亚太汽车行业研究报告2009年7月

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Edelweiss Securities Limited
1
Volumes show signs of revival; growth visible beyond FY10
Volumes have begun to grow in the Indian automobile sector, after having hit a trough
in Q3FY09. In the first five months of CY09, two-wheeler sales have shown growth (+
8%), whereas passenger vehicle sales have been stable (up 2%). Truck sales continue
to disappoint, down 54%, though the rate of deterioration has declined. While the
current uptick is primarily driven by rural demand, urban markets may pick up with
the anticipated economic revival. On a lower base of FY09, we expect a volume
recovery in H2FY10. More importantly, there is clearer visibility regarding a return to
long-term economic growth in FY11 and beyond, particularly with a stable government
in place.
Structural steps taken during downturn to be strong force multipliers
Economic growth rate is a key determinant of volume growth in the auto sector.
Further, the positive impact of the economic recovery on volume growth will be
reinforced by structural changes effected in the past downturn. Measures such as a
reduction in excise duties and lower interest rates are likely to be strong force
multipliers for the sector, going forward. Also, focus on development of roadways will
benefit commercial vehicle volumes in the medium term.
Commodity costs continue to be low; competitive intensity slackens
Raw material costs have declined substantially in the past few months. Also,
competition has eased in varying degrees across segments, enabling companies to
retain benefits from the lower commodity cycle. Two wheelers have not seen a return
to price war, and commercial vehicle manufacturers, saddled with high debts, have
reduced discounts. In the car segment, although Maruti Suzuki continues to offer
discounts, its major competitor, Hyundai, has not responded due to continued focus on
exports.
Outlook and valuations: Valuations stretched; Hero Honda our top pick
Based on the above factors, we expect the domestic passenger car and two-wheeler
segments to grow 5% and 10%, respectively, in FY10 while truck volumes could begin
to show growth in H2FY10. Near-term downside risks include failure of monsoon and
an increase in excise duties in the upcoming budget. Also, interest rates and
commodity prices may rise from the current lows in FY11.
We expect Hero Honda (HH) and Maruti Suzuki (MSIL) to gain market share in the
coming year. With stronger–than-expected margin expansion within the sector, we
raise our earnings estimates (on average) by 19% and 25% for FY10 and FY11,
respectively. While signs of growth warrant a re-rating of the sector (and of the overall
market), we believe valuations of the auto stocks more than factor in a strong
recovery, whilst ignoring potential risks. We recommend ‘HOLD’ on Bajaj Auto (BAL)
due to likely strong margin expansion in the near term, and maintain ‘REDUCE’ on
MSIL, Ashok Leyland (ALL) and Tata Motors (TTMT). We maintain ‘BUY’ on HH;
despite high valuation, this stock remains our top pick due to high earnings visibility.
Deepak Jain
+91-22-6623 3313
deepak.jain@edelcap.com
Amol Bhutada
+91-22-6620 3032
amol.bhutada@edelcap.com
India Equity Research | Automobiles Sector Update

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