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UBS Investment Research
12th UBS Auto Dealer Survey
D ealers expect seasonal uptick in sales
Improving demand due to upcoming festive season
Our UBS Composite Auto index at 60 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. 79% of dealers expect sales to increase in
next two months, of which 58% expect sales to increase by more than 15% due to
upcoming festive season.
Sales conversion dips a little; Finance rates higher but liberal lending
26% of dealers reported a drop in sales conversion while 68% said it remains at
normal. 47% of dealers (36% in our last survey) noticed that finance availability
has become more liberal than normal. Higher finance costs remain a concern with
74% of dealers reporting increase in interest rates in the past 2 months.
Footfalls decline, discounts increase but inventory normalizes
45% of dealers report decline in footfalls in last two months of which 21% (5% in
our last survey) of dealers noticed a decline of more than 15%. Inventory levels
have declined with 39% of dealers (54% in last our survey) reporting inventory of
more than 4 weeks. 47% of dealers (62% in our last survey) indicated discounts
have increased further in the last 2 months.
UBS India Auto Dealer Survey provides on the ground feedback
This is the 12th edition of the UBS India Auto Dealer Survey based on responses of
38 auto dealers based in 12 states across India. This product provides a detailed
analysis of the Indian Auto market based on a proprietary primary survey.
Demand momentum expected to pick up
Higher demand outlook for next two months
Based on responses received from 38 auto dealers across the country and across
companies in Sept’11, we expect the sales to show sequential improvement on
the back of upcoming festival season. 79% of the dealers expect sales of new
cars to increase by 5%-15% or more, in which 58% of dealers are expecting
more than 15% of growth for new cars while only 14% of the dealers expect the
car sales to decline by 5%-15% or more.
Footfalls decline; higher interest rates but more liberal financing
45% of dealers report decline in footfalls in last two months; of which 21% (5%
in our last survey) of dealers noticed decline of more than 15%. 74% of dealers
noticed increase in interest rates in the past 2 months. 47% of dealers (26% in
our last survey in Jul’11) think finance availability has become more liberal than
normal. Only 13% of dealers (36%in our last survey) feel that finance
availability is restrained than previous two months.
Inventory levels decrease; enquiry conversion to sales is normal
Inventory levels have come down with only 39% of dealers reporting inventory
of more than 4 weeks (54% in last our survey). 46% of Maruti dealers reported
inventory of more than 4 weeks (64% in last our survey). Maruti dealers are
facing supply constraints due to strike. Others have waiting periods for diesel
versions. 68% of dealers said enquiry conversion to sales is normal while 26%
observed below normal enquiry conversion to sales.
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 Sept Index came in at 60, an increase of 6% from July survey Index value
of 57. This growth was driven by increase in score for four of our index
components – outlook for new car sales, finance availability, change in interest
rates and outlook for used car sales. We observe that the score for outlook for
used car sales and finance availability have seen a considerable increase since
last survey. There is a significant decline in footfalls and new customer
enquiries. Footfalls have fallen below 50 and new customer enquiries declined
in comparison to last survey but still remain above 50.
Investment View
Maruti Suzuki (Buy, Rs 1,420 PT)
We believe demand will recover strongly in FY13 off a low base in FY12.
Maruti has received a strong response for the new Swift launch with more than
100k bookings. Swift will now be produced at the rate of 18k/mth vs 12k earlier.
We expect the co. to launch the new Dzire and RIII concept based UV also in
H2FY12. We remain confident of strong recovery in volumes as labour dispute
at Manesar is settled.
Near term concerns include negative impact from sharp yen appreciation leading
to significant negative impact on EBITDA margins going forward. We are 12%
below consensus for FY12 earnings.
Valuations look attractive; stock is trading at 12x and 6x P/E and EV/EBITDA
FY13E. We derive our price target from a DCF-based methodology and
explicitly forecast long-term valuation drivers with UBS’s VCAM tool with a
WACC of 11.5%. Our 12-month price target implies Maruti will trade at 15x
FY13E earnings.
Mahindra & Mahindra (Buy, Rs 970 PT)
We believe M&M given its high exposure to rural segment will continue to
benefit from strong govt. focus on improving rural income level and rural
infrastructure. M&M has continued to take price increases across segments, we
expect this to drive margin improvement for the co. in the coming quarters given
flat to declining commodity prices.
The stock remains one of our preferred plays in the Indian auto sector. We
derive our 12-month price target from a sum-of-the-parts methodology. We
value the standalone business at Rs 740/share, based on 8x FY13E, and its
subsidiaries (including Ssangyong) at Rs 213/share rounded off to Rs 970 per
share.
Tata Motors (Sell, PT Rs 156)
We maintain our anti-consensus Sell call on Tata Motors. We believe market
continues remain sanguine on Evoque launch driven growth for JLR. We believe
potential slowdown in developed markets and continued sluggishness in the
domestic MHCV business remain the key risks.
We expect domestic business margins to remain under pressure as focus remains
on aggressive marketing and promotions to improve PV sales rather than cut
back on costs. We believe EBITDA margin at JLR to remain under pressure, as
we believe operating leverage effect has largely been played out and incentives
are continuing to increase.
We value the domestic business (and other subs) at 8x FY13E EV/EBITDA. We
value JLR at 3x FY13E EV/EBITDA. We adjust our EBITDA for R&D
capitalization.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
12th UBS Auto Dealer Survey
D ealers expect seasonal uptick in sales
Improving demand due to upcoming festive season
Our UBS Composite Auto index at 60 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. 79% of dealers expect sales to increase in
next two months, of which 58% expect sales to increase by more than 15% due to
upcoming festive season.
Sales conversion dips a little; Finance rates higher but liberal lending
26% of dealers reported a drop in sales conversion while 68% said it remains at
normal. 47% of dealers (36% in our last survey) noticed that finance availability
has become more liberal than normal. Higher finance costs remain a concern with
74% of dealers reporting increase in interest rates in the past 2 months.
Footfalls decline, discounts increase but inventory normalizes
45% of dealers report decline in footfalls in last two months of which 21% (5% in
our last survey) of dealers noticed a decline of more than 15%. Inventory levels
have declined with 39% of dealers (54% in last our survey) reporting inventory of
more than 4 weeks. 47% of dealers (62% in our last survey) indicated discounts
have increased further in the last 2 months.
UBS India Auto Dealer Survey provides on the ground feedback
This is the 12th edition of the UBS India Auto Dealer Survey based on responses of
38 auto dealers based in 12 states across India. This product provides a detailed
analysis of the Indian Auto market based on a proprietary primary survey.
Demand momentum expected to pick up
Higher demand outlook for next two months
Based on responses received from 38 auto dealers across the country and across
companies in Sept’11, we expect the sales to show sequential improvement on
the back of upcoming festival season. 79% of the dealers expect sales of new
cars to increase by 5%-15% or more, in which 58% of dealers are expecting
more than 15% of growth for new cars while only 14% of the dealers expect the
car sales to decline by 5%-15% or more.
Footfalls decline; higher interest rates but more liberal financing
45% of dealers report decline in footfalls in last two months; of which 21% (5%
in our last survey) of dealers noticed decline of more than 15%. 74% of dealers
noticed increase in interest rates in the past 2 months. 47% of dealers (26% in
our last survey in Jul’11) think finance availability has become more liberal than
normal. Only 13% of dealers (36%in our last survey) feel that finance
availability is restrained than previous two months.
Inventory levels decrease; enquiry conversion to sales is normal
Inventory levels have come down with only 39% of dealers reporting inventory
of more than 4 weeks (54% in last our survey). 46% of Maruti dealers reported
inventory of more than 4 weeks (64% in last our survey). Maruti dealers are
facing supply constraints due to strike. Others have waiting periods for diesel
versions. 68% of dealers said enquiry conversion to sales is normal while 26%
observed below normal enquiry conversion to sales.
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 Sept Index came in at 60, an increase of 6% from July survey Index value
of 57. This growth was driven by increase in score for four of our index
components – outlook for new car sales, finance availability, change in interest
rates and outlook for used car sales. We observe that the score for outlook for
used car sales and finance availability have seen a considerable increase since
last survey. There is a significant decline in footfalls and new customer
enquiries. Footfalls have fallen below 50 and new customer enquiries declined
in comparison to last survey but still remain above 50.
Investment View
Maruti Suzuki (Buy, Rs 1,420 PT)
We believe demand will recover strongly in FY13 off a low base in FY12.
Maruti has received a strong response for the new Swift launch with more than
100k bookings. Swift will now be produced at the rate of 18k/mth vs 12k earlier.
We expect the co. to launch the new Dzire and RIII concept based UV also in
H2FY12. We remain confident of strong recovery in volumes as labour dispute
at Manesar is settled.
Near term concerns include negative impact from sharp yen appreciation leading
to significant negative impact on EBITDA margins going forward. We are 12%
below consensus for FY12 earnings.
Valuations look attractive; stock is trading at 12x and 6x P/E and EV/EBITDA
FY13E. We derive our price target from a DCF-based methodology and
explicitly forecast long-term valuation drivers with UBS’s VCAM tool with a
WACC of 11.5%. Our 12-month price target implies Maruti will trade at 15x
FY13E earnings.
Mahindra & Mahindra (Buy, Rs 970 PT)
We believe M&M given its high exposure to rural segment will continue to
benefit from strong govt. focus on improving rural income level and rural
infrastructure. M&M has continued to take price increases across segments, we
expect this to drive margin improvement for the co. in the coming quarters given
flat to declining commodity prices.
The stock remains one of our preferred plays in the Indian auto sector. We
derive our 12-month price target from a sum-of-the-parts methodology. We
value the standalone business at Rs 740/share, based on 8x FY13E, and its
subsidiaries (including Ssangyong) at Rs 213/share rounded off to Rs 970 per
share.
Tata Motors (Sell, PT Rs 156)
We maintain our anti-consensus Sell call on Tata Motors. We believe market
continues remain sanguine on Evoque launch driven growth for JLR. We believe
potential slowdown in developed markets and continued sluggishness in the
domestic MHCV business remain the key risks.
We expect domestic business margins to remain under pressure as focus remains
on aggressive marketing and promotions to improve PV sales rather than cut
back on costs. We believe EBITDA margin at JLR to remain under pressure, as
we believe operating leverage effect has largely been played out and incentives
are continuing to increase.
We value the domestic business (and other subs) at 8x FY13E EV/EBITDA. We
value JLR at 3x FY13E EV/EBITDA. We adjust our EBITDA for R&D
capitalization.
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