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UBS Investment Research
11th UBS Auto Dealer Survey
D ealers positive on demand outlook
�� Survey points to sequentially improving demand environment
Our UBS Composite Auto index at 57 indicates that the demand environment has
improved since our last survey due to improved outlook for new and used car sales
and improvement in finance availability. However financing rates continue to rise
and remain a concern. 77% of the dealers expect sales to increase by 5%-15% or
more over the next 2 months. Our preferred picks in the Auto sector remain Hero
Honda, Maruti and M&M.
�� Finance rates increase but dealer outlook for FY12 still robust
90% of the dealers reported an increase in the financing rate in the past 2 month.
Only 36% (83% in last survey) of the dealers think that the finance environment
for buying a new car is normal. 49% of dealers (66% in last survey) expect FY12
sales to grow +5% to +15% in FY12 over FY11, while another 26% (20% in last
survey) expect the growth to be strong (>15%).
�� Footfalls flattish; inventory higher and discounts increase
Only 33% dealers noticed an increase in foot falls, while 44% noticed increase in
first-time buyers. 54% of dealers reported inventory levels of more than 4 weeks as
compared to 24% dealers who reported more than 4 weeks in Apr’11. 62% of
dealers indicated the discounts have increased.
�� UBS India Auto Dealer Survey provides on the ground feedback
This is the 11th edition of the UBS India Auto Dealer Survey based on responses of
39 auto dealers based in 14 states across India. This product provides a detailed
analysis of the Indian Auto market based on a proprietary primary survey
Executive Summary
Demand momentum expected to pick up
Stronger demand outlook for next two months
Based on responses received from 39 auto dealers across the country and across
companies in Jul’11, we expect the sales to show sequential improvement on the
back of upcoming festival season. 77% of the dealers expect sales of new cars to
increase by 5%-15% or more, while only 10% of the dealers expect the car sales
to decline by 5%-15% or more. The demand for used car sales also seem to be
strong with 55% of the dealers expects sales of used cars to increase by 5%-15%
or more.
Restrained finance environment; Footfalls and 1st time buyers still up
44% of dealers noticed an increase in 1st time customers. 33% of dealers noticed
an increase in footfalls in the last 2 months which is considerably lower than
51% dealers reported in Apr’11 survey. 90% of the dealers reported an increase
in the financing rate in the past 2 month. Only 36% of the dealers think that
financing environment is at normal levels.
Inventory levels increase; Growth outlook for FY12 moderately tapers
54% of dealers reported more than 4 weeks of inventory (64% of Maruti and
60% of Hyundai dealers had more than 4 weeks of inventory). 49% dealers
expect the growth in FY12 over FY 11 to be moderate in the range of 5%-15%,
while another 26% think the growth will be strong and will grow at more than
15%. All of Tata Motors and Mahindra dealers think there will be growth of
5%-15% or greater in FY12.
UBS Composite Auto Index
Our UBS Composite Auto Index is a proprietary index designed to measure the
aggregate value of the responses to our bimonthly survey questions. We have
incorporated six components in constructing our index and weighted each of
them based on our perception of its overall importance in determining the
environment of auto market in India.
Our index measures the change in our respondents’ view from our previous
survey and is not meant to be an absolute measure of business conditions. Our
index value has a scale of 0-100, with 0-49 implying incrementally weakening
market environment, 50 incrementally stable market environment, and 51-100
incrementally improving market environment.
Our Jul Index came in at 57, an increase of 18% from Apr survey Index value of
48. This growth was driven by increase in score for three of our index
components –Outlook for New car sales, Finance availability and outlook for
used car sales. We observe that the score for outlook for new car sales and
finance availability have seen a considerable increase since last survey. There is
slight decline in footfalls, new customer enquiry and financing rates. Even
though the footfalls and new customer enquiry declined in comparison to last
survey they still remain above 50 thus indicating the overall improvement in
these two factors.
Investment View
Maruti Suzuki (Buy, Rs 1,580 PT)
We believe Maruti Suzuki India’s valuation reflect near-term volume and macro
headwinds. The stock continues to trade at the lower end of historical range
(trading at FY12E PE of 13X and EV/EBITDA of 7x, versus the historical
average of 14x and 8x, respectively).
We believe the sharp increase in petrol prices has further impacted demand
environment. We believe Maruti will likely be affected in H1 FY12 due to
inadequate capacity for diesel models. However, we expect a strong recovery in
H2 FY12 as the second unit of the Manesar factory comes online. We expect 2
to 3 new launches in H2FY12 that are likely to drive growth momentum in
FY13.
We derive our 12-mth price target on DCF-based methodology and explicitly
forecast long-term valuation drivers with UBS’s VCAM tool with WACC of
11.5%.
Mahindra & Mahindra (Buy, Rs 840 PT)
We believe M&M is a strong play on the rural growth story due to its leading
tractor franchise and UV sales which also has significant exposure to rural areas.
We expect demand and pricing power to remain robust in the tractor segment.
We believe UV demand could surprise on the upside with forthcoming launches.
We remain positive on the Ssangyong acquisition as the company’s export
volumes continue to rise. Based on our pro-forma numbers, we expect
Ssangyong to be earnings-accretive for M&M from FY13.
We value M&M on a sum-of-the-parts basis. We value the stand-alone business
at Rs 588/share based on 8x FY13 EV/EBITDA and subsidiaries at Rs
192/share; and the 70% stake in Ssangyong at Rs57/share to arrive at Rs 840.
Tata Motors (Sell, PT Rs 920)
We remain concerned about deteriorating growth outlook for Jaguar Land Rover
(JLR) and a negative view on the domestic medium & heavy commercial
vehicle (MHCV) sales. We believe the EBITDA margin (domestic business) is
likely to remain under pressure, as the domestic MHCV segment is in a down
cycle, TAMO’s product mix is shifting towards lower-margin LCV (Ace zip)
and Nano and sharp decline in Indica and Indigo sales.
We value Tata Motors on a sum-of-the-parts basis. We value domestic business
and subs on 8x FY13E adj. EBITDA and JLR at 4x FY13E EBITDA to derive
our PT. We adjust our EBITDA for the R&D capitalization.
Company wise Summary of findings
Maruti: Dealers expect sales to increase as discounts increase and we enter
festival season
85% of Maruti dealers expect the sales to increase in the next 2 months of which
64% expect the sales to increase by more than 15%. Only 35% dealers noticed
an increase in footfalls in the last 2 months, while 57% of dealers noticed an
increase in the first time customers. 79% dealers noticed higher discounts being
offered in the last 2 months, while 64% dealers reported having inventory of
more than 4 weeks. 50% dealers believe that the finance availability for buying
new cars at normal level, while 29% believe that finance availability is liberal.
43% dealers indicated that finance availability has become more liberal in the
past 2 months. 64% Maruti dealers expect the FY 12 sales to grow by 5%-15%
or greater over FY11 and of these 14% think sales will grow more than 15%.
M&M: Dealers expect strong growth as foot falls and first time customers
increase
75% of the dealers think that sales will increase by 5%-15% or more in the next
2 months, while none of the dealers expect the sales to decline in the next 2
months. 50% of the dealers have noticed an increase in foot falls in last 2
months, while 50% dealers noticed a decrease in 1st time customers in last 2
months. 25% of the dealers reported increase in discounts. The inventory level
seems to have improved since last survey and all the dealers have an inventory
level between 3-4 weeks. 75% of the dealers thought the finance availability
environment is stringent. 75% of the dealers believe the financing environment
became restrained in last 2 months. All Mahindra dealers expect growth of 5%-
15% or more in FY12.
Tata Motors: Fall in footfalls; Strong growth expected
All Tata Motors dealers expect sales to grow by 5%-15% in the next 2 months.
None of the dealers noticed an increase in footfalls, while 50% of them noticed a
decline in footfalls in the past 2 months. 33% dealers noticed an increase in 1st
time customers in the previous 2 months, while same % noticed an increase in
discounts. 33% Tata Motors dealers believe that financing environment has
returned to normal level, while 67% of the dealers indicated that the availability
of finance for new cars became liberal in past 2 months. 33% of the dealers are
carrying inventory of more than 4 weeks. All Tata Motors dealers expect growth
of 5%-15% or more in FY12
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
11th UBS Auto Dealer Survey
D ealers positive on demand outlook
�� Survey points to sequentially improving demand environment
Our UBS Composite Auto index at 57 indicates that the demand environment has
improved since our last survey due to improved outlook for new and used car sales
and improvement in finance availability. However financing rates continue to rise
and remain a concern. 77% of the dealers expect sales to increase by 5%-15% or
more over the next 2 months. Our preferred picks in the Auto sector remain Hero
Honda, Maruti and M&M.
�� Finance rates increase but dealer outlook for FY12 still robust
90% of the dealers reported an increase in the financing rate in the past 2 month.
Only 36% (83% in last survey) of the dealers think that the finance environment
for buying a new car is normal. 49% of dealers (66% in last survey) expect FY12
sales to grow +5% to +15% in FY12 over FY11, while another 26% (20% in last
survey) expect the growth to be strong (>15%).
�� Footfalls flattish; inventory higher and discounts increase
Only 33% dealers noticed an increase in foot falls, while 44% noticed increase in
first-time buyers. 54% of dealers reported inventory levels of more than 4 weeks as
compared to 24% dealers who reported more than 4 weeks in Apr’11. 62% of
dealers indicated the discounts have increased.
�� UBS India Auto Dealer Survey provides on the ground feedback
This is the 11th edition of the UBS India Auto Dealer Survey based on responses of
39 auto dealers based in 14 states across India. This product provides a detailed
analysis of the Indian Auto market based on a proprietary primary survey
Executive Summary
Demand momentum expected to pick up
Stronger demand outlook for next two months
Based on responses received from 39 auto dealers across the country and across
companies in Jul’11, we expect the sales to show sequential improvement on the
back of upcoming festival season. 77% of the dealers expect sales of new cars to
increase by 5%-15% or more, while only 10% of the dealers expect the car sales
to decline by 5%-15% or more. The demand for used car sales also seem to be
strong with 55% of the dealers expects sales of used cars to increase by 5%-15%
or more.
Restrained finance environment; Footfalls and 1st time buyers still up
44% of dealers noticed an increase in 1st time customers. 33% of dealers noticed
an increase in footfalls in the last 2 months which is considerably lower than
51% dealers reported in Apr’11 survey. 90% of the dealers reported an increase
in the financing rate in the past 2 month. Only 36% of the dealers think that
financing environment is at normal levels.
Inventory levels increase; Growth outlook for FY12 moderately tapers
54% of dealers reported more than 4 weeks of inventory (64% of Maruti and
60% of Hyundai dealers had more than 4 weeks of inventory). 49% dealers
expect the growth in FY12 over FY 11 to be moderate in the range of 5%-15%,
while another 26% think the growth will be strong and will grow at more than
15%. All of Tata Motors and Mahindra dealers think there will be growth of
5%-15% or greater in FY12.
UBS Composite Auto Index
Our UBS Composite Auto Index is a proprietary index designed to measure the
aggregate value of the responses to our bimonthly survey questions. We have
incorporated six components in constructing our index and weighted each of
them based on our perception of its overall importance in determining the
environment of auto market in India.
Our index measures the change in our respondents’ view from our previous
survey and is not meant to be an absolute measure of business conditions. Our
index value has a scale of 0-100, with 0-49 implying incrementally weakening
market environment, 50 incrementally stable market environment, and 51-100
incrementally improving market environment.
Our Jul Index came in at 57, an increase of 18% from Apr survey Index value of
48. This growth was driven by increase in score for three of our index
components –Outlook for New car sales, Finance availability and outlook for
used car sales. We observe that the score for outlook for new car sales and
finance availability have seen a considerable increase since last survey. There is
slight decline in footfalls, new customer enquiry and financing rates. Even
though the footfalls and new customer enquiry declined in comparison to last
survey they still remain above 50 thus indicating the overall improvement in
these two factors.
Investment View
Maruti Suzuki (Buy, Rs 1,580 PT)
We believe Maruti Suzuki India’s valuation reflect near-term volume and macro
headwinds. The stock continues to trade at the lower end of historical range
(trading at FY12E PE of 13X and EV/EBITDA of 7x, versus the historical
average of 14x and 8x, respectively).
We believe the sharp increase in petrol prices has further impacted demand
environment. We believe Maruti will likely be affected in H1 FY12 due to
inadequate capacity for diesel models. However, we expect a strong recovery in
H2 FY12 as the second unit of the Manesar factory comes online. We expect 2
to 3 new launches in H2FY12 that are likely to drive growth momentum in
FY13.
We derive our 12-mth price target on DCF-based methodology and explicitly
forecast long-term valuation drivers with UBS’s VCAM tool with WACC of
11.5%.
Mahindra & Mahindra (Buy, Rs 840 PT)
We believe M&M is a strong play on the rural growth story due to its leading
tractor franchise and UV sales which also has significant exposure to rural areas.
We expect demand and pricing power to remain robust in the tractor segment.
We believe UV demand could surprise on the upside with forthcoming launches.
We remain positive on the Ssangyong acquisition as the company’s export
volumes continue to rise. Based on our pro-forma numbers, we expect
Ssangyong to be earnings-accretive for M&M from FY13.
We value M&M on a sum-of-the-parts basis. We value the stand-alone business
at Rs 588/share based on 8x FY13 EV/EBITDA and subsidiaries at Rs
192/share; and the 70% stake in Ssangyong at Rs57/share to arrive at Rs 840.
Tata Motors (Sell, PT Rs 920)
We remain concerned about deteriorating growth outlook for Jaguar Land Rover
(JLR) and a negative view on the domestic medium & heavy commercial
vehicle (MHCV) sales. We believe the EBITDA margin (domestic business) is
likely to remain under pressure, as the domestic MHCV segment is in a down
cycle, TAMO’s product mix is shifting towards lower-margin LCV (Ace zip)
and Nano and sharp decline in Indica and Indigo sales.
We value Tata Motors on a sum-of-the-parts basis. We value domestic business
and subs on 8x FY13E adj. EBITDA and JLR at 4x FY13E EBITDA to derive
our PT. We adjust our EBITDA for the R&D capitalization.
Company wise Summary of findings
Maruti: Dealers expect sales to increase as discounts increase and we enter
festival season
85% of Maruti dealers expect the sales to increase in the next 2 months of which
64% expect the sales to increase by more than 15%. Only 35% dealers noticed
an increase in footfalls in the last 2 months, while 57% of dealers noticed an
increase in the first time customers. 79% dealers noticed higher discounts being
offered in the last 2 months, while 64% dealers reported having inventory of
more than 4 weeks. 50% dealers believe that the finance availability for buying
new cars at normal level, while 29% believe that finance availability is liberal.
43% dealers indicated that finance availability has become more liberal in the
past 2 months. 64% Maruti dealers expect the FY 12 sales to grow by 5%-15%
or greater over FY11 and of these 14% think sales will grow more than 15%.
M&M: Dealers expect strong growth as foot falls and first time customers
increase
75% of the dealers think that sales will increase by 5%-15% or more in the next
2 months, while none of the dealers expect the sales to decline in the next 2
months. 50% of the dealers have noticed an increase in foot falls in last 2
months, while 50% dealers noticed a decrease in 1st time customers in last 2
months. 25% of the dealers reported increase in discounts. The inventory level
seems to have improved since last survey and all the dealers have an inventory
level between 3-4 weeks. 75% of the dealers thought the finance availability
environment is stringent. 75% of the dealers believe the financing environment
became restrained in last 2 months. All Mahindra dealers expect growth of 5%-
15% or more in FY12.
Tata Motors: Fall in footfalls; Strong growth expected
All Tata Motors dealers expect sales to grow by 5%-15% in the next 2 months.
None of the dealers noticed an increase in footfalls, while 50% of them noticed a
decline in footfalls in the past 2 months. 33% dealers noticed an increase in 1st
time customers in the previous 2 months, while same % noticed an increase in
discounts. 33% Tata Motors dealers believe that financing environment has
returned to normal level, while 67% of the dealers indicated that the availability
of finance for new cars became liberal in past 2 months. 33% of the dealers are
carrying inventory of more than 4 weeks. All Tata Motors dealers expect growth
of 5%-15% or more in FY12
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