bav final presentation

7/29/2019 BAV Final Presentation

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Automobile Sector


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Agenda

Industry Analysis

Individual Company Analysis& Valuation Assumptions

Comparative Analysis


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Automobile Industry: Analysis 2012

Car sales in India rose just 2.2 percent in FY2012 Commercial vehicles, SIAM said total sales in FY12

were 809,532 units, up 18.2 per cent.

16% 4%3%

77%

Automobile Industry2011-12

Passenger Vehicles Commercial Vehicles

Three Wheelers Two Wheelers

Percentage Market Share: Passenger & Commercial Vehicles

Asian Journal of Technology & Management Research, Vol. 01Issue: 02


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Automobile Industry: Analysis 2013

SIAM has projected passenger car sales growth at 10-12 per cent in 2012-

13.

Sales of trucks and buses, a key indicator of economic activity, rose 18.2

percent in 2011/12 and are seen growing 9 to 11 per cent in this fiscal

year.

Commercial Vehicles is projected to grow by nine to 11 per cent in FY13.

SIAM has also projected five to seven per cent growth for Three

Wheelers.

Source: SIAM


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Porters 5 Forces

Barriers to Entry

Regulatory framework

The startup capital required to establish

manufacturing capacity to achieve minimum

efficient scale is prohibitive

Buyer/Customer

Power

Availability of options

Low Switching Costs


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Porters 5 Forces

Bargaining Power

of Suppliers

Powerful buyers who are generally able to

dictate terms to suppliers

Threat of

Substitutes

Fairly Mild

Switching cost may be high in terms ofpersonal time, convenience and utility


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Porters 5 Forces

Rivalry among

Competitors

Intense due to the entry of foreign

companies

Product being matched in a few months by

the competitors


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S.W.O.T

Strengths Weaknesses

Large domestic market

Sustainable labor cost advantage

Competitive auto componentvendor base

Government incentives for

manufacturing plants

Strong engineering skills in design

etc.

Low labor

productivity/strikes/lock-outs

High interest costs and high

overheads make the production

uncompetitive

Various forms of taxes push up

the cost of production

Low investment in Research and

Development

Infrastructure bottleneck


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S.W.O.T

Opportunities Threats Commercial vehicles: SC ban on

overloading

Heavy thrust on mining and

construction activity Increase in the income level

Cut in excise duties

Rising rural demand

Rising input costs

Cut throat competition

Rising fuel Prices

Economic uncertainty

High interest rates

No cut in interest rates a big

disappointment for India Inc.:

Seshagiri Rao, JSW Steel, Economic

Times

Tata Motors trades at favorable valuations

with JLR recording strong volumes and

domestic commercial vehicle sales

perform better than the peers.

AutomitiveHorision.com


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Ashok Leyland


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About Company

Flagship company of the Hinduja Group

Founded by Raghunandan Saran, Ashok Motors was set up in collaboration with

Austin Motor Company, England in1948

2nd largest commercial vehicle manufacturer in India

Turnover of US $ 2.5 billion (around 70,000 vehicles) in 2011-12 having

Ventured into construction equipment in 2011 through a JV with John Deere

Very limited presence as of now

JV with Nissan Motor Company for LCV in 2007

Exports contribute 10-12 % to total revenue


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Product Portfolio

H&MCV Goods Carrier (Trucks)

H&MCV Passenger Carrier (Buses )

LCV Goods Carrier (Dost)

LCV Passenger carrier Construction Equipment

Defense Vehicles

Power Solutions


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Cyclical Trend

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.300.40

0.50

0.60

Mar

04(12)

Mar

05(12)

Mar

06(12)

Mar

07(12)

Mar

08(12)

Mar

09(12)

Mar

10(12)

Mar

11(12)

Mar

12(12)

YoY Growth Ashok Leyland

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

2004 2005 2006 2007 2008 2009 2010 2011 2012

YoY Growth Industry


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Projection of Revenue Growth

Growth projected by measures like mean and CAGR19-23%

Growth projected for the next 5 years : 13.5 %

Reasons

Cycle trending towards trough

Growth in 1st quarter of FY13 coming from LCV, whereas major segment is trucks which

shows de-growth

Economic slowdown expected to continue leading to lower good transits and low truck

rentals

Terminal Growth rate : 5.5 %

- In line with the long term GDP growth rate


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Projection Of EBIT Margin

Projection is 9.5 %

Reason is downward trend in EBIT Margin Upward Pressure on Cost due to inflation

Downward pressure on prices due to Competition from expected New Entrants (Benz, Navistar)

Market slowdown and inventory accumulation forcing lowerprices

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

Mar 03(12) Mar 04(12) Mar 05(12) Mar 06(12) Mar 07(12) Mar 08(12) Mar 09(12) Mar 10(12) Mar 11(12) Mar 12(12)


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Other Projections

TAX Rate

Based on Average PAT/Average PBT

Capital Expenditure

Based on companys guidance

Changes in Net Working Capital

Based on increase in sales

Depreciation Based on historical rate of depreciation and

projected increase in Net Block


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Valuation

Market Price : Rs. 22.10/share

Valuation : Rs. 30.47/share


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Maruti Suzuki


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MarutiAn Automobile Giant

Largest Passenger

segment Automobile

manufacturer of India

Subsidiary of Japanese

auto maker Suzuki

Motor Corporation

Has around 45% market

share in passenger vehicles

Till 2007, 55% of thecompany was owned by

Suzuki Corp and 18% by

Indian Govt.

Sells more than 7 lakhs

cars in India annually.

Exports close to 50000

Currently: 54.21% Foreign

promoters, 18.71% FIIs,

14.58% Banks/FIs


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MarutiProduct Portfolio

Mostly into Passenger Vehicle Segment

Major Car brands include:

Entry level: Maruti Alto

Hatchback: Ritz, A-Star, Swift, Wagon-R

Has a multi purpose vehicle and a sports utility

vehicle also

Swift currently is the largest selling model

Produces both petrol and diesel variants of the car

Manufacturing Plants: Manesar and Gurgaon

Major competitors include: Honda, Chevrolet,

Hyundai and Ford


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Sales and Market Share

0.00

5,000.00

10,000.00

15,000.0020,000.00

25,000.00

30,000.00

35,000.00

40,000.00

45,000.00

2004 2005 2006 2007 2008 2009 2010 2011

Sales in Rs Cr

Series1

Market Share 2011 Data

Sales


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Valuation - AssumptionsGrowth Rate of Sales is assumed to be 12% for 2013 and 15% thereafter

The CAGR of Total Sales for both last 5 years and last 10 years is close to 15% The trend line shows a growth of 15-20%

For a country like India growth in passenger vehicle segment will be through

Tier2 and Tier 3 cities where Maruti holds a large market share and is

considered to be a way of life. Excellent brand image

Passenger vehicle segment grew by 29% in year 2010-2011. Reduced Growth

of 4% in 2011-2012 was mainly due to other macroeconomic parameters

For 2013 growth rate is assumed less due to recent agitation in Manesar

manufacturing plant which hampered production

-10

-5

0

5

10

15

20

2530

35

40

45

2004 2006 2008 2010 2012 2014


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Valuation - Assumptions

Capital Expenditure

Based on Percentage of Sales. Mean of last 5 years

Operating Profit

Mean of percentage of Sales for the last 5 years.

Depreciation

Depreciation calculated as percentage of Gross Block for last 5 years. Gross

Block estimated for the next 5 years using CAGR. And then Depreciation

calculated on these gross blocks using mean obtained


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Valuation - Assumptions

Price of each share : Rs. 1199.46

Current market price: 1177

Beta

Assumed to be = 0.7. taken from CapitalLine Database

Tax Rate

Assumed to be 27%. Calculated on the basis of past data. Tax as a percentage ofPBT for the last 5 years


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TATA MOTORS


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Tata Motors Group

Tata motorsConsolidated

StandaloneJaguar Land

RoverTata Financials

TataTechnologies

Tata Daewoo

TML Drivelines

Tata Motors

CommercialVehicles

SCV LCVMedium and

Heavy CVVans

Buses andCoaches

Premium andLuxury SUV

Premium andLuxury Cars

Passengercars

Micro Compact Midsize

UtilityVehicles

Product Range

Stan a one Business Past Per ormance o


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Net revenue up 15%

PAT lower by 31% impacted by

competitive pressure in

passenger vehicles business and

on account of foreign exchangefluctuation on borrowing and

capex taken

Stan a one BusinessPast Per ormance oFY12

Standalone Tata Motors

Particulars

FY12 FY11

Volumes 926,353 836,629

Revenue 54,307 47,088

EBITDA% 8.1% 10.2%

PAT 1,242 1,812

Passenger CarsCommercial vehicles

Exports

St d l B i P t P f f 5


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Standalone BusinessPast Performance of 5 years

J L d R P t P f


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Jaguar Land RoverPast Performance

Growth supported by demand from China

and other developing markets

Range Rover Evoque launched in September

2011 has garnered over 100 international

awards. Jaguar XF 12 model year lineup

included a new four cylinder 2.2 litre diesel

version that makes it the most fuel efficient

car.

Signed JV with Chery Automotive company

to develop, manufacture and sell vehicles to

the Chinese market and Chinese regulatory

approvals are awaited.

Announced new engine plant at

Wolverhampton UK to manufacture all newadvanced low emission engines.

Issued 1.5 bn pounds of unsecured bonds

with 7-10 year term to improve funding

structure of the business

T t M t C lid t d P t P f f 5


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Tata Motors ConsolidatedPast Performance of 5 years

Ass mptions in Val ation of Tata Motors


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Assumptions in Valuation of Tata Motors

Since JLR acquisition, Tata Motors is showing impressive growth mainly due to JLR.

Therefore we decided to project sales of JLR and rest of business separately:

Projected sales of JLR Over past three years, JLR is growing close to 30 % . But

this has been due to increasing demand from China and strengthening dollar

against British pound. So we took a conservative estimate of 20% growth for next5 years.

Projected Sales of Standalone business + subsidiaries The trend line for a

business cycle of past 5 years show a growth rate of 13%. We have taken a

conservative estimate of 10% for next 5 years because of inflationary pressures,

downturn and stiff competition from foreign players in the Indian market

Projected Sales Growth



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EBITD has been projected as a % of projected sales. The GM of EBITD has

been taken for past 5 years and on that basis EBITD has been projected.

CAGR of gross block of past 5 years was calculated and on that basis, gross

block for next five years was calculated.

EBITD has been projected as a % of projected sales. The GM of EBITD has

been taken for past 5 years and on that basis EBITD has been projected.

Depreciation expense has been taken as a % of gross block. GM of past 5years was taken and on that basis depreciation for next 5 years was

projected

Terminal horizon was taken as 5 years and terminal growth rate was taken as

5 %.


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Comparative Analysis of Tata

Motors, Maruti Suzuki andAshok Leyland


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Product Range

TATAMOTO

RS Includes offerings in

the cars and trucks

space, besides vehiclesfor the military

Some of the premierofferings are TataSumo, Tata Ace, TataJLR and Tata Nano

M

ARUTISUZUKI 14 models in

India since the

beginning Product

Portfolioincludes Maruti800, MarutiSwift, WagonR

and Ertiga AS

HOKLEYLA

ND Primarily into

trucks and

buses besidesmilitary andindustrialvehicles

Some premierofferings are

Luxura, VikingBS-1, Stag CNGand the like


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Accounting Policies

TATAMOTO

RS Depreciation is

calculated on a

SLM basis Cost of raw

materials andconsumables areascertained on amoving weighedaverage method.

M

ARUTISUZUKI Depreciation is

calculated on a

SLM basis Inventories are

calculated on aweighed averagebasis at the lowerof cost

R&D Costs are

charged torevenues asincurred.

AS

HOKLEYLA

ND Assets are

depreciated on

SLD basis Inventories are

valued at lower ofcost and netrealizable value.

R&D costs arecharged to

revenues asincurred.


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Business Risk

TATAMOTO

RS

Variance in ROAvalues over thelast 5 years is64.00 and the

StandardDeviation orBusiness RiskValue is 8.0023

M

ARUTISUZUKI

Variance in ROAvalues over thelast 5 years is20.62 and thestandarddeviation orbusiness risk valueis 4.54%

AS

HOKLEYLA

ND

Variance in ROAvalues over thelast 5 years is33.23 and theStandard

Deviation orBusiness Riskvalue is 5.76 %

Volatility in Return on Asset values are used in determining Business

Risk of a firm. It is the inherent risk in doing business. Variance in ROA

figures for the firms used.

Thus we can see that Maruti Suzuki seems to be enjoying

the lowest amount of business risk amongst the 3 firms( due

to first mover advantage, tie-up with the Government)


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Operating Risk

TATAMOTO

RS

Operating Margins

2012 0.099772384

2011 0.109453187

2010 0.07070896

2009 -0.000786642 2008 0.109776611

Operating Risk is4.67%

M

ARUTISUZUKI

Operating Margins

2012 0.0611

2011 0.0851

2010 0.1251

2009 0.0849

2008 0.1445

Operating Risk is 3.38%

AS

HOKLEYLA

ND

Operating Margins

2012 0.0900

2011 0.0604

2010 0.087

2009 0.086

2008 0.070 Operating Risk IS

1.283%

The cash flow due to operations is normally estimated from EBIT. By

computing the variance in operating margins, we can evaluate the

operating risk.

Thus we can see that Ashok Leyland seems to be enjoying

the lowest amount of operating risk amongst the 3 firms(

indicating consistency between operating margins and sales)


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Financial Risk

TATAMOTO

RS

Interest CoverageRatio for 2012 is 3.7, arise from the 2011value of 2.6

This increase in the

2012 value is a an thelower Financial Risk asTata Motors will beable to pay off itsdebts faster.

M

ARUTISUZUKI

Interest CoverageRatio for Maruti is39.85 for 2012, a dropfrom the figure of126.04 in 2011

The high value clearlyindicates that Marutifaces minimal amountof financial risk.

AS

HOKLEYLA

ND

Interest Coverageratio has fallen from5.23 in 2011 to 3.68 in2012 indicating thatthe debt paying

capacity of AshokLeyland has relativelyincreased

The Debt to Equityratio has come down

The financial risk ofAshok Leyland hasincreased.

Financial leverage is using debt, such as bonds or loans, to increase returns for

equity holders.

Thus from the above values , we can clearly see that Maruti

enjoys the highest interest coverage and therefore minimal

amount of financial exposure. It can consider financing its

future expansion plans through debt financing.


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DuPont's 5 Factor Model

TATAMOTO

RS

Net Profit/Pre-taxProfit= 0.99

Pre-taxprofit/EBIT=

0.8194 EBIT/Sales=0.0997

sales/Asset=2.368

Asset/Equity=2.1100

ROE=5 factormultiplication=0.4

0947 M

ARUTISUZUKI

Net Profit/Pre-taxProfit=0.7615

Pre-taxprofit/EBIT=0.972

0 EBIT/Sales=0.0611

sales/Asset=2. 239

Asset/Equity=1.028


04 AS

HOKLEYLA

ND

Net Profit/Pre-taxProfit=0.8202

Pre-taxprofit/EBIT=0.729

9 EBIT/Sales=0.0709

sales/Asset=2.023

Asset/Equity=1.564


344

DuPont's 5 factor model takes into account

Thus from the above values , we can see that Tata Motors

enjoys the highest Return on Equity Value amongst the 3

companies indicating highest utilization of equity.


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Long Term Valuation and Growth

TATAMOTO

RS Projected Growth

in Sales over the

next 5 years takenas 10% forStandaloneBusiness.

Projected Growthof JLR has beentaken as 20%.

M

ARUTISUZUKI Projected Growth

in Sales taken as

12% in 2013 and15% thereafter

Price of eachshare estimatedRs. 1199.46

Current marketprice: 1177

So recommendeda buy/hold AS

HOKLEYLA

ND Projected Growth

in Sales taken as

13.5% over thenext 5 years

ValuationRs27.31 per share

Current MarketPriceRs 22.1 pershare

So recommend abuy.


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THANK YOU

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