Truck rentals during May 2014 recovered by 4-5% on account of a) pass-on of the diesel price hike of Rs1.2/ltr in mid-May, b) peak wheat harvesting, c) 15-20% increase in summer fruit & vegetable arrivals, d) increase in election expenditure.

1.
June 16, 2014
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Automobiles
CV Goods Segment ‐ Truck Rentals recover 4‐5%
Sector Update
Surjit Arora
surjitarora@plindia.com
+91‐22‐66322235
Hussain Kagzi
hussainkagzi@plindia.com
+91‐22‐66322242
Sensex v/s. Tata Motors & Ashok Leyland
40
60
80
100
120
140
160
Jun‐13
Aug‐13
Oct‐13
Dec‐13
Feb‐14
Apr‐14
Jun‐14
Sensex Tata Motors
Ashok Leyland
Source: Bloomberg
Stock Performance
(%) 1M 6M 12M
Sensex 4.6 22.1 31.5
Auto 6.8 27.2 42.0
Ashok Leyland 22.3 106.9 46.5
Tata Motors (2.6) 19.1 47.7
Stock Data
CMP (Rs) TP (Rs) PE (x)
FY15E FY16E
Tata Motors 438 470 8.5 7.7
Ashok Leyland 33 28 NA 22.8
Truck rentals during May 2014 recovered by 4‐5% on account of a) pass‐on of the
diesel price hike of Rs1.2/ltr in mid‐May, b) peak wheat harvesting, c) 15‐20%
increase in summer fruit & vegetable arrivals, d) increase in election expenditure
and e) shrinking truck fleet on National Permit routes. The pace of decline in the
M&HCV goods segment has been curtailed to just 8.0% YoY in May 2014 as against
20% decline in Q4FY14. LCV goods segment de‐grew at 19.7% in May 2014. As
mentioned in our monthly update for Feb 2014, we believe, volumes have bottomed
out. We expect M&HCV goods segment to be flat‐to‐marginally positive in FY15E.
Key findings of the IFTRT report are mentioned below:
 Truck rentals improve by 4‐5% in May 2014: Truck rentals during May 2014
(May 2nd
‐ June 1st
2014) recovered by 4‐5% on account of a) pass‐on of the
diesel price hike of Rs1.2/ltr in mid‐May, b) peak wheat harvesting, c) 15‐20%
increase in summer fruit & vegetable arrivals, d) increase in election
expenditure and e) shrinking truck fleet on National Permit routes. At the same
time, dispatches from factory output remained flat, except for improvement in
dispatches of FMCG, consumer durables and general merchandise. Housing
showed some signs of improvement with a pick‐up in the housing construction
activity in Tier‐I and Tier‐II cities. April 2014 witnessed a drop in truck rentals by
4‐5% on account of a three‐week delay in wheat procurement across several
states and widespread damage in summer fruit and vegetable crops. On the
other hand, May 2014 (May 2nd
‐ June 1st
2014) witnessed a reversal in the truck
rentals on trunk routes.
 Trailers likely to recover faster compared to other segments: A decline in sale
of multi‐axle high tonnage (trailers) i.e. 40ton‐49ton gross weight capacity had
set in much before a decline of other categories of goods carriages which took
place during the last nine quarters. Hence, the recovery seems to be coming in a
similar manner for multi‐axle trailers. Fleet owners are now adding multi‐axle
trailers to their fleet as their corporate clients are insisting on providing young‐
age fleet as a pre‐condition to awarding 3‐4 years’ transport contracts. These
trailers are mostly engaged in carrying bulk cargo and are also the preferred
mode of moving equipment/machinery across project sites in various parts of
the country.
 Fleet owners are cautiously optimistic: For the brief blip in truck rentals during
Apr 2014, there is an optimism in the truck freight market in which fleet owners
have started exploring and planning fleet replacement so that when in the near
future the stalled infrastructure projects resume activity, these fleet owners will
be able to capture business. Truck fleet assets have virtually become
encumbrance‐free and in turn, have stopped their monthly outgo of EMIs,
resulting in decrease in the capital cost of owning truck assets.
Contd…2

2.
June 16, 2014 2
Automobiles
 M&HCV goods segment de‐grew by only 8.0% YoY in May 2014: M&HCV goods
segment declined by only 8.0% YoY in May 2014 as against 14.0% YoY decline in
April 2014, whereas for FY14, the decline has been 27.0% YoY. The pace of
decline has slowed down considerably (from an average 28% YoY decline in
Q3FY14 to an average 20% YoY decline in Q4FY14 to 8.0% currently). We believe
M&HCV volumes have bottomed out. We expect a recovery from Q3FY15
onwards. At the same time, Truck rentals are up 10% YoY.
 Stress in M&HCV segment percolating to LCV goods segment with the latter
de‐growing by 19.7% in May 2014: Need for Hub‐and‐Spoke model and launch
of new models has fuelled growth in the LCV goods segment over FY11‐FY13
period. However, stress in the M&HCV segment in FY14 has percolated down to
the LCV segment, with the latter de‐growing by 28.8% YoY in FY14. The ACE
segment too has declined by 30% YoY, leading to an overall decline of 19.7% YoY
in May 2014.
 CV goods de‐grew by 20.5% in Apr‐May 2014: Volumes in the industry truck
sales (LCV & MHCV goods segment) de‐grew by 20.5% due to lower cargo
availability and slowdown in the LCV segment.

3.
June 16, 2014 3
Automobiles
Freight rates improve 4‐5% in May 2014
Exhibit 1: 9T payload Truck for a round trip from Delhi
Source: IFTRT, PL Research
Exhibit 2: 9T payload Truck for a round trip from Delhi
Source: IFTRT, PL Research
Exhibit 3: 9T payload Truck for a round trip from Delhi
Source: IFTRT, PL Research
Exhibit 4: 9T payload Truck for a round trip from Delhi
Source: IFTRT, PL Research
50,000
53,000
56,000
59,000
62,000
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Freight Rate (Rs)
Mumbai Nagpur
40,000
55,000
70,000
85,000
100,000
115,000
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Freight Rate (Rs)
Kolkata Guwahati
65,000
75,000
85,000
95,000
105,000
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Freight Rate (Rs)
Hyderabad Chennai
48,000
52,000
56,000
60,000
64,000
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Freight Rate (Rs) Ranchi Raipur
.

4.
June 16, 2014 4
Automobiles
CV goods segment de‐grew by 20.5% during Apr‐May’14
Exhibit 5: Segment‐wise break‐up of volumes
Segment‐wise Break‐up FY10 FY11 FY12 FY13 FY14 FY15E
LCV goods segment (0‐7.5T) (A) 253,364 317,030 411,415 476,695 389,312 390,000
% ch. YoY 48.2 25.1 29.8 15.9 (18.3) 2.4
ICV goods segment (7.5T ‐ 12T) 43,679 55,411 67,104 57,436 41,432 42,000
% ch. YoY (19.1) 26.7 21.0 (14.4) (27.9) 6.2
Rigid Vehicles (12T‐16T) 48,605 60,686 60,906 48,151 32,363 36,000
% ch. YoY 13.9 26.5 ‐ (20.9) (32.8) 11.3
Rigid Vehicles (16T‐25T) 90,904 129,974 142,822 96,424 74,395 76,000
% ch. YoY 33.2 42.4 9.9 (32.5) (22.8) 2.2
Tractor Trailer / Tippers (16T‐49T) 18,673 29,050 28,502 19,765 13,728 16,000
% ch. YoY 86.8 55.3 (2.0) (30.9) (30.5) 16.5
M&HCV goods segment (7.5T‐49T) (B) 201,861 275,121 299,334 221,710 161,918 170,000
% ch. YoY 15.4 36.3 8.8 (25.9) (27.0) 5.0
CV goods segment (A + B) 455,225 591,375 710,749 698,444 551,230 560,000
% ch. YoY 31.6 29.9 20.2 (1.7) (21.0) 1.6
Source: SIAM Data, PL Research
Exhibit 6: LCV goods segment
LCV goods carriers May‐13 May‐14 YTD FY14 YTD FY15
Ashok Leyland 2,131 1,498 4,013 2,673
YoY growth (%) (29.7) (33.4)
MS (%) 6.6 5.8 6.1 5.4
Mahindra & Mahindra 12,466 11,568 34,614 22,471
YoY growth (%) (29.1) (35.1)
MS (%) 38.9 44.9 37.4 44.4
Tata Motors 16,170 11,461 34,614 22,471
YoY growth (%) (29.1) (35.1)
MS (%) 50.4 44.5 52.6 45.4
Total (incl. other players) 32,066 25,736 65,792 49,480
YoY growth (%) (19.7) (24.8)
Source: SIAM Data, PL Research
In FY14, LCV goods segment de‐grew by 28.8%, indicating that the weak macro situation is now percolating down to the last mile
transport segment. Tata Motors has lost 720bps market share to 45.4%, mainly to Mahindra, which has gained almost 700bps in
market share for Apr‐May’14 period. Slide in LCV volumes continued in the month of May’14 with a decline of 19.7% YoY.

5.
June 16, 2014 5
Automobiles
Exhibit 7: M&HCV goods segment
M&HCV goods carriers May‐13 May‐14 YTD FY14 YTD FY15
Ashok Leyland 2,886 3,197 5,837 6,268
YoY growth (%) 10.8 7.4
MS (%) 20.0 24.1 20.1 24.3
Tata Motors 8,768 7,846 17,445 15,151
YoY growth (%) (10.5) (13.1)
MS (%) 60.7 59.0 60.1 58.6
VE CVs ‐ Eicher 1,806 1,474 3,957 2,919
YoY growth (%) (18.4) (26.2)
MS (%) 12.5 11.1 13.6 11.3
Total (incl. other players) 14,444 13,288 29,039 25,840
YoY growth (%) (8.0) (11.0)
Source: SIAM Data, PL Research
M&HCV goods segment declined by 8.0% YoY in May’14. For FY14, the M&HCV Goods declined by 27.0% YoY, with the 12‐16T rigid
vehicles declining the most by 32.8% YoY. The pace of decline has slowed considerably (from an average28% YoY decline in Q3FY14
to an average 20% YoY decline in Q4FY14). We believe M&HCV volumes have bottomed out. We expect recovery from Q3FY15
onwards.

6.
June 16, 2014 6
Automobiles
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0.0%
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BUY Accumulate Reduce Sell
% of Total Coverage
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