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Sector Update                          October 01, 2009

Two Wheelers Dealer Survey

Economic recovery improving consumer sentiment
About 20% of the dealers believe that economi...
Two Wheelers Dealer Survey

 Survey response : Hero Honda credit sales                      Survey response : Bajaj Auto...
Two Wheelers Dealer Survey

Valuation summary for Hero Honda
 Y/e 31 Mar (Rs m)                FY08      FY09E     FY10E...
Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%
Market Performer – Absolute return ...
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Two Wheeler Dealer Survey 011009


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Two Wheeler Dealer Survey 011009

  1. 1. Sector Update October 01, 2009 Two-Wheelers Dealer Survey Over the past few months two-wheeler volumes have been on a steady rise, primarily driven by strong growth in rural volumes. However, off late there have been indications of a recovery in urban volumes. To understand the ground realities, we conducted a dealer survey for two wheeler manufacturers with focus on tier-I and tier-II cities. Our coverage encompassed 30 dealers from cities of Mumbai, Delhi, Chennai, Hyderabad, Nashik, Bangalore, Ahmedabad, Jaipur, Nagpur, Indore, Coimbatore, Amritsar and Vadodara. Hero Honda dealers accounted for 47% of the dealers surveyed, while 37% were Bajaj Auto dealers and remaining 17% were from a mix of TVS Motors and multi-brand dealers. Most of the dealers felt that the current festive season would be better than previous year and the current growth trend is likely to peak out following the festive season. Breakup of dealers surveyed Expectations about future demand growth ALL, 2 Unsure Yamaha, 1 13% Negative TVS, 2 Hero Honda, 10% 14 Bajaj, 11 Positive 77% Source: India Infoline Research Key reasons for the current recovery 50 % 45 Percentage of dealers 40 35 30 25 20 15 10 5 0 Rural Demand market share Festival recovery ( Job Stability, Credit No recovery season prefer bikes Dealers effort Govt. efforts Traffic New launches Fuel efficiency for customer generation Gain in the satisfaction Economic Young of the Source: India Infoline Research Festive season a key driver for growth About 57% of the respondents believe that the current festival season has been the driving force for the recent recovery in urban volumes. Number of bookings surged following the end of inauspicious period of “Shradpaksha”. Going ahead too, many dealers feel that robust volumes in the current season would be the key to a robust performance for the current year. In fact, 77% of the dealers feel that current festive season would be significantly better than previous. However, 23% were still apprehensive about a relatively better current festive season.
  2. 2. Two Wheelers Dealer Survey Economic recovery improving consumer sentiment About 20% of the dealers believe that economic recovery has also supported growth in recent times. Interestingly one of the dealers quoted “this time around we shall have dual force generating growth in the current year. One, current demand and secondly, the deferred demand during the tough times of economic instability.” Few dealers cited other demographic reasons such as younger generation preferring bikes, fuel efficiency vis-à-vis cars and increasing traffic. Manufacturer’s efforts vital for enhancing brand value One-third of the dealers stressed on manufacturer’s ability to distinguish its products and services from other players as an important factor for enhancing brand value. New launches and new variants, which are in tune with customer requirements, are an essential for increasing market share. Few dealers also pointed out individual dealers’ service quality as an influencing factor. Credit availability improving but still below historical highs Credit financed sales of two wheelers dropped from levels of about 55% to about 45% during the previous year. However, off late the ratio has improved to about 50% following improved financing by private banks (according to 53% of dealers). The improvement has been on account of lower delinquencies in the recent past. Credit sales for 65% of the surveyed Hero Honda dealers had credit sales less than 30% of their total volumes. For Bajaj Auto, 55% of dealers had credit sales more than 40% of their volumes. Outlook remains positive 77% of the dealers were positive about near term growth prospects of the industry, while remaining were skeptical about sustainability of the growth. The growth is expected to peak during the current festival season, fall during the following two months and will then stabilize during Q4 FY10. During Q4 FY10, corporate buying would increase as they avail depreciation benefits. Urban growth is expected to remain strong in the current festive season and then peak out. However, we believe rural sales would continue to remain robust. Stocks adequately factoring near term earnings growth With robust recovery in volumes over the past few months, auto stocks significantly outperformed the broader indices. While Bajaj Auto surged 264% YTD, Hero Honda jumped 106% as compared to 73% gains in Sensex. Hero Honda currently trades at 16.5x FY11E earnings of Rs101.4 and Bajaj Auto is trading at 16.2x FY11E earnings of Rs92.2. We maintain our Market Performer rating on both Bajaj Auto and Hero Honda with target price of Rs1,542 (revised) and Rs1,724 respectively. Survey response: Cash v/s credit sales Estimates of industry credit sales 50 % 60 (%) 45 40 55 35 30 50 25 20 45 15 10 40 5 0 35 100% 0% - 20% - 40% - 60% - 80% - cash 20% 40% 60% 80% 100% 30 sales FY03 FY08 FY09 FY10 FY13 Source: India Infoline Research Source: Crisil Sector Update 2
  3. 3. Two Wheelers Dealer Survey Survey response : Hero Honda credit sales Survey response : Bajaj Auto credit sales 40%+ 0%-20% 0%-30% 14% 21% 18% 50%+ 37% 30%-40% 30%-40% 21% 27% 20%-30% 44% 40%-50% 18% Source: India Infoline Research Survey response : Key financing sources Survey response : Breakup between buyers NBFC/Other Replacement 37% 37% Private New sector purchases 63% 63% Source: India Infoline Research Valuation summary for Bajaj Auto Y/e 31 Mar (Rs m) FY08 FY09 FY10E FY11E Revenues 90,462 88,104 95,628 104,880 yoy growth (%) - (2.6) 8.5 9.7 Operating profit 12,705 11,777 18,421 20,417 OPM (%) 14.0 13.4 19.3 19.5 Pre-exceptional PAT 8,583 8,616 11,974 13,346 Reported PAT 7,558 6,545 10,141 13,346 yoy growth (%) - (13.4) 54.9 31.6 EPS (Rs) 59.3 59.6 82.8 92.2 P/E (x) 25.2 25.1 18.1 16.2 Price/Book (x) 13.6 11.6 8.6 6.2 EV/EBITDA (x) 18.0 19.4 12.5 11.1 Debt/Equity (x) 0.8 0.8 0.7 0.4 RoE (%) 54.1 49.8 54.7 44.5 RoCE (%) 42.4 37.1 46.7 43.3 Source: Company, India Infoline Research Sector Update 3
  4. 4. Two Wheelers Dealer Survey Valuation summary for Hero Honda Y/e 31 Mar (Rs m) FY08 FY09E FY10E FY11E Revenues 103,318 123,191 141,482 158,149 yoy growth (%) 4.4 19.2 14.8 11.8 Operating profit 13,494 17,097 23,910 26,253 OPM (%) 13.1 13.9 16.9 16.6 Pre-exceptional PAT 9,679 12,818 18,434 20,250 Reported PAT 9,679 12,818 18,434 20,250 yoy growth (%) 12.8 32.4 43.8 9.9 EPS (Rs) 48.5 64.2 92.3 101.4 P/E (x) 34.5 26.0 18.1 16.5 Price/Book (x) 11.2 8.8 6.4 5.0 EV/EBITDA (x) 24.7 19.4 13.9 12.7 Debt/Equity (x) 0.0 0.0 0.0 0.0 RoE (%) 35.5 37.8 41.1 34.3 RoCE (%) 45.7 48.1 51.6 43.2 Source: Company, India Infoline Research Sector Update 4
  5. 5. Recommendation parameters for fundamental reports: Buy – Absolute return of over +10% Market Performer – Absolute return between -10% to +10% Sell – Absolute return below -10% Published in 2009. © India Infoline Ltd 2009 This report is for the personal information of the authorised recipient and is not for public distribution and should not be reproduced or redistributed without prior permission. The information provided in the document is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try and ensure accuracy of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may arise from use of this document. India Infoline and/or any of its affiliates and/or employees may or may not hold positions in any of the securities mentioned in the document. The report also includes analysis and views expressed by our research team. The report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. The recipients of this material should take their own professional advice before acting on this information. India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker, Investment Advisor, etc. to the issuer company or its connected persons. India Infoline Ltd. One India Bull Center, Jupiter Mill Compound, 841, Senapati Bapat Marg, Nr, Elphinstone Road, Lower Parel (W), Mumbai 400 013. For Research related queries, write to: Amar Ambani at or For Sales and Account related information, write to customer care: or call on 91-22 4007 1000