印度汽车行业研究报告2009年2月

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Executive Summary
Economic slowdown outweighs all positives
We expect deceleration in the economic growth to outweigh benefits from various structural
factors such as excise duty cuts and lower interest rates. Our analysis suggests that
automobile sales are directly linked to the rate of change in economic growth. This is visible
in the high correlation of passenger vehicles to the services sector (r2=0.97) and commercial
vehicles to the industrial sector (r2=0.9). With weaker economic growth estimate,
particularly in case of industrial and services sectors for FY10, we expect the automobile
sector’s woes to continue. Based on economic growth forecasts, we expect a double-digit
decline in commercial vehicle (CV) sales, single-digit decline in passenger car sales (PC), and
flat two wheeler volumes.
On the other hand, volume links with interest rates/excise duty cuts have been more
tenuous. These positive structural factors, though strong force multipliers, will make a limited
impact in a weak macro economic environment.
Discounting and operating leverage to negate impact of lower input costs
Automobile companies are likely to pass on the benefits of lower input costs (down by 4-6%
per car) to consumers, either through direct price cuts or higher discounting, to boost sales.
Further, with declining volumes we expect operating leverage to negatively impact
profitability, particularly in the commercial vehicle space. Hence, despite lower input costs,
we expect lower margins to persist.
Two wheelers in a better position to weather the storm; Hero Honda is our top pick
In the past few quarters, competition in the two-wheeler space has declined with two key
players, Bajaj Auto (BAL) and TVS Motors (TVSM), struggling to maintain market shares.
Further, the sector is likely to be protected, albeit marginally, from economic contraction on
account of greater dependence on the rural sector. Hero Honda (HH), with its dominant
position in the two-wheeler space, is likely to be a key beneficiary, in our view.
Outlook and valuations: Still not attractive; re-initiating with a negative outlook
Over the past year, the automobile sector has traded at effectively the same FY09 and FY10
P/E, based on consensus earnings. This implies that stock prices have dipped, broadly in line
with the tapered earnings outlook. We expect earnings for the sector to decline by 30%
between FY08 and FY10E. Our estimates for FY09 and FY10 are 10-15% below concensus.
With the outlook more uncertain and financial estimates at risk, we expect contraction in
multiples; we have a negative view on the automobile space.
Hence, we reinitiate coverage on Maruti Suzuki (MSIL) and Baja Auto (BAL) with a ‘REDUCE’
recommendation, on Tata Motors (TTMT) and Ashok Leyland (ALL) with a ‘SELL’
recommendation, and on Hero Honda (HH) with an ‘ACCUMULATE’ recommendation.

Contents
At a glance ................................................................................................................. 3
Investment Rationale ................................................................................................... 4
Valuation ................................................................................................................... 9
Key Risks ................................................................................................................. 10
Companies
Ashok Leyland .......................................................................................................... 11
Bajaj Auto ................................................................................................................ 23
Hero Honda Motors .................................................................................................... 37
Maruti Suzuki ........................................................................................................... 53
Tata Motors .............................................................................................................. 67

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印度汽车行业研究报告2009年2月
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