[GTO]

Sharing as received in their press release:

When the going gets tough, the tough gets going. Our analysis of financials of major PV OEMs in India indicates the following trends—

(1) Maruti and Hyundai have gained market share over FY2012-18 led by new launches in SUV and premium hatchback segments,

(2) Average selling prices of most players have increased by 2-9% CAGR over the past six years driven by increase in prices (led by higher content and shift towards automatic transmission) and improvement in product mix and

(3) EBITDA margins of MSIL and Hyundai have improved by 380-780 bps over FY2012-18.

Leaders (MSIL and Hyundai) widen the gap with laggards despite subdued growth

The PV industry growth has remained muted over the past six years, which is led by multiple factors such as slowdown in urban areas due to ride-sharing, congestion in cities and lack of parking areas, sharp increase in prices of cars (average 6% CAGR in ASPs) and erosion in wealth effect (subdued real estate prices). We highlight that despite a 4% volume CAGR in domestic passenger vehicle industry over FY2012-18, leading players like MSIL and Hyundai have improved their market share led by new launches in SUV and premium hatchback segments and expanding their distribution networks. These manufacturers have been fast to adapt to changing consumer preferences like shift to automated manual transmission and compact SUVs.

Growth in rural areas has been higher than urban led by increase in penetration of cars. Maruti Suzuki has gained from superior growth in rural areas than urban areas led by expansion in dealer networks (MSIL rural volumes form 39% of domestic volumes currently versus 20% of domestic sales in FY2012). Another interesting point to highlight is that Maruti Suzuki’s product mix has improved significantly despite superior growth in rural areas, which indicates that the aspiration levels of rural consumers are at par with urban consumers.

Profitability of most PV players has improved significantly over the past six years

Our analysis of financials of passenger vehicle OEMs in India suggests that despite muted growth in volumes for the industry, EBITDA margins and asset turns of most players have improved significantly (refer to Exhibit 1) due to shift towards higher priced cars/SUVs. This is contrary to Street expectations that except for Maruti Suzuki all the other players have struggled to improve their profitability. Our view is that OEMs are not trying to take Maruti and Hyundai head on in the small car segment and trying to make a profitable business case by focusing on premium vehicles without disrupting pricing. Each player appears to have found its niche and is comfortable growing profitably by staying relevant for that niche rather than competing on pricing with players like Maruti and Hyundai. Worries on increased competitive intensity, against this backdrop, are a tad overdone. Profitability for all players will likely improve as growth revives.

Asset turns of MSIL and Hyundai India have improved from ~2.5X to ~4X over the past six years (FY2012-18) led by increase in share of SUVs in their product mix. Both these companies have used their existing small car engines in the compact SUVs (namely Brezza and Creta), which has helped both these companies to improve their profitability and ROICs. Capacity utilization levels of MSIL and Hyundai were also at >95% levels at the end of FY2018, while capacity utilization levels for the rest of the industry have declined.

[avishar]

The plant utilization numbers are shocking. Incredible that despite such low utilization, OEMs like Toyota have remained profitable.

It looks like a lot of capacity addition was made during the rosy years of 2010s when sales numbers were growing in double digits every year. All that has been upended by the slow growth in the last few years.

Toyota's Indian operations contributes to just 1% to their global revenue (although the Indian car market is almost 4 percent of the global market).

Maruti and Hyundai, the two companies which actually seem to have put some thought into what they do (unlike others who seem to just throw rubbish on a wall and see what sticks) and running at full capacity and needs new plants. Good news is Hyundai getting one, in the form of Kia!

Tata has a lot of spare capacity, and hopefully should be ready to take advantage of the next upturn with no capacity constraints.

[coldice4u]

So the report agrees that car prices have increased! A CAGR of 6% in car prices over a 5 year period! That's daylight robbery!

[2000rpm]

Originally Posted by coldice4u

So the report agrees that car prices have increased! A CAGR of 6% in car prices over a 5 year period! That's daylight robbery!

Thats roughly inflation, why is it day light robbery? Look at the Honda city which used to retail at 10 lakhs OTR 10 years back, now retails at 15 lakhs with so many more additional features, more safety and better overall performance.

So if you net off the additional feature cost, the overall price increase is not very much.