India Autos Report Q1 2013

BMI believes new forecasts released by the Society of Indian Automotive Manufacturers (SIAM) inOctober 2012 are too bearish. SIAM now expects passenger car sales to grow by 1-3% for FY2013 from aprevious forecast of 10%. According to S Sandilya, the President of SIAM, the slowdown in economicgrowth coupled with high interest rates will further decelerate growth.

However, we agree with the headwinds seen by SIAM for the Indian auto market and are also revisingour FY2013 forecasts for the overall passenger vehicle sales market downwards to come in at 2.86mnunits, a growth rate of 6.8% from 9.1% previously. On the whole though, we are more bullish on India'sauto industry than SIAM.

While SIAM citied the recent diesel price hike as one of the reasons to downgrade growth in passengercar sales to 1-3%, we do not believe that the hike will have such a huge negative impact on this segment.We do not expect the spread between diesel and petrol to narrow much further going forward due topolitical pressures to maintain diesel subsidies. Although the price of diesel has increased, it is still muchcheaper than petrol. Therefore, the strong demand for diesel vehicles is expected to continue.

Moreover, while sales of passenger cars and vans have stagnated recently, utility vehicles (UVs) such asMUVs have enjoyed very strong year-on-year (y-o-y) growth for the past few months. It is our view thatthis segment will outperform the overall passenger vehicle market going forward and we expect thisstrong growth in UV sales to continue and provide an additional boost to overall passenger vehicle salesfor FY2013.

BMI also believes that SIAM's commercial vehicle (CV) forecast revisions are overly bearish and we aretaking a more bullish stance. We are revising our CV sales growth forecast to 7.1% from 12.9%previously to hit 867,000 units by end FY2013. It was BMI's view last year that the CV segment wouldeasily outperform passenger car sales due to demand for construction and infrastructure projects and itplayed out well for us. While we do not think such strong growth rates will continue, we see no reason tobe overly bearish on this segment.