Automobile Sector review

Key Highlights

BSE Auto Index gave a highest return of 25.24% during Q4 FY09, highest amongst all BSE sectoral indices. Market capital of BSE Auto augmented by Rs 19,531.55 crore during Q4 FY09. During Q4 FY09, Maruti Suzuki’s share price jumped by 58.09%, highest amongst its peers. During Q4 FY09, Maruti Suzuki witnessed highest sales growth of 30.14% while Hero Honda tops the chart in terms of growth in net profit by 34.64%. Laggards of BSE Auto, during Q4 FY09, are Ashok Leyland and Amtek Auto with the negative growth of net profit by 70.48% and 62.23% respectively. Volume of automobiles, in FY09, increased by 1% to 8,866,947 units. Tata Motors launched Nano in Mumbai on March 23, 2009, the cheapest car of the world.

Movement in BSE Auto vis-à-vis BSE-500 (Q4 FY09)

Snapshot Fourth quarter of FY09 brought some revival in the automotive industry with volumes improving for most sub-segments, though, Q3 FY09 was one of the worst quarters for the Indian automotive industry. Higher volumes translated into benefits of operating leverage with fixed costs getting distributed over increased volumes. Credit availability improved especially by PSU banks as they resorted to aggressive lending and rate cuts. Consumer sentiments improved during the quarter owing to cut in excise duties, lower fuel prices and VIth pay commission payouts to government employees. Lower aluminum and steel prices also was in favour of the Industry. However, INR depreciated by over 4% during the quarter, resultantly, companies having dollar denominated loans have to report forex losses like Tata Motors and M&M.

Auto in Q4 FY09 Financial Performance Inter-Company Comparison for Q4 FY 2009 Company Net Sales Change-YoY Operating  Profit Change-YoY Net Profit Change-YoY Rs. Cr (%) Rs. Cr (%) Rs. Cr (%) Maruti Suzuki 6,432.90 30.14 554.74 -27.26 243.13 -18.33 Hero Honda 3,422.52 22.24 593.32 27.05 402.17 34.64 MRF 1,405.82 15.72 178.43 15.57 68.69 4.68 Apollo Tyres 1,110.56 10.91 120.58 -2.94 46.19 -22.07 Exide Inds 799.5 0.49 135.71 15.66 68.2 8.56 Escorts 491.66 -7.49 40.02 -12.91 7.82 -19.21 Bosch 1,005.98 -17.08 109.66 -58.1 49.38 -69.47 Amtek Auto 265.66 -25.44 83.26 -24.88 22.53 -62.23 Ashok Leyland 1,218.12 -52.52 124.38 -59.09 53.31 -70.48 Out of 14 companies in BSE Auto only 9 companies have declared their quarterly result by May 20, 2009.  The sales growth of these companies have shown mixed trend. Out of these 9 companies only 5 have shown growth in sales where as 4 witnessed de-growth. Maruti Suzuki came out as star performers with the net sale of Rs 6,432.90 crore and growth rate of 30.14% in Q4 FY09 Vs Q4 FY08. However, Ashok Leyland witnessed maximum fall of 52.52% in the net sales of Rs 1,218.12 crore. Despite witnessing maximum growth in net sales, Maruti Suzuki’s operating profit decreased to Rs 554.74, a fall of 27.26% from last year’s corresponding quarter. Hero Honda, however, achieved maximum growth in the operating profit of Rs 593.32 crore from last year, an increment of 27.05%. Ashok Leyland witnessed maximum fall of 59.09% in the operating profit to the tune of Rs 124.38 crore. Hero Honda registered highest growth of 34.64% in net profit to Rs 402.17 crore while Ashok Leyland, again, fall into the category of laggard after witnessing 70.48% fall in the net profit of Rs 53.31 crore.

Top Performers Maruti Suzuki India Limited For Q4 FY09, Maruti Suzuki India Limited (MSIL) reported a sharp jump in net sales, up 30.14% yoy to Rs 6,432.90 crore. The surge in sales was driven by a robust volume growth of 17% yoy and an improvement in net price realization. In the face of 4% cut in CENVAT, announced in December 2008, MSIL witnessed 12% yoy (Rs. 266,582 per unit) growth in net price realization. Despite a record volume achieved during the quarter, the net profit reported by the company declined substantially, mainly due to the losses on account of forex fluctuations and higher raw material cost. For Q4 FY09, the EBITDA margin declined 500 bps yoy to 7% and net profit margin declined 400 bps yoy to 3.8%. Consequently, the net profit plunged 18.33% yoy to Rs. 243.13 crore for the fourth quarter. Hero Honda Motors Limited For Q4 FY09, Hero Honda Motors Limited (HHML) announced better than expected results. While it’s top line surged 22.24% yoy to Rs 3,422.52 crore, the net profit jumped 34.64% yoy to Rs 402.17 crore. A decline in raw material prices, coupled with increased contribution from Haridwar plant, which is entitled for 10 years of excise duty exemption, helped the company report an improvement in the operating margins. The company registered a healthy 12.9% yoy growth in volumes as against 5% yoy industry growth. The robust performance was largely attributed to the increased penetration in the rural areas. A major portion of Hero Honda’s sales during FY09 has been cash sales, largely driven by increased penetration in the rural area. Going forward, it is expected that HHML’s strong position in the entry level segment, which caters to a large pool of rural demand, will help the company to maintain higher cash sales and assure the growth momentum even in the tough financing conditions. Volume-wise Performance (FY09 Vs FY08) Inter-Company Volume Comparison Companies FY 09 FY 08 VAR (%) Hero Honda       Total 3,722,000 3,337,142 12 Bajaj Auto       Motorcycles 1,907,810 2,139,633 -11 Scooter 11772 21294 -45 3-wheeler 274,436 290,301 -5 Exports 750,821 618,341 21 Total 2,194,018 2,451,228 -10 TVS Motors       Motorcycles 635,940 617,606 3 Scooters & mopeds 693,767 671,367 3 Exports 193,398 139,004 39 Total 1,329,707 1,288,973 3 Maruti       A1 49,383 69,553 -29 C 77,948 89,729 -13 A2 511,396 499,280 2 A3 75,928 49,335 54 Total (Passenger cars) 714,655 707,897 1 MUV 7489 3927 91 Domestic 722,144 711,824 1 Export 70,023 53,024 32 Total 792,167 764,848 4 M&M       Utility Vehicles 153,645 148,759 3 LCV's 8604 10402 -17 Logan 13,423 25,901 -48 Total (4-wheelers ) 175,672 185,062 -5 3- Wheelers 44,533     Domestic 220,205 218,989 1 Exports 8818 12,359 -29 Total (A) 229,023 231,348 -1 Tractors       Domestic 95,376 90,037 6 Exports 6509 8673 -25 Total (B) 101,885 98,710 3 Total (A+B) 330,908 330,058 0.26 Tata Motors       M&HCV 113,674 166,037 -32 LCV 151,408 147,334 3 Utility 39,303 47,700 -18 Cars 160,422 167,058 -4 Domestic 464,807 528,129 -12 Exports 33,340 54,272 -39 Total 498,147 582,401 -14 TOTAL 8,866,947 8,754,650 1 Volume Growth Auto sector continued with revival in volumes, getting a boost from stimulus package announced by the government as well as demand from rural market and the government employees. The aggregate volume (unit sale) of 6 major auto companies grew by 1% to 8,866,947 units in FY09 Vs 8,754,650 units in FY08. Hero Honda out performed its peers as it registered maximum growth of 12% in the volumes to the tune of 3,722,000 units in FY 09 over FY08. Next is Maruti with 4% growth in volume to 792,167 units. Closely follows TVS Motors with the volume growth of 3% to 1,329,707 units. M&M just managed to post meager growth of 0.26% while rest 2 companies Bajaj Auto and Tata Motors witnessed negative growth of 10% and 14% respectively. Volume Growth in Domestic and Overseas market In the domestic market, volume decreased by 1% to 7,804,038 units in FY09 Vs FY08. On the contrary to this, export volume increased by 20% to 1,062,909 units. However, domestic market occupies 88% of the total volume while overseas market constitutes only 12% in FY09. Nonetheless, this ratio has changed from FY08 where domestic market occupied 90% of the total volume while overseas market constitutes only 10% depicting that there is increased demand of automobiles in the international market from India due to lower cost operation and availability of talent. Market Share Again, looking at the 6 companies in the table above, Hero Honda not only continues to grow faster than the peers but also leading to higher market share at 42% in FY09 (Vs 38% in FY08). Bajaj Auto constitutes 25% of the market share in FY09 though it has decreased from last year’s 28%. Market share of TVS Motors, Maruti and M&M has remained almost constant at 15%, 9%, and 4% respectively. However, market share of Tata Motors decreased slightly from last year’s 7% to 6%. Auto on Bourses During Q4 FY09 BSE Auto gave an excellent return of 25.24% which is highest among all BSE sectoral indices. On the other hand, BSE500 index delivered negative return 2.04%. The reason behind the huge jump is not just the great sales being managed by most of the car-makers but also effect of excise duty cuts by the government and the feel-good factor that seems to have taken control of both investors as well as fund managers that have been driving stocks higher. The market capital of BSE Auto augmented by Rs 19,531.55 crore during Q4 FY09 to Rs 97,108.70 crore.  Return posted by BSE sectoral indices vis-à-vis BSE 500 in Q4 FY09 (Q-o-Q) Particulars Index Value Return 31-Mar-09 % B S E Auto Index 3,061.67 25.24 B S E Oil & Gas Index 7,053.04 16.58 B S E Metal Index 5,795.07 11.14 B S E Information Technology Index 2,285.68 2.59 D S E FMCG Index 2,036.24 2.46 B S E Power Index 1,847.10 0.97 B S E PSU Index 5,230.17 -0.94 B S E 500 Index 3,523.53 -2.04 B S E Teck Index 2,830.11 -4.59 B S E Healthcare Index 1,846.83 -5.15 B S E Capital Goods Index 6,466.03 -6.44 B S E Consumer Durables Index 1,625.45 -15.06 B S E Bankex 4,490.97 -17.67 B S E Realty Index 1,560.83 -31.37 During Q4 FY09, Bajaj Auto topped with (58.09%) return followed by Maruti Suzuki (49.03%), M&M (39.42%), Hero Honda (32.92%) while major losers were Cummins India (-16.20%), Exide ( -13.91%). Performance of Auto stocks on BSE in Q4 FY09 Company Name Price (Rs) Price (Rs) Return 31-Dec-08 31-Mar-09 (%) Bajaj Auto Ltd. 391.20 618.45 58.09 Maruti Suzuki 520.10 775.10 49.03 M&M Ltd. 274.85 383.20 39.42 Hero Honda Motors Ltd. 805.10 1,070.15 32.92 Ashok Leylands Ltd. 15.02 18.10 20.51 Bharat Forge Ltd. 83.80 98.00 16.95 Tata Motors Ltd. 159.05 180.30 13.36 Amtek Auto Ltd. 67.55 74.10 9.70 Bosch Ltd. 3,200.85 3,068.20 -4.14 Apollo Tyres Ltd. 19.85 18.18 -8.41 MRF Ltd. 2,002.45 1,772.40 -11.49 Escorts Ltd. 40.00 35.30 -11.75 Exide Industries Ltd. 48.15 41.45 -13.91 Cummins India Ltd. 221.55 185.65 -16.20 Tata Motors launches world's cheapest car NANO making India proud Great things do not happen by chance but by brilliant minds. The Indian auto designers have proved their mettle across the globe when Tata launched Rs 1 lakh car though initially the whole world guffawed at this claim and thought it to be impossibility. Tata proved it possible by launching Nano in Mumbai on March 23, 2009. Other than being a bridge between the two-wheeler market and the four-wheeler segment, Nano also created a plethora of opportunities for automotive designers in India. Nano’s design has been respected by a global audience. Indian car designers accomplished the task by designing the world’s cheapest small car within a record time of 18 months. Overnight, a young breed of designers shot India into the limelight through their marvelous skills and technical know-how. India, in the near future, may well become one of the hottest hubs for automotive research and design with young budding designers leading automotive innovations. Global Scenario A cloud of gloom hovers over the global automotive market with plummeting vehicle sales and tightening credit conditions, one of the most difficult times for the automotive Industry. Pressures from plunging sales, frozen credit markets, global competition, higher raw material and, until recently, gasoline prices, and growing consumer demand for more fuel-efficient vehicles are driving a transformation of the industry across its entire value chain. With an extraordinary drop in third and fourth quarter sales, the entire industry globally has been put into crisis mode. General Motors posted a USD 6 billion loss in the first quarter of 2009, about double what it lost in the same quarter a year ago. Toyota lost 437 billion yen, or USD 4.3 billion, for the full year ended on March 31, 2009 and forecast a larger loss of 550 billion yen, or USD 5.8 billion, for this year because of persistent weakness in global demand for vehicles. As the industry copes with job and production cuts to trim over capacity, business planners within each automaker are working hard to tap growth opportunities in green cars, low-cost vehicles and emerging market growth. A recovery of the sector remains contingent upon improved credit availability as well as recovery of key demand drivers, including GDP growth and the freight markets. Different government, globally, has set out various stimulus packages for the sector, which includes better credit availability for CV financiers, increased deprecation benefits for CV purchases, and reduction in excise duties.

Outlook India automobile market is likely to be in good shape in the year 2009 despite of global recession as there are certain factors working in its favor. India is blessed with middle class, which is getting economically stronger with every passing day. This class is being touted as potential consumers for India automotive industry in years to come. Further, Indian economy has been, more or less, able to withstand tremors of global financial meltdown. Even though its rate of growth has slowed down considerably, there are hopes of an economic revival. Work force of automotive industry of India is relatively well trained. All these factors indicate that there could be a decent future for the automotive industry in India in days to come. Much of this optimism results from renewed interest being shown in the India automotive industry by reputed overseas car makers. Nissan Motors, which is a well known Japanese car making company, regards India automobile market as a global car manufacturing hub for future. Hyundai, a major automobile establishment of South Korea, has put in large sums of money in India automotive market. As per its estimates, India automotive industry could become a major center for small car manufacturing organizations in future.