep 14% yoy decline in volumes in January 2017 Hero Motocorp reported a 14% yoy decline in wholesale volumes and we reckon retail volumes also declined by similar levels for the company. The dealer inventory levels are still quite high, ~5 weeks as per our channel checks, thus we expect volumes to remain weak in the next two months. Bajaj Auto and TVS Motors are yet to report their monthly numbers yet but we expect weak volumes from both these companies as well. Hitesh Goel hitesh.goel@kotak.com Mumbai: +91-22-4336-0878 Nishit Jalan nishit.jalan@kotak.com Mumbai: +91-22-4336-0877 Kotak Institutional Equities Research kotak.research@kotak.com Mumbai: +91-22-4336-0000 For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
India Automobiles Exhibit 1: Maruti Suzuki reported 27% yoy growth in volumes in January 2017 Maruti Suzuki monthly sales volume, March fiscal year-ends (units) M800, Alto, A-Star, Wagon R 34,206 35,495 36,678 31,906 33,105 27,712 35,051 35,490 44,395 33,929 38,886 31,527 37,928 360,804 349,929 432,977 430,000 Swift, Baleno, Ritz, Celerio, Dzire 48,120 46,492 49,947 48,873 49,109 42,039 53,421 48,565 54,297 52,597 52,448 45,854 58,818 483,815 506,021 580,255 627,397 Gypsy, Ertiga, S-Cross, Brezza 8,114 8,484 13,894 16,044 13,596 9,708 17,382 16,806 18,423 18,008 17,215 16,072 16,313 72,038 159,567 94,415 193,000 Omni and Eeco 10,512 12,482 12,896 14,520 12,164 9,874 14,748 12,831 13,618 12,790 12,238 9,224 14,179 118,093 126,186 143,471 135,488 Ciaz 5,431 5,162 5,480 5,702 5,188 2,800 5,162 6,214 6,544 6,360 5,433 3,711 6,530 43,591 53,644 54,233 60,856 Light commercial vehicle 14 25 44 80 105 26 166 460 500 Total domestic 106,383 108,115 118,895 117,045 113,162 92,133 125,778 119,931 137,321 123,764 126,325 106,414 133,934 1,078,341 1,195,807 113,505 125,717 1,305,351 1,447,242 Exports 7,223 9,336 10,450 9,524 9,872 6,707 11,338 12,280 11,822 10,029 9,225 11,494 10,462 104,111 102,753 9,893 10,572 123,897 123,897 Total volumes 113,606 117,451 129,345 126,569 123,034 98,840 137,116 132,211 149,143 133,793 135,550 117,908 144,396 1,182,452 1,298,560 123,398 136,289 1,429,248 1,571,139 M800, Alto, A-Star, Wagonr (4.3) (11.2) (8.7) (9.9) (5.6) (19.3) (7.2) (5.8) 24.8 (9.8) 8.1 (15.3) 10.9 (3.0) (0.7) Swift, Baleno, Ritz, Celerio, Dzire 1.8 2.6 20.9 10.8 8.9 (13.5) 3.2 8.8 13.0 (3.4) 9.3 (10.0) 22.2 4.6 8.1 Gypsy, Ertiga, S-Cross, Brezza 26.2 44.7 123.4 260.4 144.2 75.5 151.3 114.5 191.0 90.9 98.1 75.3 101.0 121.5 104.4 Omni and Eeco 3.9 10.5 9.6 20.3 4.8 (5.6) 24.1 2.7 15.1 (6.5) (1.6) (17.1) 34.9 6.9 (5.6) Ciaz (9.6) (4.6) 28.9 22.3 3.5 (24.3) 145.9 49.5 52.5 8.0 (1.4) 30.6 20.2 23.1 12.2 Total domestic 0.8 0.2 14.6 16.2 10.6 (10.2) 13.9 12.3 29.4 2.2 14.2 (4.4) 25.9 10.9 10.8 10.9 Exports (34.6) (12.4) 33.4 (13.7) (20.8) (44.7) 0.3 10.8 54.0 (23.7) (9.8) 47.1 44.8 (1.3) 6.9 - Total volumes (2.6) (0.9) 15.9 13.3 7.1 (13.9) 12.7 12.2 31.1 (0.3) 12.2 (1.0) 27.1 9.8 10.4 9.9 Exhibit 2: Mahindra & Mahindra reported 6% yoy decline in volumes in January 2017 Mahindra & Mahindra monthly sales volume, March fiscal year-ends (units) Passenger Uvs (incl. Verito) 22,088 23,718 26,885 22,655 19,635 17,070 17,356 18,246 20,537 24,737 13,217 16,698 20,096 185,704 190,247 25,302 21,142 236,307 232,530 Commercial Vehicles 14,385 13,864 17,438 12,947 13,109 13,538 13,168 13,993 16,081 18,059 12,644 14,154 13,890 135,481 141,583 15,651 20,333 166,783 182,248 3-wheelers 4,220 3,766 4,644 3,755 3,869 4,381 4,781 4,705 5,927 5,933 3,953 3,458 3,056 46,565 43,818 4,205 5,579 54,975 54,975 Exports (Auto sector) 3,096 2,654 3,751 2,506 4,043 4,020 4,153 3,647 3,585 3,279 2,685 2,053 2,261 29,628 32,232 3,203 6,405 36,033 45,041 Auto division 43,789 44,002 52,718 41,863 40,656 39,009 39,458 40,591 46,130 52,008 32,499 36,363 39,303 397,378 407,880 48,360 53,457 494,098 514,795 Tractors (Dom + Exp) 15,065 13,574 14,682 21,386 23,018 30,191 17,553 13,543 30,562 45,177 17,262 14,047 15,909 185,335 228,648 14,128 22,374 213,591 273,396 Total 58,854 57,576 67,400 63,249 63,674 69,200 57,011 54,134 76,692 97,185 49,761 50,410 55,212 582,713 636,528 62,488 75,832 707,689 788,191 Passenger Uvs (incl. Verito) 12.8 26.0 21.2 16.4 8.3 7.5 20.1 28.5 5.0 2.8 (32.8) (8.2) (9.0) 2.4 (16.4) (1.6) Commercial vehicles 11.1 16.1 23.6 14.3 14.9 6.3 8.4 7.4 11.4 (3.7) (14.6) 13.5 (3.4) 4.5 29.9 9.3 3-wheelers (6.8) (9.4) (3.4) 2.2 1.1 (6.1) 6.6 (4.0) 4.0 (1.1) (19.7) (17.2) (27.6) (5.9) 32.7 - Exports (Auto sector) 7.3 (14.7) (6.7) 10.9 21.2 41.0 16.5 3.8 13.6 27.7 21.7 (33.3) (27.0) 8.8 100.0 25.0 Auto division 9.7 15.7 16.8 14.0 10.8 8.0 13.9 13.9 7.7 1.2 (21.9) (4.1) (10.2) 2.6 10.5 4.2 Tractors (Dom + Exp) 1.0 18.7 19.8 18.7 19.5 20.3 13.5 15.8 69.0 60.9 (20.5) 9.2 5.6 23.4 58.4 28.0 Total 7.3 16.4 17.5 15.5 13.8 13.0 13.8 14.4 25.9 22.3 (21.4) (0.7) (6.2) 9.2 21.4 11.4 Exhibit 3: Tata Motors reported 2% yoy volume decline in January 2017 Tata Motors monthly sales volume, March fiscal year-ends (units) MHCVs 16,454 16,674 20,538 13,117 15,276 12,395 12,457 12,213 14,675 15,628 11,504 13,863 176,085 170,766 LCVs 19,499 18,641 23,665 15,449 15,960 19,247 16,839 17,004 18,992 20,430 14,326 15,942 205,231 215,493 Total CVs 35,953 35,315 44,203 28,566 31,236 31,642 29,296 29,217 33,667 36,058 25,830 29,805 33,142 301,798 308,459 39,759 38,900 381,316 386,259 UVs 1,460 1,771 1,678 1,541 910 827 1,465 1,906 1,700 2,004 1,302 1,310 19,364 17,430 Cars 9,622 9,588 7,176 9,275 7,925 11,807 12,399 11,938 13,281 14,751 11,768 9,829 111,032 136,035 Total PVs 11,082 11,359 8,854 10,816 8,835 12,634 13,864 13,844 14,981 16,755 13,070 11,139 13,207 110,183 129,145 10,107 12,160 130,396 153,465 Total sales 47,035 46,674 53,057 39,382 40,071 44,276 43,160 43,061 48,648 52,813 38,900 40,944 46,349 411,981 437,604 49,866 51,060 511,712 539,724 MHCVs 29.6 25.1 24.4 14.9 24.2 (7.4) (7.8) (11.7) (14.8) 11.8 (9.6) (1.4) (3.0) LCVs 17.5 10.0 14.9 7.0 0.4 14.1 5.5 13.4 20.7 24.9 (8.1) (9.4) 5.0 Total CVs 22.8 16.7 19.1 10.5 10.8 4.6 (0.6) 1.4 2.2 18.9 (8.8) (5.9) (7.8) 2.2 (2.2) 1.3 UVs (1.4) (11.9) (22.3) 19.6 (54.0) (55.4) (24.5) 22.3 9.5 14.4 (3.8) 11.3 (10.0) Cars (18.5) (19.6) (45.7) 3.0 (15.0) 34.8 41.7 15.9 24.0 29.3 27.2 37.7 22.5 Total PVs (16.6) (18.5) (42.4) 5.1 (21.8) 19.1 29.7 16.7 22.2 27.3 23.2 34.0 19.2 17.2 20.3 17.7 Total sales 10.5 5.6 1.1 9.0 1.5 8.3 7.5 5.8 7.6 21.4 (0.0) 2.4 (1.5) 6.2 2.4 5.5 2 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Automobiles India Exhibit 4: Ashok Leyland reported 7% yoy growth in volumes in January 2017 Ashok Leyland monthly sales volume, March fiscal year-ends (units) LCV 2,678 2,605 3,462 2,309 2,406 2,423 2,310 2,696 3,094 2,959 2,646 1,949 2,816 24,628 25,608 2,988 2,498 30,603 30,603 MHCV 11,208 10,798 13,240 7,873 7,469 8,685 8,182 8,201 8,963 9,574 6,928 8,782 12,056 85,725 86,713 12,015 11,532 109,755 109,777 Total CVs 13,886 13,403 16,702 10,182 9,875 11,108 10,492 10,897 12,057 12,533 9,574 10,731 14,872 110,353 112,321 15,003 14,030 140,358 140,380 LCV 1.7 2.9 27.0 22.4 0.2 0.4 4.1 2.1 17.3 12.6 (1.0) (20.5) 5.2 4.0 (16.4) - MHCV 39.9 31.2 32.0 20.2 8.4 8.3 (7.4) (8.0) (26.1) 33.4 10.0 (9.5) 7.6 1.2 (4.0) 0.0 Total CVs 30.5 24.5 31.0 20.7 6.3 6.5 (5.1) (5.7) (18.4) 27.8 6.7 (11.7) 7.1 1.8 (6.5) 0.0 Exhibit 5: VECV reported 20% yoy growth in total volumes in January; domestic MHCV volumes are up 7% yoy VECV monthly sales volume, March fiscal year-ends (units) Domestic sales LCV 842 1,114 1,630 1,491 1,649 1,479 1,099 1,076 1,134 1,121 637 894 1,041 10,199 11,621 MHCV 2,573 3,150 4,314 3,150 3,056 2,777 2,565 2,374 3,014 2,733 1,771 2,454 2,755 23,871 26,649 Total 3,415 4,264 5,944 4,641 4,705 4,256 3,664 3,450 4,148 3,854 2,408 3,348 3,796 34,070 38,270 5,104 4,615 44,278 47,500 Export sales LCV 81 159 195 199 260 254 300 201 175 207 260 68 218 2,046 2,142 MHCV 211 513 494 486 745 368 351 449 411 388 399 632 435 3,105 4,664 Total 292 672 689 685 1,005 622 651 650 586 595 659 700 653 5,151 6,806 681 1,097 6,512 9,000 Total sales 3,707 4,936 6,633 5,326 5,710 4,878 4,315 4,100 4,734 4,449 3,067 4,048 4,449 39,221 45,076 5,785 5,712 50,790 56,500 LCV (2.4) 47.5 38.5 17.1 24.6 9.8 8.1 21.6 17.9 19.0 (7.0) (3.1) 23.6 13.9 MHCV 26.0 56.0 48.4 41.3 33.2 26.8 26.2 11.7 21.0 8.3 (20.2) (23.1) 7.1 11.6 Total domestic 17.6 53.7 45.5 32.5 30.1 20.3 20.1 14.6 20.2 11.2 (17.1) (18.6) 11.2 12.3 (9.6) 7.3 Export sales LCV (60.3) 18.7 56.0 27.6 89.8 19.2 7.1 (36.2) (30.0) 88.2 (3.7) (70.9) 169.1 4.7 MHCV 37.9 167.2 157.3 171.5 258.2 17.6 9.0 56.4 19.1 39.6 11.1 4.8 106.2 50.2 Total exports (18.2) 106.1 117.4 104.5 191.3 18.3 8.1 8.0 (1.5) 53.4 4.8 (16.4) 123.6 32.1 61.2 38.2 Total sales 13.6 59.2 50.7 38.8 44.1 20.1 18.2 13.5 17.0 15.4 (13.2) (18.2) 20.0 14.9 (1.3) 11.2 Exhibit 6: Hero MotoCorp reported 14% yoy decline in total volumes in January 2017 Hero MotoCorp monthly sales volume, March fiscal year-ends (units) Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 2016 2017E 2016 2017E 2016 2017E Total sales 563,348 550,992 606,542 612,739 583,117 549,533 532,113 616,424 674,961 663,153 479,856 330,202 487,088 5,473,950 5,529,186 579,101 597,228 6,632,152 6,723,643 0.8 13.7 14.1 14.9 2.3 1.3 9.1 28.3 11.2 3.6 (12.9) (33.9) (13.5) 1.0 3.1 1.4 Exhibit 7: Royal Enfield reported 25% yoy volume growth in January 2017 Royal Enfield monthly sales volume, March fiscal year-ends (units) Royal Enfield 47,710 49,156 51,320 48,197 48,604 50,682 53,378 55,721 57,842 59,127 57,313 57,398 59,676 407,678 547,938 50,238 61,031 508,154 670,000 Domestic 47,140 47,567 50,059 47,037 47,232 49,060 52,128 54,735 56,958 58,379 55,843 56,316 58,133 401,165 535,821 Exports 570 1,589 1,261 1,160 1,372 1,622 1,250 986 884 748 1,470 1,082 1,543 6,513 12,117 Royal Enfield 64.9 62.6 52.4 42.1 37.5 35.7 31.0 31.5 30.0 32.8 40.6 41.9 25.1 34.4 21.5 31.8 Domestic 67.4 61.3 52.4 42.0 36.4 34.1 30.8 31.6 30.2 32.3 38.5 40.7 23.3 33.6 Exports (26.0) 112.1 52.8 45.0 85.7 118.0 40.0 29.7 17.9 94.8 221.7 160.1 170.7 86.0 KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Disclosures "I, Hitesh Goel, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report." Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships 70% Percentage of companies covered by Kotak Institutional Equities, within the specified category. 60% 50% 40% 30% 20% 10% 0% 36.8% 26.3% 20.0% 16.8% 1.1% 4.2% 2.1% 2.1% BUY ADD REDUCE SELL Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months. * The above categories are defined as follows: Buy = We expect this stock to deliver more than 15% returns over the next 12 months; Add = We expect this stock to deliver 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We expect this stock to deliver less than -5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2016 Kotak Institutional Equities Investment Research had investment ratings on 190 equity securities. Source: Kotak Institutional Equities As of December 31, 2016 Ratings and other definitions/identifiers Definitions of rating BUY. We expect this stock to deliver more than 15% returns over the next 12 months. ADD. We expect this stock to deliver 5-15% returns over the next 12 months. REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months. SELL. We expect this stock to deliver <-5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. Other definitions Coverage view. The coverage view represents each analyst s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious. Other ratings/identifiers NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. CS = Coverage Suspended. Kotak Securities has suspended coverage of this company. NC = Not Covered. Kotak Securities does not cover this company. RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA = Not Available or Not Applicable. The information is not available for display or is not applicable. NM = Not Meaningful. The information is not meaningful and is therefore excluded. 4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
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Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +91-22 43360 000, Fax No.: +91-22- 6713 2430. Website: www.kotak.com. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSEI INE 260808130/INB 260808135/INF 260808135, Research Analyst INH000000586, AMFI ARN 0164 and PMS INP000000258. NSDL: IN-DP-NSDL-23-97. CDSL: IN-DP-CDSL-158-2001. Compliance Officer Details: Mr. Manoj Agarwal. Call: +91-22-4285 6825, or Email: ks.compliance@kotak.com. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at 'service.securities@kotak.com' and for demat account related queries contact us at ks.demat@kotak.com or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at ks.escalation@kotak.com or call us on +91-22-4285 8445 and if you feel you are still unheard, write to our customer service HOD at ks.servicehead@kotak.com or call us on +91-22-4285 8208. Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Manoj Agarwal) at ks.compliance@kotak.com or call on +91-22-4285 6825. Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at ceo.ks@kotak.com or call on +91-22-6652 9160. First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes.