Monthly Update | November 2011

December 2, 2011 Yaresh Kothari

+91 22 39357800 Ext: 6844 yareshb.kothari@angelbroking.com

Automobile Sector
Healthy growth despite macro concerns
Automakers reported healthy sales performance in November 2011 after posting lackluster volumes in the festive month of October 2011. During November 2011, two-wheelers, utility vehicles (UV) and light commercial vehicles (LCV) sustained their strong volume momentum; however, passenger car (PC) sales continued to remain mixed and were driven by higher discounts, diesel variants of models and new launches. Hero MotoCorp, Mahindra and Mahindra and Tata Motors posted volumes that were better than our expectations; whereas, Maruti Suzuki and TVS Motor registered weaker volumes. Going ahead, we expect two-wheeler and LCV sales to continue to grow at a healthy rate; however, demand in the passenger vehicle (PV) segment is likely to remain subdued as higher interest rates and rising fuel prices continue to dampen consumer sentiments. Tata Motors (TTMT) registered a robust 40.6% yoy increase (13% mom) in total sales to 76,823 units, which came in ahead of our estimates. Growth was driven by strong growth across the PV and commercial vehicle (CV) segments. The CV segment grew better than our expectations by 25.3% yoy (15.5% mom), driven by impressive 37.9% yoy (30.6% mom) growth in the LCV segment. The PV segment witnessed growth of 78.5% yoy (8.7% mom), led largely by a substantial increase in Nano dispatches (6,401 units vs. 509 units in November 2010). Maruti Suzuki (MSIL) continued with its poor performance as total volumes fell by 18.5% yoy due to a 19.2% and 11.4% yoy decline in domestic and exports sales, respectively. The companys overall performance continued to be impacted by the slowdown in the PV industry on account of high interest rates and increasing fuel prices. Sales volume in the vans, mini and compact segments registered a 34.5%, 27.2% and 3.7% yoy decline, respectively, during the month. Mahindra and Mahindra (MM) recorded a robust 30.4% yoy increase in total volumes on account of strong performance by the automotive segment, which grew by 52.7% yoy (down 1.9% mom). The automotive segments performance was driven by continued momentum in the four-wheeler pick-up segment and strong growth in the UV segment backed by the successful launch of XUV5OO. The tractor segment posted a muted performance as domestic tractor volumes were impacted due to seasonality related to the festival season. Two-wheelers and three-wheelers: Bajaj Auto (BJAUT) reported in-line growth of 25.1% yoy (down 5.3% mom) in total volumes to 374,477 units, led by strong exports performance, which grew by robust 42.2% yoy (down 2% mom). HMCL reported better-than-expected 27.4% yoy (4.8% mom) growth in total volumes on account of increased dispatches at the dealer level. TVSL, however, posted lower-than-expected 11.8% yoy growth mainly due to sluggish sales in the motorcycle segment, which witnessed a marginal decline of 0.6% yoy. Scooter and moped sales, on the other hand, maintained their growth trajectory during the month.

Please refer to important disclosures at the end of this report

Auto Sector Update | November 2011

Tata Motors
TTMT recorded better-than-expected 40.6% yoy growth, led by strong performance in the CV and PV segments TTMT registered a robust 40.6% yoy increase (13% mom) in total sales to 76,823 units, which came in ahead of our estimates. Growth was driven by strong performance across the PV and CV segments. The CV segment grew better than our expectations at 25.3% yoy (15.5% mom), driven by impressive 37.9% yoy (30.6% mom) growth in the LCV segment. The M&HCV segment maintained its steady growth rate and registered an increase of 7.1% yoy. Sequentially M&HCV volumes fell by 5%. The PV segment witnessed growth of 78.5% yoy (8.7% mom), led largely by a substantial increase in Nano dispatches (6,401 units vs. 509 units in November 2010). Indigo and UV also registered strong 91.1% and 33% yoy growth during the month.

Exhibit 1: Tata Motors Sales trend

Segment Total sales M&HCV LCV Total CV Utility vehicles Cars Total PV Exports (Included above)
Source: Company, Angel Research

November November % chg 2010 2011 76,823 16,999 31,740 48,739 4,222 23,862 28,084 4,349 54,622 15,873 23,016 38,889 3,175 12,558 15,733 4,203

YTD FY2012

YTD % chg FY2011 9.0 8.1 26.3 18.6 20.1 (6.0) 7.5

40.6 544,493 499,492 7.1 138,443 128,102 37.9 222,785 176,361 25.3 361,228 304,463 33.0 31,386 26,130

90.0 151,879 168,899 (10.1) 78.5 183,265 195,029 3.5 39,598 36,851

Exhibit 2: CV segment Monthly sales trend

(units) 60,000 50,000 40,000 30,000 20,000 10,000 0 Nov-09 Nov-10 May-10 May-11 Nov-11 Jul-10 Mar-10 Mar-11 Sep-10 Jul-11 Sep-11 Jan-10 Jan-11 Volume(LHS) yoy growth (RHS) (%) 160 140 120 100 80 60 40 20 0

Source: Company, Angel Research

December 2, 2011

Auto Sector Update | November 2011

Exhibit 3: PV segment Monthly sales trend

(units 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Nov-09 Nov-10 May-10 May-11 Nov-11 Sep-10 Mar-10 Mar-11 Sep-11 Jan-10 Jan-11 Jul-10 Jul-11 Volume(LHS) yoy growth (RHS) (%) 100 80 60 40 20 0 (20) (40) (60)

Source: Company, Angel Research

Maruti Suzuki
Total volumes declined by 18.5% yoy as the industry continues to witness sluggish growth, especially in the small car segment MSIL continued its poor sales performance in November 2011, as total volumes declined by 18.5% yoy due to a 19.2% and 11.4% yoy decline in domestic and exports sales, respectively. The companys overall performance continued to be impacted by the slowdown in the passenger vehicle industry on account of high interest rates and increasing fuel prices. Sequentially, volumes jumped by 65.1% yoy, primarily due to resumption in production at the Gurgaon and Manesar plants. The company expects to achieve full production at Manesar plant B by January 2012. Sales volume in the vans, mini and compact segments registered a 34.5%, 27.2% and 3.7% yoy decline, respectively, during the month. During the month, MSIL increased the prices of diesel cars by up to `10,000/vehicle to offset the impact of an appreciating yen and rising input costs.

December 2, 2011

Auto Sector Update | November 2011

Exhibit 4: Maruti Sales trend

Segment Total sales A: Mini: M800, A-star, Alto, Wagon R A: Compact: Swift, Estilo, Ritz A: Super Compact: Dzire A: Mid-size: SX4 A: Executive: Kizashi Total passenger vehicles B: UV - Gypsy, Grand Vitara C: Vans: Omni, EeCo Total domestic sales Total exports
Source: Company, Angel Research

November November 2011 2010 91,772 112,554 38,921 22,159 10,403 1,433 162 73,078 180 9,612 82,870 8,902 53,489 23,014 9,810 1,305 87,618 199 14,686 102,503 10,051

YTD YTD FY2012 FY2011 (18.5) 681,200 828,440 % chg (27.2) 298,830 361,887 (3.7) 133,533 176,328 6.0 9.8 (9.5) (34.5) (11.4) 60,787 11,662 336 4,296 69,815 13,241 4,428

% chg (17.8) (17.4) (24.3) (12.9) (11.9) (18.7) (3.0) (6.9) (16.9) (24.4)

(16.6) 505,148 621,271 97,973 105,182 73,783 97,559

(19.2) 607,417 730,881

Exhibit 5: PV segment Monthly sales trend

(units) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Volume(LHS) yoy growth (RHS) (%) 80 60 40 20 0 (20) (40) (60)

Sep-10

Nov-09

Nov-10

Sep-11

May-10

May-11

Source: Company, Angel Research

Mahindra & Mahindra

MM maintained its strong growth traction; total volumes grew by 30.4% yoy, led by strong performance by the automotive segment MM recorded a robust 30.4% yoy increase in its total volumes to 58,249 units on account of strong performance by the automotive segment, which grew by 52.7% yoy (down 1.9% mom). Domestic tractor sales were, however, impacted due to seasonality related to the festival season. Performance of the automotive segment was driven by continued momentum in the four-wheeler pick-up segment and strong growth in the passenger UV segment backed by the successful launch of XUV5OO. The four-wheeler pick-up and passenger UV segments witnessed strong 73.6% and 45.8% yoy growth, respectively, during the month. The CV and three-wheeler segments also recorded strong volume performance, witnessing growth of 62% and 31.8% yoy, respectively. The tractor segment, however, posted a muted performance as domestic tractor volumes declined by 4.7% yoy to 16,175 units. Exports, on the other hand, grew by 32.8% yoy during the month.

December 2, 2011

Nov-11

Jan-10

Jan-11

Jul-10

Mar-10

Mar-11

Jul-11

Auto Sector Update | November 2011

Exhibit 6: Mahindra & Mahindra Sales trend

Segment Total sales Passenger utility vehicles (UV) Four-wheel pick-up (GIO+Maxximo) Three-wheelers (Champion, Alfa) Logan/Verito LCV/M&HCV Exports Total automotive sales Tractor sales Domestic Tractor sales Exports Total tractor sales
Source: Company, Angel Research

November November 2011 2010 58,249 16,686 13,362 5,889 1,127 1,095 2,563 40,722 16,175 1,352 17,527 44,659 11,447 7,699 4,468 876 676 1,500 26,666 16,975 1,018 17,993

% chg

YTD FY2012

YTD % chg FY2011 26.6 16.4 52.0 17.7 14.0 47.7 29.9 21.4 14.6 21.0

30.4 472,564 373,314 45.8 125,554 107,822 73.6 31.8 28.7 62.0 70.9 96,973 45,370 11,652 8,457 17,673 63,811 38,543 7,419 11,964

5,824 100.1

52.7 305,679 235,383 (4.7) 158,204 130,357 32.8 8,681 7,574 (2.6) 166,885 137,931

Exhibit 7: UV segment Monthly sales trend

(units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Nov-10 Nov-09 May-10 May-11 Nov-11 (%) 180 160 140 120 100 80 60 40 20 0 (20) Sep-11 Nov-11 Jul-11 Sep-10 Mar-10 Mar-11 Sep-11 Jan-10 Jan-11 Jul-10 Jul-11 Volume (LHS) yoy growth (RHS) (%) 140 120 100 80 60 40 20 0 (20)

Source: Company, Angel Research; Note: UV+Four-wheel pick-up combined from November 2010

Exhibit 8: Tractor segment Monthly sales trend

(units) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Sep-10 Nov-09 Nov-10 May-10 May-11 Jan-10 Jan-11 Jul-10 Mar-10 Mar-11 Volume (LHS) yoy growth (RHS)

Source: Company, Angel Research

December 2, 2011

Auto Sector Update | November 2011

Bajaj Auto
BJAUT reported in-line volume numbers backed by strong growth in the exports market BJAUT reported an in-line 25.1% yoy (down 5.3% mom) growth in total volumes to 374,477 units, led by strong exports performance, which grew by robust 42.2% yoy (down 2% mom). Motorcycle sales grew by 25.3% yoy (down 5.4% mom) and three-wheeler volumes increased by 24.3% yoy (down 3.8% mom). Exports continued its strong momentum despite price increases carried out in October 2011 to offset the reduction in DEPB benefits.

Exhibit 9: Bajaj Auto Sales trend

Segment Total sales Motorcycles Three-wheelers Exports (Included above) November November % chg 2011 2010 374,477 331,967 42,510 129,256 299,231 265,036 34,195 90,869 YTD FY2012 YTD % chg FY2011 16.5 15.9 20.9 33.7

25.1 3,026,703 2,598,953 25.3 2,673,458 2,306,697 24.3 353,245 292,229 832,487 42.2 1,112,702

Source: Company, Angel Research

Exhibit 10: Motorcycle segment Monthly sales trend

(units) 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Volume (LHS) % yoy growth (RHS) (%) 120 100 80 60 40 20 0

Jul-10

Mar-10

Nov-09

Nov-10

Mar-11

Jul-11

May-10

Source: Company, Angel Research

December 2, 2011

May-11

Nov-11

Sep-10

Sep-11

Jan-10

Jan-11

Auto Sector Update | November 2011

Exhibit 11: Three-wheeler segment Monthly sales trend

(units) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (LHS) % yoy growth (RHS) (%) 120 100 80 60 40 20 0 (20)

Jul-10

Mar-10

Nov-09

Nov-10

Mar-11

Jul-11

May-10

Source: Company, Angel Research

Hero MotoCorp
HMCL registered better-than-expected growth in November; total volumes grew by 4.8% mom HMCL reported better-than-expected 27.4% yoy (4.8% mom) growth in total volumes to 536,772 units, led by increased dispatches at the dealer level. The company continues to do well across all product segments on account of new product launches and refreshed product ranges.

Exhibit 12: Hero MotoCorp Sales trend

November November 2011 2010 Total sales % chg YTD FY2012 YTD % chg FY2011

536,772

421,366

27.4 4,122,902 3,446,902

May-11

Nov-11

Sep-10

Sep-11

Jan-10

Jan-11

19.6

Source: Company, Angel Research

Exhibit 13: Two-wheeler segment Monthly sales trend

(units) 600,000 500,000 400,000 300,000 200,000 100,000 0 Volume(LHS) yoy growth (RHS) (%) 80 70 60 50 40 30 20 10 0

Nov-09

Nov-10

Sep-10

Sep-11

May-10

May-11

Source: Company, Angel Research

December 2, 2011

Nov-11

Jan-10

Jan-11

Jul-10

Mar-10

Mar-11

Jul-11

Auto Sector Update | November 2011

TVS Motor
TVSL posted a weak performance in November 2011, owing to sluggish sales in the motorcycle segment; the three-wheeler segment posted its lowest volumes in FY2012 during the month TVSL reported lower-than-expected 11.8% yoy growth in its total volumes to 175,535 units mainly due to sluggish sales in the motorcycle segment, which witnessed a marginal decline of 0.6% yoy. However, on mom basis, total volumes declined by 4.5% qoq primarily due to a 17.2% fall in motorcycle sales. The company attributed lower volumes to slowdown in economic growth, high inflation, increased fuel prices and interest rates. The scooter and moped segment maintained its growth trajectory, albeit at a lower rate, posting 22.3% (down 6.6% mom) and 20.6% yoy (strong 15.8% mom jump) growth, respectively. Exports volume also continued its strong momentum, registering 53.1% yoy growth to 24,271 units. The three-wheeler segment posted a disappointing performance, reporting a 14.3% yoy (down 27.1% mom) fall to 2,706 units, mainly due to lower domestic volumes.

Exhibit 14: TVS Motor Sales trend

Segment Total sales Motorcycles Scooters Mopeds Total two-wheelers Exports (Included above) Three-wheelers November November % chg 2011 2010 175,535 62,608 44,301 65,920 172,829 24,271 2,706 157,041 62,995 36,233 54,654 153,882 15,850 11.8 (0.6) 22.3 20.6 12.3 53.1 YTD FY2012 1,499,592 592,055 366,734 511,299 1,470,088 208,701 29,504 YTD % chg FY2011 1,341,106 556,592 300,734 459,417 1,316,743 153,275 24,363 11.8 6.4 21.9 11.3 11.6 36.2 21.1

3,159 (14.3)

Source: Company, Angel Research

Exhibit 15: Motorcycle segment Monthly sales trend

(units) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume (LHS) yoy growth (RHS) (%) 60 50 40 30 20 10 0 (10) (20)

Jul-10

Mar-10

Nov-09

Nov-10

Mar-11

Sep-10

Jul-11

May-10

Source: Company, Angel Research

December 2, 2011

May-11

Nov-11

Sep-11

Jan-10

Jan-11

Auto Sector Update | November 2011

Exhibit 16: Scooter segment Monthly sales trend

(units) 60,000 50,000 40,000 30,000 20,000 10,000 0 Volume (LHS) yoy growth (RHS) (%) 100 90 80 70 60 50 40 30 20 10 0

Sep-10

Nov-09

Nov-10

Sep-11

May-10

May-11

Source: Company, Angel Research

Outlook
Considering the near-term macroeconomic challenges, we expect the auto industry to register a moderate volume CAGR of ~14% over FY2011-13E. However, we believe low penetration levels coupled with a healthy and sustainable economic environment and favorable demographics supported by increasing per capita income levels will drive long-term growth of the Indian auto industry. As such, we prefer stocks that have strong fundamentals, ability to deliver a strong top-line performance and are available at attractive valuations. We continue to prefer companies with a strong pricing power and high exposure to rural and export markets.

Exhibit 17: Relative valuation and recommendation

Companies AL BJAUT HMCL MSIL MM TTMT* TVSL Reco. Buy Neutral Neutral Accumulate Buy Neutral Buy CMP (`) 25 1,713 2,084 748 191 59 TP (`) 32 866 74 Sales (`cr) FY12E 12,590 19,722 22,863 32,799 29,108 7,546 FY11-13E EPS FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E CAGR (%) 14,507 11.0 9.2 2.3 2.0 14.8 16.5 6.5 5.6 7.3 P/E (x) P/BV (x) RoE (%) EV/EBITDA (x) 22,964 26,260 38,230 33,641 8,637 16.1 17.9 18.8 15.6 7.1 10.6 14.8 16.0 12.3 13.7 6.5 9.6 8.0 9.6 1.8 3.8 2.5 2.4 6.2 6.9 1.6 3.2 2.0 2.0 55.5 63.7 10.2 25.7 39.4 24.4 47.0 50.2 13.7 25.2 33.9 22.9 11.1 10.8 11.5 10.0 4.8 5.4 9.4 8.9 6.7 8.2 4.4 4.5 10.4 18.8 1.7 12.4 1.6 19.0

992 1,129

- 144,712 162,453

Source: Company, C-line, Angel Research; Note: Price as on December 2, 2011; *Consolidated financials

December 2, 2011

Nov-11

Jan-10

Jan-11

Jul-10

Mar-10

Mar-11

Jul-11

Auto Sector Update | November 2011

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

Analyst ownership of the stock Ashok Leyland Tata Motors Maruti Suzuki Mahindra & Mahindra Bajaj Auto Hero MotoCorp TVS Motor No No No No No No No Angel and its Group companies ownership of the stock No No No No No No No Angel and its Group companies' Directors ownership of the stock No No No No No No No Broking relationship with company covered No No No No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 2, 2011

10

Auto Sector Update | November 2011

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800 Research Team
Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Shailesh Kanani Srishti Anand Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Shrinivas Bhutda Sreekanth P.V.S Hemang Thaker Nitin Arora Ankita Somani Varun Varma Sourabh Taparia Technicals: Shardul Kulkarni Sameet Chavan Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Simran Kaur Dilip Patel Research Editor Production simran.kaur@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Dealer mayuresh.joshi@angelbroking.com Hiten.Sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Infrastructure IT, Telecom Metals, Mining Mid-cap Research Associate (Cement, Power) Research Associate (Automobile) Research Associate (Banking) Research Associate (FMCG, Media) Research Associate (Capital Goods) Research Associate (Infra, Real Estate) Research Associate (IT, Telecom) Research Associate (Banking) Research Associate (Cement, Power) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com shailesh.kanani@angelbroking.com srishti.anand@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com shrinivas.bhutda@angelbroking.com sreekanth.s@angelbroking.com hemang.thaker@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com sourabh.taparia@angelbroking.com

CSO & Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.Tel.: (022) 3083 7700. Angel Broking Ltd: BSE Sebi Regn No: INB010996539 / PMS Regd Code: PM/INP000001546 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / NSE Sebi Regn Nos: Cash: INB231279838 / NSE F&O: INF231279838 / Currency: INE231279838 / MCX Currency Sebi Regn No: INE261279838 / Member ID: 10500 / Angel Commodities Broking Pvt. Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

December 2, 2011

11