India Equity Research | Automobiles Sales Update

AUTOMOBILES
Volume growth sustained

„ Hero Honda: Run rate maintained March 1, 2011

HH’s volumes, at 472,000, rose 17% Y-o-Y and 1% M-o-M respectively.
Sequentially, sales are positive considering historical trend. The company will drop
the Honda brand from its flagship models i.e., Passion and Splendor by June as
part of a rebranding exercise and to carve out an independent identity of the Hero
Sachin Gupta
Group at the earliest.
+91-22-2286 3472
sachin.gupta@edelcap.com
„ Mahindra & Mahindra: Tractors drive growth
UV sales and pick up sales remained steady (up 11% Y-o-Y and 13% Y-o-Y), Chetan Vora
whereas, even considering seasonality, Mahindra & Mahindra’s (M&M) sales were +91-22-6620 3101
in line M-o-M. Tractors continued to drive overall growth (up 37% Y-o-Y, down chetan.vora@edelcap.com

7% M-o-M) indicating strong underlying demand and partially negating the

current macro headwinds which the industry is facing.

„ Maruti Suzuki: Continues to operate at 100%

Sales were strong across all segments; hatchback (A2) and sedan (A3) sales
continued to register stronger volumes, up 19% Y-o-Y and 27% Y-o-Y,
respectively. Maruti Suzuki (MSIL) will further increase production capacity to 1.4
mn units w.e.f. April 2011 aided by another 250,000 units in H2FY12. During the
month, the company launched two models—diesel variant of SX4 and a new
premium model Kizashi in the A4 segment.

„ Tata Motors: CV outperforms PV growth sequentially

MHCV sales (up 1% Y-o-Y, 7% M-o-M) were marginally disappointing on a yearly
basis, but positive on sequential basis. LCV sales (up 8% Y-o-Y, down 1% M-o-M)
were also below expectations, indicating that Tata Motors (TTMT) could have
faced capacity constraints rather than demand slump. On the passenger car front,
Indica (compact segment) sales continued to skid (down 13% Y-o-Y) while the
Indigo range (sedan segment) reported yearly sales growth of 22% Y-o-Y. Nano
sales have revived on the back of various promotional schemes.

„ Outlook: Volume growth to moderate

Going forward, we expect volume growth to moderate. Underlying growth drivers
remain upbeat. However, current headwinds with respect to low IIP growth,
looming liquidity crisis, rising interest rates, rising inflation and fuel costs could
dampen sentiments, proving negative for the sector. Tractors demand is least
affected by rising interest rates. Also, a good rabi crop augurs well for tractor
demand. We have ‘BUY’ recommendation on M&M and TTMT.

Sales performance

Units Feb-11 Feb-10 % Change YTD FY11 YTD FY10 % Change

Hero Honda 472,000 402,096 17.4 4,886,537 4,225,494 15.6

Mah. & Mah. 52,419 41,815 25.4 533,347 425,051 25.5

Maruti Suzuki 111,645 96,650 15.5 1,149,053 923,242 24.5

Tata Motors* 77,543 69,427 11.7 719,903 571,185 26.0

*Excluding Fiat sales

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
 Auto Sales Update

„ Hero Honda: Run rate maintained

• HH’s volumes, at 472,000, rose 17% Y-o-Y and 1% M-o-M respectively. Sequentially,
sales are positive considering historical trend.

• The company will drop the Honda brand from its flagship models i.e., Passion and
Splendor by June as part of a rebranding exercise and to carve out an independent
identity of the Hero Group at the earliest.

• Hero Investments, which has controlling stake in Hero Honda, will pledge its shares
in Hero Honda with institutional investors to raise about INR 35 bn in short-term
debt to buy Honda Motor's stake in the joint venture. The shares will be kept as
collateral till the Hero Group retires the debt, which will be raised through non-
convertible debentures (NCDs) expiring in three months.

Table 1: Hero Honda

Volume (units) Feb-11 Feb-10 % Change Jan-11 % Change YTD FY11 YTD FY10 % Change
Total 472,000 402,096 17.4 466,524 1.2 4,886,537 4,225,494 15.6
Source: Company

„ Mahindra & Mahindra: Tractors drive growth

• UV sales and pick up sales remained steady (up 11% Y-o-Y, 13% Y-o-Y) whereas
even considering seasonality, sales were in line M-o-M. Tractors continued to drive
overall growth (up 37% Y-o-Y, down 7% M-o-M) indicating strong underlying
demand and partially negating the current macro headwinds which the industry is
facing currently.

• M&M is planning to enter the micro irrigation business by acquiring 38% stake in
EPC Industries for a consideration of INR 4.33 bn.

• MNAL (Mahindra Navistar Automotive; JV between M&M and Navistar) which is

already present in the MHCV space through trucks, is contemplating entering inter-
city luxury coach and low floor city bus segments by launching them in 2012.

• The company will set up its automotive plant in Tamil Nadu, for which the
government has allocated land and a structured package of incentives. M&M is
entailing a capex of INR 18 bn towards a test track facility, an automotive plant at
Cheyyar, and a R&D centre near Chennai.

Table 2: Mahindra & Mahindra

Volume (units) Feb-11 Feb-10 % Change Jan-11 % Change YTD FY11 YTD FY10 % Change
Utility vehicles 14,288 12,813 11.5 16,088 (11.2) 152,903 136,468 12.0
4 Wheeler pickups 9,903 8,733 13.4 10,193 (2.8) 94,068 66,408 41.7
LCVs 900 856 5.1 1,023 (12.0) 10,198 8,845 15.3
Logan 1,151 537 114.3 1,120 2.8 8,991 4,981 80.5
3 Wheelers 5,725 3,641 57.2 6,177 (7.3) 56,373 40,067 40.7
Total automotive
31,967 26,580 20.3 34,601 (7.6) 322,533 256,769 25.6
(domestic)
Exports 1,411 1,314 7.4 2,117 (33.3) 17,008 9,813 73.3
Total automotive 33,378 27,894 19.7 36,718 (9.1) 339,541 266,582 27.4
Tractors
Domestic 18,134 13,141 38.0 19,430 (6.7) 183,057 150,594 21.6
Exports 907 780 16.3 1,069 (15.2) 10,749 7,875 36.5
Total tractors 19,041 13,921 36.8 20,499 (7.1) 193,806 158,469 22.3
Grand total 52,419 41,815 25.4 57,217 (8.4) 533,347 425,051 25.5
Source: Company

2 Edelweiss Securities Limited

 Auto Sales Update

„ Maruti Suzuki: Continues to operate at 100%

• MSIL’s sales were strong across all segments; hatchback (A2) and sedan (A3) sales
continued to register stronger volumes, up 19% Y-o-Y and 27% Y-o-Y, respectively.
The company continues to operate at full capacity. Capacity will be further increased
to 1.4 mn units w.e.f. April 2011 aided further by another 250,000 units in H2FY12.

• Exports, as expected, have taken a back seat (down 15% Y-o-Y, up 8% Y-o-Y) as
the company is looking out for non European avenues to enhance sales.

• During the month, MSIL launched two models—diesel variant of SX4 and new
premium model Kizashi in the A4 segment.

• MSIL is developing a global model at its Manesar R&D facility centre that will be
launched not only in India but also in Europe, Japan, among other countries.

• Volkswagen (VW), which holds 19.5% stake in Suzuki Motor Corp. (parent company
of MSIL) has identified A-star to be the global car for marketing and selling in
European markets through its network. The news, however, as of now stands
unconfirmed.

Table 3: Maruti Suzuki

Volume (units) Feb-11 Feb-10 % Change Jan-11 % Change YTD FY11 YTD FY10 % Change
Domestic sales 101,543 84,765 19.8 100,422 1.1 1,022,315 791,260 29.2
Export sales 10,102 11,885 (15.0) 9,321 8.4 126,738 131,982 (4.0)
Total sales 111,645 96,650 15.5 109,743 1.7 1,149,053 923,242 24.5
M800 2,712 3,178 (14.7) 1,876 44.6 23,570 30,266 (22.1)
Omni/ Eeco 13,536 10,668 26.9 13,945 (2.9) 146,210 90,450 61.6
Alto/ Wagon R/
Zen/ 72,090 60,380 19.4 72,479 (0.5) 730,092 578,427 26.2
Swift/ A Star
SX4/ Dzire 13,024 10,254 27.0 11,930 9.2 117,372 88,862 32.1
Kizashi 25 - NA - NA 25 - NA
Total cars 101,387 84,480 20.0 100,230 1.2 1,017,269 788,005 29.1
MUV-Gypsy/Vitara 156 285 (45.3) 192 (18.8) 5,046 3,255 55.0
Total domestic sale 101,543 84,765 19.8 100,422 1.1 1,022,315 791,260 29.2
Exports 10,102 11,885 (15.0) 9,321 8.4 126,738 131,982 (4.0)
Total sales 111,645 96,650 15.5 109,743 1.7 1,149,053 923,242 24.5
Source: Company

Edelweiss Securities Limited 3

 Auto Sales Update

„ Tata Motors: CV outperforms PV growth sequentially

• On the commercial vehicles (CV) front, MHCV sales (up 1% Y-o-Y, 7% M-o-M) were
marginally disappointing on a yearly basis, but positive on sequential basis. LCV
sales (up 8% Y-o-Y, down 1% M-o-M) were also below expectations, indicating that
the company could have faced capacity constraints rather than demand slump.

• On the passenger car front, Indica (compact segment) sales continued to skid (down
13% Y-o-Y) while the Indigo range (sedan segment) reported yearly sales growth of
22% Y-o-Y. Nano sales have revived on the back of various promotional schemes,
easy financing availability and making it available through out the country, thereby
enabling it to clock volume of 8,262 units.

• TTMT will be setting up LandRover plant in India (probable announcement in May) to

assemble Rover’s Freelander brand. The rationale is to bring down the cost of the
model which is currently being imported at INR 3.4 mn.

• The company announced that new Indica (yet to be launched) will become India’s
most efficient car with an all new BS4 compliant, CR4 diesel engine. The new engine
will pack in 32% increase in power, 65% increase in torque along with 46%
improvement in fuel efficiency.

Table 4: Tata Motors

Volume (units) Feb-11 Feb-10 % Change Jan-11 % Change YTD FY11 YTD FY10 % Change
Domestic
M&HCV 17,632 17,441 1.1 16,487 6.9 168,730 134,290 25.6
LCV 23,498 21,764 8.0 23,776 (1.2) 228,240 196,080 16.4
UV 4,637 4,005 15.8 4,462 3.9 37,460 29,619 26.5
Cars 19,010 18,875 0.7 19,047 (0.2) 171,636 155,520 10.4
Nano 8,262 4,105 101.3 6,703 23.3 61,725 25,640 140.7
Total domestic 73,039 66,190 10.3 70,475 3.6 667,791 541,149 23.4

Exports 4,504 3,237 39.1 4,948 (9.0) 52,112 30,036 73.5

Total 77,543 69,427 11.7 75,423 2.8 719,903 571,185 26.0
Source: Company

4 Edelweiss Securities Limited

 Auto Sales Update

Edelweiss Securities Limited, 14th Floor, Express Towers, Nariman Point, Mumbai – 400 021,
Board: (91-22) 2286 4400, Email: research@edelcap.com

Vikas Khemani Head Institutional Equities vikas.khemani@edelcap.com +91 22 2286 4206

Nischal Maheshwari Head Research nischal.maheshwari@edelcap.com +91 22 6623 3411

Coverage group(s) of stocks by primary analyst(s): Auto & Auto Components

Auto: Ashok Leyland, Bajaj Auto Ltd, Exide India, Escorts, Hero Honda, Mahindra & Mahindra, Maruti Suzuki, Tata Motors

EW indices Recent Research

1,600 Date Company Title Price (INR) Recos

28-Feb-11 Automobiles Budget: Neutral to

1,400
marginally positive;
Sector Update
1,200
15-Feb-11 Escorts Higher raw material costs 113 Hold
dents the margin;
1,000 Result Update

11-Feb-11 Tata Motors Inline; JLR leads the way; 1143 Buy
800 Result Update
25-Feb-10 25-Aug-10 25-Feb-11 09-Feb-11 Mahindra & Strong show continues; 655 Buy
Mahindra Result Update
EW Auto Index Nifty

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 116 45 12 176 Buy appreciate more than 15% over a 12-month period

* 3 stocks under review

Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 110 53 13

Access the entire repository of Edelweiss Research on www.edelresearch.com

This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated
investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking
activities. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or
complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that
may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to
be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this
document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in
this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment
discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to
time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving
such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with
respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your
information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in
whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in
any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject
Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain
jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions.
The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this
information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as
may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to
providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither
Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special
or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a
guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be
treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their
family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies
that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no
part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. EdelweissEdelweiss
SecuritiesSecurities
Limited Limited
5