2010 july cv sector presentation

8/3/2019 2010 July CV Sector Presentation

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INDIAN COMMERCIAL VEHICLE SECTOR : TRENDS & OUTLOOK

July 2010

ICRA Limited Indian Commercial Vehicle Sector: Trends & Outlook July 2010


2/15

Source: ICRA Estimates

Chart: Trend in M&HCV volumes maps IIP growth

The key indicator for underlying demand for the CV sector the index of industrial

production (IIP) has been improving steadily

Much of the demand recovery in the M&HCV segment has been driven by stronger

economic activity and improved operating environment for fleet operators

Financing availability has improved substantially and interest rates have come down to

11-12% (for M&HCV financing)

Improving highway infrastructure & intra-city roads is supporting increase in share of

roads in freight transportation

Trends in the Key Demand Drivers

Industrial upturn and improved financing environment drivingdemand in the M&HCV segment

-4%

-1%

2%

5%

8%

11%

14%

17%

20%

-80%

-30%

20%

70%

120%

170%

220%

270%

Jun-06

Aug-06

Oct-06

Dec-06

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Trend in M&HCV Sales and IIP Growth (%)

M&HCV Growth (%) IIP Growth (%)



3/15

Operating environment for fleet operators has

been improving owing to lower repayment

burden as a result of lower interest rates and

longer loan tenors

Disbursal levels among CV financiers have started

increasing gradually and delinquency levels ,which had increased sharply during the past 4-5

quarters, are showing signs of stability

Competition among financiers is intensifying

again; however funding for first time user (FTU)

segment remains constrained

Loan-to-Value (LTV) ratios have improved

particularly for the large fleet operators in the

M&HCV segment with credible track recordSource: ICRA Estimates

Chart: Trend in CV financing rates

Trends in the Key Demand Drivers

Improved financing environment driving growth in CV segment

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

IRR

Trend in Cost of CV financing

Average CV Financing Rates



4/15

Growth momentum continues to remain strong in the M&HCV

Growth in the M&HCV continues to

remain strong; Current year started

with 95% YoY growth at 45,219 units

till May 2010 driven by strong

growth in the cargo segment

The tractor trailer segment has been

driving growth in this segment

During the downturn, ALL lost some

market share owing to relatively

weaker demand in Southern region

(its strong foothold) and inventory

build up. However, with pick up in

demand in South and inventorycorrection, ALL has gained market

share in the last 4-6 months

Growth likely to remain strong in

the near term; some pre-buying also

expected ahead of changes in

emission norms

Trends in the M&HCV Segment

-42% -38%-31%

-8% 4%0% 64%

133%

248%

198%117%

79%

103% 88%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Trend in Domestic M&HCV Sales YoY (%)

YoY Growth (%) RHS

Exhibit 1: Trend in Market Share in Domestic M&HCV - Goods

M&HCV - Goods Q1 2009-10 Q2 2009-10 Q3 2009-10 Q4 2009-10 FY 2009-10 YTD 2010-11

Tata Motors 71.4% 66.5% 66.8% 60.9% 65.9% 60.2%

Ashok Leyland 14.2% 19.5% 18.5% 24.4% 20.2% 25.3%

Eicher 10.1% 9.6% 9.5% 9.3% 9.5% 10.5%

Others 4.3% 4.4% 5.2% 5.4% 4.5% 4.0%

Exhibit 2: Trend in Market Share in Domestic M&HCV Segment - Passenger

M&HCV - Passenger Q1 2009-10 Q2 2009-10 Q3 2009-10 Q4 2009-10 FY 2009-10 YTD 2010-11

Tata Motors 56.4% 47.5% 48.1% 53.9% 51.3% 51.7%

Ashok Leyland 29.6% 39.0% 43.1% 37.9% 38.1% 34.3%

Eicher 7.3% 6.3% 2.8% 3.2% 4.5% 7.8%

Others 6.8% 7.2% 6.0% 5.1% 6.1% 6.2%

Source: SIAM, ICRA Estimates



5/15

Growth in the LCV also continues to

remain strong; Current year started

with 40% YoY growth at 52,447 units

till May 2010 driven by growth

across sub-segments

The demand in the cargo segment

(above 3.5T) has also picked up

since October 2009 unlike the sub

1T segment, which has posted

stable growth all through the year

Tata Motors continues to remain

market leader; however M&M has

strengthened its position driven bybetter performance of its Pick up

segment

The sub 1T segment likely to witness

increasing competitive pressure

with the launch of M&Ms

Maxximo

Trends in the LCV Segment

Similar trends visible in the LCV segment as well

28% 12%10% 28%

32% 13% 43%75%

123%90%

66%46%

42% 38%

0%

20%

40%

60%

80%

100%

120%

140%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Trend in Domestic LCV Sales YoY (%)

YoY Growth (%) RHS

Exhibit 3: Trend in Market Share in Domestic LCV Segment - Goods

LCV - Goods Q1 2009-10 Q2 2009-10 Q3 2009-10 Q4 2009-10 FY 2009-10 YTD 2010-11

Tata Motors 61.7% 61.6% 58.9% 55.4% 58.9% 54.4%

M&M* 29.6% 29.5% 31.8% 35.6% 32.1% 37.7%

Others 8.8% 8.9% 9.3% 9.0% 9.0% 7.8%

Exhibit 4: Trend in Market Share in Domestic LCV Segment - Passenger

LCV - Passenger Q1 2009-10 Q2 2009-10 Q3 2009-10 Q4 2009-10 FY 2009-10 YTD 2010-11

Tata Motors 56.1% 54.3% 53.8% 57.6% 55.7% 61.6%

M&M* 19.5% 15.5% 13.0% 10.1% 14.6% 10.4%

Force 11.7% 18.4% 18.1% 19.4% 16.8% 14.0%

Others 12.7% 11.7% 15.0% 13.0% 12.9% 14.0%

Source: SIAM, ICRA Estimates, *including MNAL



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7/15


8/15

Demand across segments of the CV segment continues to remain strong

The growth is more pronounced in the tractor trailers (in M&HCV segment) driven byimprovement in port activity and transportation of heavy materials

The tipper segment (in low end segment) is also witnessing growth driven by demand

from the infrastructure sector

The demand for high-end tippers (used primarily) in the mining segment is also seeing

revival

Availability of finance and decline in interest rates have supported demand Loan to value ratio have gone up (~95%, chassis) for operators with credible track record

Production levels at OEMs have been constrained due to shortage of components -

mainly tyres, and fuel injection systems

Demand is likely to remain strong in M&HCV (truck segment) in the current year; while in

bus segment like to be lower as orders (under JNNURM) fueled growth in the previous

fiscal Some pre-buying is expected ahead of change in emission norms (w.e.f October 2010)

Higher tonnage vehicles are gaining traction with improvement in road & highway

infrastructure; fleet operators are showing interest for new platforms such as World

Truck to operate on certain key routes

Key Inputs from the Channel Check



9/15

Europe Outlook remains weak

Witnessed a sharp drop in volumes in CY2009 over the previous year; however the impact of

inventory destocking appears to be over as production levels have started to pick up

Nevertheless the outlook continues to remain weak; volumes continue to drop in YTD CY2010

USA Outlook is improving with initial signs of recovery

Posted one of the lowest sales in CY 2009 (almost 70% lower from than peak of CY2006)

The segment is however showing signs of demand revival as visible from the increase in

production from Q2 CY2009; Replacement demand is expected to be the significant growth

driver, given the average age of the fleet is very old, almost close to 7 years

S ource : ACEA , Europe i ncl ude EU27+EFTA S ourc e: I nd ustry Esti mates, Comp any Presen ta tion s

Volumes include Class 6-8 trucks + School bus data

Trends in Developed Markets

4% 2%6%

-9%

-32%

-35%-30%-25%-20%-15%-10%-5%0%5%10%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2005 2006 2007 2008 2009

Trend in CV Sales in Europe

Europe CV Sales YoY Growth (%) - RHS

20% 10%

-30%

-23%-26%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

-

100,000

200,000

300,000

400,000

500,000

2005 2006 2007 2008 2009

Trend in Traditional CV Sales in U.S & Canada

U.S. Traditional Market Sales YoY Growth (%) - RHS



10/15

M&M (through JV with Navistar) is expected to enter the M&HCV segment in

the current year; would add capacity of 50,000 units at a steady levelM&Ms in-depth understanding of the Indian market, established vendors (to

achieve high level of localisation) and extensive marketing & distribution reach

is likely to increase the competitive pitch in the CV space

International OEMs i.e. Volvo, Daimler, MAN (along with Force Motors) are also

increasing their foothold in the CV segment

Ashok Leyland is expected to start commercial production from its tax-exemptfacility; JV with Nissan for LCVs still couple of years away

Some of the product launched by AMW in the heavy segment have also met

with initial favorable response in the market place

The sub 3.5T LCV segment is also witnessing new entrants. Piaggio and M&M

have launched products in this segment

Localization, key to achieving cost competitiveness, would be a challenge for anew entrant due to low initial volumes

While some fragmentation of the market share can be expected over the

medium to longer term, established large players would continue to enjoy the

benefits of scale, brand image, established vendor base and distribution/

service network.

Competitive Landscape



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12/15

Eicher Motors

Inline with other players, strong growth in volumescoupled with better product mix (higher HCV sales)

and prices increases undertaken by the company in

the current fiscal has helped Eicher to post strong

improvement in operating margins in the last quarter

The dip in Q3FY10 was largely on account of one-time

write-offs (development expenses for new

engines/platform) undertaken by the company post

alignment of vehicle platforms with Volvo

Swaraj Mazda

Swaraj Mazdas operating margins continue to be in

the 6-8%, relatively lower than other players given the

moderate scale of operations and significant level of

outsourcing

SML has particularly benefitted by higher volumes (in

Q3 FY10 & Q4 FY10) on account of pre-buying by

schools ahead of changes in emission norms given its

high dependence in the buses segment that operate

within city limits

Financial Performance of Key Players

Source: Company Releases, ICRA Estimates

Source: Company Releases, ICRA Estimates

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

(2,000)

-

2,000

4,000

6,000

8,000

10,000

12,000

Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10Amount(inRs.Millions)

Trend in Eicher Motor's Financial Performance

Operating Income OPBDIT OPBDIT/OI (%) PAT/OI (%) - RHS

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

(500)

-500

1,000

1,500

2,000

2,500

Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10Amount

(inRs.Millions)

Trend in Swaraj Mazda's Financial Performance

Operating Income OPBDIT OPBDIT/OI (%) PAT/OI (%) - RHS



13/15

Outlook

Medium to long term outlook for the industry remains robust supported by healthy

economic outlook and infrastructure investments In the near term, impact of emission related pre-buying and high base effect (H2, FY10)

may impact volume growth numbers

Some of the cost reduction during periods of sharp volume declines (H2, FY09 H2, FY10)

is gradually getting rolled back, with wage hikes across the industry (including component

suppliers); also capacity constraints are increasing the bargaining power of component

suppliers in some segments; the channel inventory is likely to remain tight

Cost pressures include tightening emission/safety norms; higher power to weight ratio and

rising performance expectations

In the longer term freeing of diesel prices may bring in greater volatilities on freight

operators costs OEMs to increase focus on fuel economics

Investments in capacities and entry of new players to increase competitive pressures;

pricing power of OEMs to remain under pressure

Growth likely to be higher in the upper band of M&HCVS (> 16T) and lower band of LCVs

(< 3.5T)

ICRA estimates M/HCV growth rates to be in the region of 9.5-11.5% over 5 year time

frame; the LCV growth rates could be marginally higher supported by volume in the low

tonnage segment



14/15

Annexure: ICRAs Ratings on Commercial Vehicle Companies

Companies Long-Term Ratings Short-Term RatingsAshok Leyland Limited LAA- (Stable) A1+

Eicher Motors Limited LAA- (Stable) A1+

Mahindra & Mahindra Limited LAA+ (Stable) A1+

Mahindra Navistar Automotive Limited LA+

Swaraj Mazda Limited LA+ (Stable) A1+

Tata Motors Limited LA+ (Positive) A1+

VE Commercial Vehicles Limited LAA - A1+



15/15

Analyst Contacts

Analyst E-mail Id Tel:

ChennaiPavethra Ponniah [email protected] +91 44 45964314

V Srinivasan [email protected] +91 44 45964315

K Srikumar [email protected] +91 44 45964314

Delhi

Anupama Arora [email protected] +91 124 4545303

Jitin Makkar [email protected] +91 124 4545368

Mumbai

Subrata Ray [email protected] +91 22 3047 0027

Shamsher Dewan [email protected] +91 22 3047 0037

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2010 july cv sector presentation

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