Macquarie Research: Indian Auto: Stocking up for the festival season

India Automobiles Monthly
Auto Dashboard – Stocking up for the
festival season
Event
 The Society of Indian Automobiles Manufacturers (SIAM) released industry
data for the month of September 2010. The month saw record sales for most
segments, as companies tried to fill up inventories to meet expected strong
demand in the festival season.
Impact
 Record month for most segments: Total auto sales grew by 22% YoY and
stood at over 1.52m units, whereas production increased 25% to 1.51m units.
Domestic cars and two-wheelers achieved their highest monthly sales. CV
sales saw the highest YoY growth rate at 46% for the month. The exception
was the three-wheeler segment, which declined by 2%.
 Two-wheelers – M&M enters high-volume motorcycle space: Domestic
two-wheeler sales increased 20% YoY to ~1.01m units, while motorcycle
sales increased 16%YoY. M&M entered the motorcycle segment by launching
two bikes at both ends of the spectrum: a 110cc entry-level bike (Stallio) and
a premium 300cc bike (Mojo). Bajaj Auto’s market share increased 87bp to
~29.7%, largely at the expense of Hero Honda.
 Car and UVs – dealers stock for the festival season: Maruti lost 64bp of its
share in the domestic car space, largely to Hyundai. Players are also ramping
up production for their newly introduced models. M&M continued its strong
performance and grew its market share in the UV space by 466bp to ~58%.
We expect car and UV sales to register 19–20% growth in FY11, supported
by improving consumer sentiment and growing finance penetration.
 Commercial vehicles – best growth rate expected in FY11: Domestic
M&HCV sales increased 46% for the month, while LCV sales increased by
18%. In the domestic M&HCV space, Ashok Leyland improved its market
share by 446bp to 31.1%, whereas Tata Motors lost its share by 487bp to
54.6%. We believe the dip in the market share of Tata Motors is transitory, as
some players were able to increase sales to dealers ahead of the changes in
emission norms. CV sales are expected to grow by 20–22% in FY11, backed
by a pickup in the investment cycle and an increase in industrial activities.
Outlook
 Overall, a recovery in the economy, increasing finance penetration and a
normal monsoon season should benefit auto sales. We expect sales numbers
to remain healthy for the next couple of months, as inventory levels are
comfortable. Growth rates are expected to drop thereafter, due to a higher
base and also because increased interest rates would affect demand. We
expect competition to strengthen in the two-wheeler and car space in the
second half of the fiscal year. Given low competition in the key UV and tractor
segments, M&M remains our preferred pick, with its expected ~14% earnings
CAGR at ~13.0x core auto FY12E PER over the next three years. Tata
Motors should also benefit from improvement in both domestic and JLR sales.