>INDIAN AUTOMOBILES (MORGAN STANLEY)

Indian Automobiles – July 2009 Monthly Sales

Growth Momentum Continues

• Auto volumes posted positive growth across segments: The positives for the month in terms of YoY growth in domestic sales were: Maruti car sales up 33% YoY, M&M UV sales up 46%, M&M tractor sales (ex PTL) up 21%, Tata Motors MHCV sales up 6% and LCV sales up 44%. July is a slow month; thus sequentially, in terms of domestic sales, only Maruti was up 9% and Tata Motors CV segment was up 8%.

• M&M growth momentum maintained: Strong UV numbers (up 46% YoY) at 17K units, while tractors, adjusted for PTL, were up 21% YoY. The company sold 2100 units of Xylo and 3300 units of Scorpio. At 13x one year fwd earnings and 27% F09-11 earnings CAGR, M&M is our top pick in the sector.

• Maruti shows 9% MoM growth: Domestic sales were up 28% YoY and company posted impressive 9% sequential growth. While the A2 segment continued to grow, up 38% YoY, strong growth came from A3 segment, up 51% YoY; thus pointing to improving product mix. Based on data disclosed, we expect Maruti was able to maintain its market share during the month.

• Tata Motors strong CV numbers: MHCV sales posted growth of 6% YoY, after a gap of 13 months. LCV volume growth continued, and they posted 44% YoY growth. The CV cycle has started recovering but we believe JLR will be a drag on Tata Motors, and we remain Equal-weight on the stock. JLR US numbers for July 09 were down 25% YoY and 9% sequentially

• Hero Honda numbers in line, Bajaj comes in flat: Though Hero Honda posted 30% YoY growth, the numbers were in line with expectations and flat MoM. Riding on new launches, Bajaj Auto and TVS posted flat to marginal growth numbers vs. declines previously .Based on data disclosed, we expect Maruti was able to maintain its market share during the month.

• Outlook for August: We expect the sales growth momentum to be maintained as volume growth will be aided by pre-festive stocking and low base benefit. Given that the festive season will start from mid-September, most OEMs will start building inventory in the coming month.

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