Automobiles - Delhi Visit - Centrum

Delhi visit note

Automobile

Eicher Motors, Munjal Showa and Maruti Suzuki

In our recent trip to Delhi, we met the management of Eicher Motors, Munjal Showa and Maruti Suzuki to get recent updates on business developments.  

The following are the key takeaways of the meetings:

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m  Eicher Motors: 1.) Currently, the company has dealer strength of 230. For the Heavy duty (HD) vehicles, it is currently addressing ~ 50% of the total market, for Medium duty (MD) vehicles, it is almost 100% of the addressable market.  It has been adding 20-25 dealers annually. 2.) Work on the new RE plant in Oragadam is progressing well and production is expected to start by 1QCY13 as per schedule. The management indicated that it would be able to produce 10k units on a monthly basis from the existing plant. It is targeting to sell 100k units for CY12 compared to 74,641 units in CY11. 3.) Overall capacity for Eicher Trucks and Buses (ETB) stands at 5,000 units /month. The company is working on increasing this to 9,000 units /month by CY15. It is setting up its own bus body plant near Indore at Dhar, Madhya Pradesh at an investment of Rs.1.25bn. 4.) The Company will incur a total capex of Rs.4.8-5.0bn for setting up the engine facility at Pithampur. Of the total project cost, it is likely to incur a capex of Rs.3bn by the end CY12. The plant will go on stream in July 2013 and capacity will be increased to 100k units in a phased manner over the next 3-4 years. VECV’s MDE plant will become a hub for production of the entire range of medium-duty engines for Volvo trucks globally. Overtime, the HD requirement of ETB will be met from this capacity.

m  Munjal Showa: 1.) Hero MotoCorp (HMCL) is the largest customer accounting for 75% of its overall sales followed by Honda Motorcycle and Scooters India Ltd at 16-17% 2.) Overall for the company, it expects volume growth to be in the range of 10-11% for FY13E. 3.) Management indicated EBITDA margins would be in the range of 6.5%-7% for FY13E with bias towards the lower end. In 1QFY13, it registered EBITDA margins of 6.3% (lower by 167bps YoY and 244bps QoQ). 4.) For FY12, the company has declared a dividend of Rs.3/ share. At the CMP of Rs.69, the dividend yield stands at 4.3%. Management has gradually increased the dividend per share over the past few years and expects to maintain it at these levels.

m  Maruti Suzuki: 1.) The total employee strength for the company currently stands at 9,100 combined for its Gurgaon and Manesar plant. The ratio of permanent and contract workers at both these plants are similar at 50:50. 2.) The company will start production from 21st of August 2012 initially with 300 employees and 150 cars / day. This will be gradually ramped up with the addition of employees. 3.) Currently, direct imports account for 13% of net sales (5% - KD, 2% steel and 6% royalty outgo), while indirect imports account for 13% of net sales. As a result, Imports accounts for 26% of its net sales. On the other hand, exports account for 12% of net sales. In the long term, the company plans to have a natural hedge by increasing localization and bringing down the import content to 13%.

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