Car Sales - New launches help boost market share!!

Indian car market is quite funny. We have over 10 car manufacturers selling their products in the Indian market, where we see monthly sales of around of 2.2 lakh units. But about 65% market share is held by the Top-2 manufacturers. Maruti Suzuki Ltd being the dominant player with market share swinging between 45 to 50% and Hyundai Motors India Ltd is a distant 2nd with market share between 16 to 18%. Toyota & Volkswagen, who are fighting for the No.1 spot in the Global Car market, are at No.5 & No.8 respectively in India with market share of around 5% and 2.4% respectively.

Market shares as per despatches data declared.

Have a look at the table alongside. Maruti Suzuki has managed to increase it's market share from 45.5% in Q1 of this calendar year to over 49.3% in the first 2 months of Q3. Launches of New Dzire, Celerio Diesel, S-Cross and Ciaz SHVS in the recent months have clearly help boost the numbers. In case of Maruti Suzuki, the Alto, Dzire and Swift are the Top-3 models contributing about 55 to 60% of it's monthly volumes.

Hyundai India too had one big bang launch couple of months ago, that of the SUV Creta. It's said to have a huge order backlog and the company is trying it's best to convert most of the orders into sales, before the competition reacts. For the company, Elite i20, Grand i10 and Creta are currently the Top-3 models, contributing about 70% of the company's monthly sales. It's other products like Eon, Xcent and Verna have seen lackluster sales in the recent months.

Honda was the other manufacturer with a new launch in the recent few months. It's premium hatchback Jazz was relaunched and is doing decent numbers. But the car maker seems to have issues with it's manufacturing capacity and not able to despatch more vehicles. Still Honda managed to grab the No.3 Rank from Mahindra in the recent months.

Mahindra's overall sales have been dwindling gradually. But the company has just launched a new compact SUV at an attractive price point and hopes to inch back some market share which it had lost in the recent months. The company also has another 2 products, which could be launched in the next 4-6 months, one of them being aimed at the hatchback segment, but is a super-compact SUV. It will be an interesting product to watch.

Toyota & Tata Motors are fighting for the No.5 rank, but they could have two new challengers soon in the form of Ford and Renault. Ford has launched it's compact sedan last month and will be launching a hatchback based on the same platform soon. Together these 2 products can do handsome numbers and bring Ford to the No.5 fight. Renault has showcased it's Alto-competitor Kwid this month and deliveries are expected to start next month. Going by the reviews, Renault will be finding it tough to meet the demand for this car, if it manages to price it in the bracket it has promised. In the recent months, Renault & Nissan have been badly hit because of Hyundai Creta launch, which directly affected sales of Duster and Terrano. Mahindra's new launches will further aggravate the problem for them. Kwid is their one big hope for garnering good volumes.

Volkswagen group is doing steady with regular updates to their existing models. No big change expected soon.

IRB Infra. Developers Ltd - On road to smooth progress!!

India's largest pure-play Road Developer, IRB Infrastructure Developers Ltd., seems to be now on smooth growth path, though not at a very high pace. Between December'12 to December'14, IRB's T-T-M Total Income hovered between Rs.3700 to 3900 crores mark. But IRB has now managed to post near-10% Y-o-Y Growth in Total Income for three consecutive quarters, after 4 consecutive quarters of slight negative Y-o-Y growth, which has helped the company take it's T-T-M Total Income past the Rs.4000 crores mark at the end of June'15, for the first time in the company's history. Have a look at the charts below:

T-T-M numbers

IRB's EBITDA has done much better than it's Total Income in terms of growth. IRB's EBITDA was growing at a modest pace till March'14 quarter, but the growth pace has clearly picked up from June'14 quarter. Until the September'13 quarter, IRB's EBITDA margin was steady at little over the 46% mark. But since then the company has worked hard on reducing it's overheads and minor operating costs, which has helped bring the company's EBITDA margin to around the 59% mark by June'15 quarter. This is fabulous work!! IRB's management clearly used the lean period of growth to work on lowering costs, which will help the company tremendously in the coming quarters.

On one hand IRB was managing to curtail it's operating costs, but on the other hand it's Interest cost was rising sharply between June'13 quarter to September'14 quarter. IRB's T-T-M Interest Cost stood at Rs.627 crores at the end of June'13 quarter, which was about 35% of it's EBITDA then. In the following 5 quarters, it shot up to touch a figure of Rs.857 crores by Sept'14 quarter, constituting about 41.2% of the company's EBITDA then. Over the last 3 quarters, the company's Interest Cost rise has been slightly lower than growth in EBITDA, which helped bring down the Interest-to-EBITDA % down to 39.7%. During the last 3 quarters, the company's Interest Cost has continued to increase Y-o-Y & Q-o-Q, but the EBITDA has grown at a slightly faster pace. The recent marginal rate cuts by banks and the possibility of further rate cuts from RBI in the coming month(s) will only help IRB to control it's Interest burden and improve it's Profit margins.

IRB has also increased it's Depreciation provisioning starting from June'14 quarter. It's T-T-M Depreciation number has jumped to over 30% of the company's EBITDA now, compared to around 25-26% figure till June'14 quarter. This does not impact the company's Cash Profits, but does impact it's Net Profit numbers. But in a way it's good, because lower Profit-before-Tax also means lower Tax Outgo and it's Assets are De-capitalised sooner due to higher Depreciation provisioning.

Valuations: IRB recently raised some Equity Capital via issue of shares, which led to dilution of Equity to the tune of about 6%. This additional capital will help the company either curtail it's Interest Cost or while Investing in newer projects. Post dilution of Equity, IRB's T-T-M Net EPS stands at almost Rs.16/-, while it's Cash EPS stands at over Rs.36/-. That means at the current price of around Rs.220 per share, it trades at less than 14 times it's Net EPS and just about 6 times it's Cash EPS. I think this valuation is on the cheaper side, considering the company's recent improvement in Financial performance and also the potential growth in the Industry that the company operates in. The Indian Govt. is giving a major thrust to the country's Infrastructure development and construction of Roads & Highways forms the most prominent part of it. There will be no dearth of projects to bid for in the coming months & years. And I am pretty sure that IRB's management will judiciously bid for projects that they can comfortably handle & commission. IRB's growth can continue at a steady pace in the coming many quarters. Hence I think it makes sense to be invested in a company like IRB at the current valuations with potential of more than doubling in the next 1-2 years.

Bajaj Auto's Exports are back on track.

About three months back I had posted a report on Bajaj Auto, where we had noted the dip in sales (both domestic & exports) for the company during the months of January & February of this year. This dip had impacted the company's performance during Q4 of last fiscal. Bajaj's domestic sales recovered sharply during the months of March to May, but exports started recovering only from April. After remaining steady around the 1.6 lakhs mark for 4 months upto July, Bajaj's exports have posted it's strongest monthly number till date of 1,81,658 for August'15. This is smart recovery & the company's exports are well & truly on the growth path again, though at a smaller percentage on a larger base of last year.

For the first 5 months of this fiscal, Bajaj Auto has sold a total of about 16.85 lakh units, domestic & export combined and 2-wheeler & 3-wheeler combined, which is a Y-o-Y growth of about 2.5%. While domestic sales have grown by just about 0.5%, exports have grown by about 5%. In fact, this year we could see Bajaj's exports number to be higher than domestic for the full year for the first time. In FY'15 Bajaj exported 18.06 lakh units compared to sales of over 20 lakh units in the domestic market. During the first 5 months, Exports are at 8.23 lakhs and domestic sales at 8.62 lakhs, than means the gap has reduced from over 10% in FY'15 to just about 5% during this fiscal.

Coming to segment performance, Bajaj's motorcycle sales have stabilised this year after posting over 4% drop during FY'15. In the April-August period, Bajaj's motorcycle sales have increased by about 1.5%, which could be driven by new product launches done a few months back. Bajaj's CV sales, i.e. 3-wheelers, are higher by about 9% this year again, after posting a healthy 14% growth last year. Bajaj Auto had underperformed massively last year compared to it's peers like Honda and TVS and even Hero. But this year almost all of them are struggling for growth. Hero has posted negative growth for 2 or 3 months in a row now. Honda's & TVS's growth is now down to low single digits. So Bajaj is not far from it's competitors this year in terms of growth numbers.

It will be interesting to watch how domestic sales pan out in the coming months, especially because rural market constitutes a very large portion of sales and demand there is expected to be muted because of lower-than-normal rains in about half of the country. New launches have given some good momentum to Bajaj's sales and all competitors are planning new launches in the coming months. All eyes will be on the upcoming festival season. Also there are reports that Bajaj's Quadricycle is undergoing ARAI certification. If approved the vehicle could be launched before the end of this calendar year.

Telcos Circlewise Gross Revenues - Some interesting bits.

TRAI recently posted data on circlewise Gross Revenues & AGR for each telecom operator in India for the April-June'15 period. I collated data on 8 significant operators into my spreadsheets to do some analysis. The operators in sequence from largest to smallest in terms of Gross Revenues are: Airtel, Vodafone, Idea, BSNL/MTNL, Tata, RCom, Aircel & Uninor. The surprise here is that this sequence is not the same if arranged in terms of Subscriber base.

RCom & Aircel are No.4 & No.5 in terms of subscriber market share, but are at No.6 & 7 respectively in terms of Revenue market share. If we look at the corresponding numbers for Subscriber & Revenue market share % for each operator, the Top-3 show a common trend of having a larger Revenue market share number compared to Subscriber market share. This trend shows that these operators have high quality subscribers generating higher than Industry ARPUs. In case of BSNL/MTNL & Tata too, their ARPUs must be slightly more than the Industry averages. But look at the numbers for RCom, Aircel & Uninor. Their Revenue market shares are much lower than subscriber market shares, indicating that the quality of subscribers is much inferior. Amongst all these operators, Vodafone, Idea, Aircel & Uninor are pureplay mobile service providers, whereas BSNL/MTNL, Airtel, Tata & RCom also offer Wireline services with market shares of 74%, 13%, 6.5% and 4.5% respectively. Since Wireline subscribers normally generate higher ARPU than Wireless ones, this factor does help boost the operators Revenue market shares.

Circle-wise Revenues:

Airtel commands over 30% Revenue Market Share (RMS) across the country, which consists of 22 operating circles. But Airtel's RMS is in the region of 14% to 23% in 7 of those circles. The weakest circle for Airtel is Kerala, where it has only 14.4% RMS and is not even in the Top-3 operators. On the other hand the strongest circle for Airtel is Karnataka, where it commands a stupendous 47.5% RMS and it contributes 11.8% to Airtel's Total Revenues. Apart from Karnataka, there are 6 other circles where Airtel commands over 40% RMS. Also Airtel is No.1 operator in a total of 12 circles and is No.2 or 3 in 9 other circles.

Coming to Vodafone, it commands less than 23% RMS across India and is a distant 2nd. But Vodafone is No.1 in 6 circles (Gujarat, Haryana, Mumbai, Kolkata, UP-East & West Bengal) where it commands a total RMS of almost 33%. Vodafone is not in the Top-3 operators list in only 3 circles (HP, J&K and MP) where it commands just about 10% RMS. HP & J&K are in any case very very small circles with their total contribution less than 2% of Gross All-India Revenues for all operators put together. Vodafone is also strong in all the Metro circles. In Delhi, Mumbai, Kolkata and TN (including Chennai) circles, Vodafone commands a RMS of 28.6%, just behind Airtel's RMS figure of 29.2%.

Idea Cellular is a distant 3rd ranker currently with 18.2% All-India RMS, but is the fastest growing operator on a Y-o-Y comparison amongst the 8 operators I have considered. Idea held 16.4% RMS in June'14 quarter, i.e. it managed to improve it's RMS by 180 bps in just 1 year in such a competitive market. Despite being All-India No.3, Idea commands 1st position in 4 significant circles of Kerala, Maharashtra, MP & UP-West, where it holds a strong 35.2% RMS. In another 4 circles of AP, Gujarat, Haryana and Punjab, Idea commands RMS between 22 and 28% and is the No.2 operator here. Idea's RMS is in single digit (< 10%) in another 8 circles, which includes metro circles of Mumbai, Kolkata and TN. This is because Idea was a relatively late entrant in these circles.

There is a huge gap between the RMS of the Top-3 operators and the rest of the pack. BSNL/MTNL is currently the 4th largest operator with 8.7% RMS in June'15 quarter, about 180 bps less than what it held in June'14 quarter. With the recent steps taken by the NDA govt. to arrest decline in the PSU operator's landline business and to improve prospects of it's wireless business with improved 3G coverage and aggressive pricing, we could see BSNL/MTNL posting slower decline for a few quarters and then even post some growth later on. It's RMS is quite steady across circles with the weakest being in Bihar circle at 3.9% and strongest being in Kerala circle with 17.1%. Hopefully we will see this PSU behemoth survive in the coming years.

Next one is Tata Teleservices with 6.7% RMS across India, but it's absent from 3 circles of Noth-East, Assam and J&K. Karnataka circle is it's biggest contributor with 14% of it's Total All-India Revenues coming from this circle alone and it is also the No.3 operator here with 12.3% RMS, which is very very respectable considering the fact that Tata has been amongst the latest entrant in the GSM business amongst all the larger operators. It is interesting to note that most of the circles where it has posted healthy Y-o-Y growth in revenues are those where it holds 3G license. Apart from Karnataka, TTSL has posted healthy growth in circles of MP, Haryana, Mumbai, Orissa, Maharashtra & Kerala. 5 of these 7 circles are 3G circles. Strong growth in Mumbai circle was a surprise as Tata does not hold a 3G license here, but serves it's customers with CDMA-based Photon services and also has a strong Wireline business here. Amongst Tata's weakest circles are West Bengal, HP, Bihar & Rajasthan, where it has a RMS of between 1% and 3% only. Performance in Delhi circle if TTSL is also surprising as it does not have GSM or 3G business in this circle. Only CDMA and Wireline. But still it generates decent revenues and holds a respectable 5.5% RMS too.

Aircel is a largely regional player, but with All-India presence. The TN circle alone generates 30% of Aircel revenues, but even here it is the No.3 player. Aircel has 20+% RMS in circles of Assam, Noth-East and J&K and is a strong No.2 in these circles. In the last one year, Aircel has posted strong growth in circles of Bihar, Delhi and Mumbai, but on small numbers as it commands less than 6% RMS in these circles. Aircel has nearly shut down services in couple of circles like Haryana & MP and is probably depending on Roaming agreements alone. Going forward this will be a good idea for the smaller operators to focus on their circles of strength and depend on Roaming arrangements for the remaining circles. They can save considerable amount of resources by doing so & improve their profitability in the bargain.

RCom is a complete disappointment. It is neither strong in the circles where it has been operating a GSM business for 20 years, nor is it strong in the circles where it holds a 3G license. TTSL which is a younger and smaller operator than RCom, generates 20% higher Gross Revenues. RCom paid through the nose to buy 3G license in the two prime Metro circles of Mumbai & Delhi, but it commands a disappointing 8.6% and 7% RMS respectively here. RCom has been overambitious in making it's plans, but very poor in implementing them.

Uninor has done the smart thing by focusing on select circles and building a reasonable size of operations in them and then look at newer circles. Uninor commands a RMS of nearly 9% in UP-East & West circles, which is very very commendable. Even in Bihar & Gujarat it has over 6% RMS. All this by being the 'Sabse Sasta' operator. No 3G & 4G currently. It's strategy has worked well till now. But will be interesting to see it's progress in the coming quarters.