Automobiles: Scooters grow at 30.4%; Motorcycle volumes grow at 14.4% - Prabhudas Lilladher

September 16, 2014

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Automobiles 2W ‐ Scooters grow at 30.4%; Motorcycle volumes grow at 14.4%

Sector Update Surjit Arora

[email protected] +91‐22‐66322235

Hussain Kagzi [email protected] +91‐22‐66322242

Sensex v/s. Hero Motocorp & Bajaj Auto

90

100

110

120

130

140

Sep‐13

Nov‐13

Jan‐14

Mar‐14

May‐14

Jul‐14

Sep‐14

Sensex Bajaj Auto

Hero Motocorp

Source: Bloomberg

Stock Performance

(%) 1M 6M 12M

Sensex 2.7 23.0 35.8

Auto 9.4 39.6 62.7

Bajaj Auto 9.3 18.1 16.6

Hero Motocorp 11.5 31.8 33.4

Stock Data

CMP (Rs) TP (Rs) PE (x)

FY15E FY16E

Bajaj Auto 2,333 2,446 18.8 15.7

Hero Motocorp 2,800 3,057 19.8 16.5

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

Bajaj Auto

2015 124.0 127.5 ‐2.7

2016 148.1 147.4 0.5

Hero Motocorp

2015 141.4 138.3 2.2

2016 169.8 169.7 0.1

Scooter segment accounted for 27.4% of the two‐wheeler market for Aug ’14:

Led by new launches from Honda (New Activa), Hero (Maestro), and TVS

(Jupiter), the scooter segment grew at a faster clip of 30.4% YoY for Aug’14

period. The motorcycle segment, too, witnessed a faster pace of growth,

growing at 14.4% vs 6.2% last month. (Exhibit 2 &3). The faster volume growth

of the scooter segment led to a 236bps YoY improvement in it’s market share.

The main drivers for the growth are (a) growing acceptability of gearless

scooters, particularly by women, (b) rising urbanization and increasing

proportion of working women and (c) new launches. We expect 17‐18% CAGR in

scooter volumes for the next three years.

TVS Motor (TVS) gains 560bps market share YoY in the scooter segment: Led

by the success of its new offering ‘Jupiter’, TVS reported growth of 92% YoY for

Aug’14 period, thereby, gaining market share to the tune of 560bps to 17.4%.

Motorcycle sales growth YTD FY15 at 10% YoY: Led by new launches, capacity

expansion and improvement in overall demand environment, Hero Motocorp

(HMCL) reported a growth of 23.7% YoY, while Honda Motorcycle and Scooter

India (HMSI) reported a slower growth of 6.3% YoY. On the other hand, Bajaj

Auto’s (BJA) decline was restricted to 9.0% YoY (as compared to a 18% decline in

Jul’14). Hence, the overall growth for motorcycle segment was up by 14.4% YoY.

In the motorcycle segment, Hero Moto Corp Ltd (HMCL) gained 400bps market

share at the cost of 390bps market share loss of BJA: Driven by new launches

and onset of festive season, HMCL reported 23.7% YoY growth, thereby,

maintaining market share at 53.7% for Aug’14 period. BJA reported a decline of

9.0% YoY, thereby, losing market share to the tune of 390bps YoY to 15.1%. At

the same time, HMSI and Royal Enfield reported a 6.3% and 66.3% YoY increase

respectively for Aug’14 period. Our channel checks suggest strong traction for

HMCL products, both in scooters as well as motorcycle segments. Also, HMSI has

not been able to make a dent in the traditionally strong market for Hero (mainly

the northern market).

BJA concedes 445bps market share in 75‐110cc and gains 489bps in 125‐150cc

segment: On account of lower sales of ‘Discover’ and ‘Platina’, BJA’s volumes

declined by 15.6% YoY in the 75‐110cc segment as against 24.4% YoY growth in

the segment during Aug’14 period. This led to 445bps loss in market share to

9.4% for Aug’14 period. On the other hand, HMCL gained 585bps market share

in this segment, given the strong demand for HMCL’s ‘HF Deluxe’ and ‘Splendor’

(Exhibit 4&5). In the 125‐150cc category, BJA reported a 19.7% YoY growth on a

low base, thereby leading to a 489bps increase in market share in Aug’14 month

However, for Apr‐Aug’14 period, BJA lost ~230bps in market share, while HMCL

gained ~270bps in market share led by ‘Xtreme’ and ‘Impulse’.

Maintain Accumulate: Given the strong product portfolio and the initial success

of Splendor ‘iSmart’, we believe Hero Motocorp (HMCL) could surprise

positively on the volume front. On the other hand, with exports and three‐

wheelers growing at 25%+, margin surprise is likely at Bajaj Auto. We maintain

our Accumulate call on both the stocks and continue our preference for HMCL

over BJA.

September 16, 2014 2

Automobiles

Exhibit 1: Two‐ Wheeler sector snapshot

Avg. Domestic Monthly Sales Key products Scooter (Apr‐Aug’14) Motorcycle (Apr‐Aug’14)

Scooters Motorcycles Scooters Motorcycles Share in

portfolio (%) Market Share

(%) Share in

portfolio (%) Market Share

(%)

Hero Motocorp 57,067 489,061 110cc ‐ Maestro

110cc Passion X Pro 125cc ‐

Ignitor 10.4% 16.3% 89.6% 53.8%

Bajaj Auto NA 150,648 NA Discover 125 ST Pulsar 200 NS

NA NA 61.0% 16.6%

Honda Motorcycles & Scooters India

192,066 145,603 125cc Activa 110cc Dream Yuga, Neo

56.9% 54.8% 43.1% 16.0%

TVS Motor 54,687 54,726 110cc ‐ Jupiter125cc

‘Pheonix’ 32.0% 15.6% 32.0% 6.0%

Source: Company Data, PL Research

New Launches

Scooter

Hero’s ‘Maestro’ Honda’s ‘Activa 125cc’ TVS ‘Jupiter’

Motorcycles

Hero’s Splendor ‘iSmart Honda’s ‘Dream Neo’ Bajaj’s 125 ST ‘Discover’

Source: Company Data, PL Research


Automobiles

Exhibit 2: Domestic Scooter Segment

Company Aug’13 Aug’14 Apr‐Aug’13 Apr‐Aug’14 FY14 FY15E

Hero MotoCorp Ltd 54,966 46,764 275,198 285,334 690,079 768,400

YoY gr. (%) (14.9) 3.7 25.5 11.3

MS (%) 19.4 12.7 20.5 16.3 19.2 17.2

Honda Motorcycle & Scooter India (Pvt) Ltd 147,600 217,751 678,857 960,332 1,902,859 2,419,574

YoY gr. (%) 47.5 41.5 34.0 27.2

MS (%) 52.1 59.0 50.7 54.8 52.8 54.0

India Yamaha Motor Pvt Ltd 14,114 20,085 61,854 101,517 176,981 246,000

YoY gr. (%) 42.3 64.1 193.6 39.0

MS (%) 5.0 5.4 4.6 5.8 4.9 5.5

Suzuki Motorcycle India Pvt Ltd 26,770 16,139 117,237 109,308 296,805 291,805

YoY gr. (%) (39.7) (6.8) (9.7) (1.7)

MS (%) 9.5 4.4 8.7 6.2 8.2 6.5

TVS Motor Company Ltd 33,462 64,372 166,901 273,437 456,975 664,219

YoY gr. (%) 92.4 63.8 7.7 45.4

MS (%) 11.8 17.4 12.5 15.6 12.7 14.8

Total 283,142 369,323 1,340,170 1,751,881 3,602,744 4,479,590

YoY gr. (%) 30.4 30.7 23.2 24.3

Source: SIAM Data, PL Research

Exhibit 3: Domestic Motorcycle Segment

Company Aug’13 Aug’14 Apr‐Aug’13 Apr‐Aug’14 FY14 FY15E

Bajaj Auto Ltd 150,989 137,347 875,817 753,241 2,099,230 2,122,870

YoY gr. (%) (9.0) (14.0) (14.8) 1.1

MS (%) 19.0 15.1 21.2 16.6 20.0 17.9

Hero MotoCorp Ltd 395,180 488,739 2,180,123 2,445,306 5,425,118 6,056,000

YoY gr. (%) 23.7 12.2 1.2 11.6

MS (%) 49.7 53.7 52.8 53.8 51.8 50.6

Honda Motorcycle & Scooter India (Pvt) Ltd 144,039 153,120 599,751 728,017 1,186,726 2,049,435

YoY gr. (%) 6.3 21.4 23.8

MS (%) 18.1 16.8 14.5 16.0 15.8 17.3

India Yamaha Motor Pvt Ltd 28,881 33,157 124,138 141,511 307,511 345,962

YoY gr. (%) 14.8 14.0 12.5

MS (%) 3.6 3.6 3.0 3.1 2.9 2.9

Royal Enfield (Unit of Eicher Ltd) 15,708 26,121 69,265 125,126 202,759 325,000

YoY gr. (%) 66.3 80.6 60.3

MS (%) 2.0 2.9 1.7 2.8 1.2 2.7

TVS Motor Company Ltd 43,467 58,388 224,727 273,630 572,732 694,642

YoY gr. (%) 34.3 21.8 21.3

MS (%) 5.5 6.4 5.4 6.0 5.5 5.9

Total B: Motor cycles/Step‐ Through 795,411 910,312 4,129,248 4,542,276 10,479,817 11,827,667

YoY gr. (%) 14.4 10.0 12.9

Source: SAIM Data, PL Research


Automobiles

Exhibit 4: 75cc – 110cc Motorcycle segment

Company Aug’13 Aug’14 Apr‐Aug’13 Apr‐Aug’14

Bajaj Auto Ltd (Boxer, CT, Platina, Discover) 67,411 56,909 476,164 370,900

YoY gr. (%) (15.6) (22.1)

MS (%) 13.8 9.4 18.0 13.0

Hero MotoCorp Ltd (HF Dawn, HF Deluxe, Splendor, Passion) 319,523 433,131 1,793,359 2,017,616

YoY gr. (%) 35.6 12.5

MS (%) 65.6 71.4 67.9 70.5

Honda Motorcycle & Scooter India (Pvt) Ltd (CB Twister, Dream) 61,099 64,822 192,192 228,222

YoY gr. (%) 6.1 18.7

MS (%) 12.5 10.7 7.3 8.0

TVS Motor Company Ltd (Victor GX, Jive, MAX 4R, STAR CITY, SPORT) 24,698 39,356 136,208 172,352

YoY gr. (%) 59.3 26.5

MS (%) 5.1 6.5 5.2 6.0

Total 487,300 606,430 2,641,968 2,860,072

YoY gr. (%) 24.4 8.3


Exhibit 5: 125‐150cc Motorcycle segment

Company Aug’13 Aug’14 Apr‐Aug’13 Apr‐Aug’14

Bajaj Auto Ltd (Boxer, Discover, Pulsar) 45,333 54,268 200,168 217,362

YoY gr. (%) 19.7 8.6

MS (%) 44.4 49.3 43.6 41.3

Hero MotoCorp Ltd (Acheiver, Hunk, CBZ Xtreme, Impulse) 9,446 6,943 46,520 67,122

YoY gr. (%) (26.5) 44.3

MS (%) 9.3 6.3 10.1 12.7

Honda Motorcycle & Scooter India (Pvt) Ltd (CB Unicorn, CB Unicorn Dazzler, CBR 150R) 22,922 17,654 109,256 116,769

YoY gr. (%) (23.0) 6.9

MS (%) 22.4 16.0 23.8 22.2

India Yamaha Motor Pvt Ltd (FZ, Fazer, SZ, R15) 24,148 29,053 100,627 122,787

YoY gr. (%) 20.3 22.0

MS (%) 23.6 26.4 21.9 23.3

Total 102,111 110,107 458,766 526,857

YoY gr. (%) 7.8 14.8



Automobiles

Income Statement (Rs m)

Y/e March 2013 2014 2015E 2016E

Net Revenue 202,880 204,328 229,456 262,712

Raw Material Expenses 144,066 138,766 158,113 180,051

Gross Profit 58,814 65,562 71,344 82,661

Employee Cost 6,395 7,266 8,181 9,074

Other Expenses 13,159 13,626 15,081 16,538

EBITDA 39,260 44,670 48,081 57,050

Depr. & Amortization 1,640 1,791 2,292 2,476

Net Interest 5 2 5 5

Other Income 5,048 3,457 4,528 5,800

Profit before Tax 42,663 46,334 50,312 60,369

Total Tax 12,227 13,901 15,094 17,507

Profit after Tax 30,436 32,433 35,218 42,862

Ex‐Od items / Min. Int. 1,320 (774) (672) —

Adj. PAT 29,116 33,207 35,890 42,862

Avg. Shares O/S (m) 289.4 289.4 289.4 289.4

EPS (Rs.) 100.6 114.8 124.0 148.1

Cash Flow Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

C/F from Operations 21,344 38,534 33,284 36,915

C/F from Investing (12,778) (21,415) (6,800) (7,200)

C/F from Financing (19,531) (16,991) (20,226) (21,912)

Inc. / Dec. in Cash (10,964) 129 6,258 7,804

Opening Cash 16,553 5,588 4,955 11,884

Closing Cash 5,588 4,955 11,884 19,688

FCFF 17,652 33,623 32,156 34,715

FCFE 17,389 33,488 32,156 34,715

Key Financial Metrics

Y/e March 2013 2014 2015E 2016E

Growth

Revenue (%) 2.4 0.7 12.3 14.5

EBITDA (%) (1.7) 13.8 7.6 18.7

PAT (%) (7.2) 14.1 8.1 19.4

EPS (%) (7.2) 14.0 8.1 19.4

Profitability

EBITDA Margin (%) 19.4 21.9 21.0 21.7

PAT Margin (%) 14.4 16.3 15.6 16.3

RoCE (%) 57.9 52.6 48.1 48.6

RoE (%) 36.8 34.6 32.1 32.3

Balance Sheet

Net Debt : Equity (0.1) — (0.1) (0.1)

Net Wrkng Cap. (days) (37) (47) (46) (36)

Valuation

PER (x) 23.2 20.3 18.8 15.7

P / B (x) 8.5 7.0 6.0 5.1

EV / EBITDA (x) 17.1 15.0 13.8 11.5

EV / Sales (x) 3.3 3.3 2.9 2.5

Earnings Quality

Eff. Tax Rate 28.7 30.0 30.0 29.0

Other Inc / PBT 9.0 9.0 10.2 9.6

Eff. Depr. Rate (%) 4.3 4.1 5.1 5.2

FCFE / PAT 59.7 100.8 89.6 81.0

Source: Company Data, PL Research.

Bajaj AutoAccumulate – CMP: Rs2,333 – TP: Rs2,446

Balance Sheet Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

Shareholder's Funds 79,019 96,080 111,744 132,694

Total Debt 713 577 577 577

Other Liabilities 1,151 1,432 1,432 1,432

Total Liabilities 80,883 98,089 113,753 134,704

Net Fixed Assets 20,277 21,501 21,009 20,733

Goodwill — — — —

Investments 64,305 85,496 90,496 95,496

Net Current Assets (4,402) (8,908) 2,249 18,475

Cash & Equivalents 5,589 4,955 11,884 19,688

Other Current Assets 33,913 35,524 44,971 52,149

Current Liabilities 43,903 49,387 54,607 53,363

Other Assets 703 — — —

Total Assets 80,883 98,089 113,753 134,704

Quarterly Financials (Rs m)

Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15

Net Revenue 52,077 52,261 50,353 52,985

EBITDA 12,041 11,350 10,714 10,385

% of revenue 23.1 21.7 21.3 19.6

Depr. & Amortization 443 460 445 692

Net Interest — — — —

Other Income 914 1,270 818 1,731


Total Tax 3,746 4,063 3,090 3,351

Profit after Tax 8,372 7,147 7,627 8,073

Adj. PAT 8,766 8,097 7,997 8,073

Key Operating Metrics

Y/e March 2013 2014 2015E 2016E

2W Domestic Vol. (nos) 2,463,874 2,098,913 2,122,870 2,335,157

2W Export Vol. (nos) 1,293,231 1,324,503 1,655,629 1,903,973

3W Domestic Vol. (nos) 226,131 186,912 238,313 262,144

3W Export Vol. (nos) 253,926 260,762 281,623 315,418

Total Vol. (nos) 4,237,162 3,871,090 4,298,435 4,816,692

Net Realization/Unit (Rs) 47,881 52,783 53,381 54,542

RM Cost/Unit (Rs) 34,001 35,847 36,784 37,381

EBITDA/Unit (Rs) 9,266 11,540 11,186 11,844

Net Profit /Unit (Rs) 6,871 8,578 8,350 8,899

Tyres & Tubes (Rs m) 6,427 6,024 6,823 7,799

Other Comp./Unit (Rs) 29,993 31,418 32,361 32,927

Employee Cost (Rs m) 6,395 7,266 8,181 9,074

Advertisement (Rs m) 2,020 2,623 3,100 3,400

Tax Rate (%) 28.7 30.0 30.0 29.0



Automobiles

Income Statement (Rs m)

Y/e March 2013 2014 2015E 2016E

Net Revenue 237,681 252,755 287,245 324,395

Raw Material Expenses 173,977 182,299 207,084 231,739

Gross Profit 63,705 70,456 80,161 92,656

Employee Cost 8,209 9,300 10,416 11,468

Other Expenses 22,650 25,755 28,801 32,875

EBITDA 32,845 35,401 40,944 48,312



Other Income 3,984 4,464 4,800 5,200


Total Tax 4,191 7,582 10,275 12,393

Profit after Tax 21,100 21,091 28,244 33,917

Ex‐Od items / Min. Int. — — — —

Adj. PAT 21,100 21,091 28,244 33,917

Avg. Shares O/S (m) 199.7 199.7 199.7 199.7

EPS (Rs.) 105.7 105.6 141.4 169.8

Cash Flow Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

C/F from Operations 18,903 29,634 42,870 41,940

C/F from Investing (7,298) (16,193) (21,541) (21,039)

C/F from Financing (10,563) (14,076) (15,057) (18,532)

Inc. / Dec. in Cash 1,042 (635) 6,271 2,368

Opening Cash 768 1,810 1,175 7,446

Closing Cash 1,810 1,175 7,446 9,814

FCFF 20,542 32,808 25,988 23,059

FCFE 20,162 32,808 25,988 23,059

Key Financial Metrics

Y/e March 2013 2014 2015E 2016E

Growth

Revenue (%) 0.8 6.3 13.6 12.9

EBITDA (%) (8.9) 7.8 15.7 18.0

PAT (%) (11.3) — 33.9 20.1

EPS (%) (11.3) — 33.9 20.1

Profitability

EBITDA Margin (%) 13.8 14.0 14.3 14.9

PAT Margin (%) 8.9 8.3 9.8 10.5

RoCE (%) 39.8 38.7 46.1 45.7

RoE (%) 45.4 39.8 46.0 45.6

Balance Sheet

Net Debt : Equity — — (0.1) (0.1)

Net Wrkng Cap. (days) (16) (19) (19) (13)

Valuation

PER (x) 26.5 26.5 19.8 16.5

P / B (x) 11.2 10.0 8.4 6.8

EV / EBITDA (x) 17.0 15.8 13.5 11.4

EV / Sales (x) 2.3 2.2 1.9 1.7

Earnings Quality

Eff. Tax Rate 16.6 26.4 26.7 26.8

Other Inc / PBT 15.8 15.6 12.5 11.2

Eff. Depr. Rate (%) 17.1 16.0 8.1 6.7

FCFE / PAT 95.6 155.6 92.0 68.0


Hero Motocorp Accumulate – CMP: Rs2,800– TP: Rs3,057

Balance Sheet Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

Shareholder's Funds 50,062 55,999 66,711 81,938

Total Debt — — — —

Other Liabilities 4,346 (815) — —

Total Liabilities 54,408 55,183 66,711 81,938

Net Fixed Assets 31,331 30,974 42,390 53,810

Goodwill — — — —

Investments 36,238 40,888 43,888 45,888

Net Current Assets (13,161) (16,678) (19,567) (17,759)

Cash & Equivalents 1,810 1,175 7,446 9,814

Other Current Assets 27,037 26,877 29,158 35,170

Current Liabilities 42,008 44,730 56,171 62,744

Other Assets — — — —

Total Assets 54,408 55,183 66,711 81,938

Quarterly Financials (Rs m)

Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15

Net Revenue 57,262 68,758 65,130 70,368

EBITDA 8,327 8,980 8,942 9,472

% of revenue 14.5 13.1 13.7 13.5



Other Income 1,155 957 1,230 1,128


Total Tax 1,769 1,928 1,870 2,027

Profit after Tax 4,815 5,247 5,544 5,628

Adj. PAT 4,815 5,247 5,544 5,628

Key Operating Metrics

Y/e March 2013 2014 2015E 2016E

Total Vol. (nos) 6,075,583 6,245,895 7,007,468 7,724,158

Net Realization/Unit (Rs) 39,121 40,467 40,991 41,997

RM Cost/Unit (Rs) 28,635 29,187 29,552 30,002

Other Exp./Unit (Rs) 3,728 4,123 4,110 4,256

EBITDA/Unit (Rs) 5,406 5,668 5,843 6,255

Net Profit/Unit (Rs) 3,486 3,377 4,031 4,391

Components/Unit (Rs) 28,628 29,172 29,536 29,979

Emp. Cost (Rs m) 8,209 9,300 10,416 11,468

Advertising (Rs m) 4,687 4,935 5,745 6,974

Depreciation (Rs m) 11,418 11,074 7,124 7,122

Tax Rate (%) 16 26 27 27



Automobiles

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Rating Distribution of Research Coverage

33.6%

50.0%

16.4%

0.0%0%

10%

20%

30%

40%

50%

60%

BUY Accumulate Reduce Sell

% of Total Coverage

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months

Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months

Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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Automobiles: Scooters grow at 30.4%; Motorcycle volumes grow at 14.4% - Prabhudas Lilladher

Economy & Finance

Transcript of Automobiles: Scooters grow at 30.4%; Motorcycle volumes grow at 14.4% - Prabhudas Lilladher