India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Automobiles
India
Feedback from channel checks with financiers. We met car and commercial vehicle
financiers to understand the impact on auto demand in light of tight liquidity conditions
and sensitivity of demand to interest rates. Demand seems to be quite robust as of now
as customer sentiment is quite upbeat but financiers feel sharp spike in auto interest
rates could moderate demand growth going forward.
Auto interest rates are inching up, but aggressive competition keeping financiers at bay
Financiers indicated that car and commercial vehicle interest rates have risen by 100-130 bps since
April 2010 but the rate increase has not impacted demand. Financiers believe auto interest rates
may not go up sharply due to aggressive competition in the market by financiers. Teaser rate
scheme of State Bank of India is still continuing and it is putting pressure on other financiers to
hold on to the existing interest rates. Car interest rates are hovering ~10-11% while big fleet
operators are getting finance at close to ~10% rate.
Recent correction in commercial vehicle demand was due to migration from BS-2 to BS-3
Commercial vehicle demand corrected sharply in October and November which the financiers
believe was due to migration from BS-2 to BS-3 emission norms in October 2010. Truck operators
are still reluctant to migrate to BS-3 as (1) they are unsure of spare parts availability and service
levels of the BS-3 vehicles, and (2) BS-3 vehicles are 4% more expensive than BS-2 vehicles.
However, demand has picked up slightly in December and we believe commercial vehicle demand
needs to be carefully monitored over the next few months given concerns on increase in interest
rates and moderate pick-up in freight rates.
Non-performing loans have fallen sharply from the financial crisis period
Non-performing loans in the car and commercial vehicle portfolio for these financiers have fallen to
17-50 bps from crisis period levels of 100 bps which has also resulted in more financiers coming
into the market. Hence, we do not expect non-performing loans to increase sharply as financiers
have become selective in funding the right set of customers after the financial crisis.
December auto sales are likely to be better than November
Financiers indicated that car and commercial vehicle demand has picked up in December and is
likely to be much better than November. Commercial vehicle sales are expected to increase by
15-20% mom in December. Maruti Suzuki could, however, see a fall in December dealer
despatches due to a one-week shutdown at its plants.
We prefer passenger car players over commercial vehicle and two-wheelers
We believe passenger car volume growth is likely to outpace two-wheelers and commercial vehicle
demand in FY2012E due to strong employment outlook and lesser sensitivity of hike in interest
rates than commercial vehicles. We forecast domestic passenger car demand to grow at 18% yoy
in FY2012E while we estimate two-wheeler and commercial vehicle demand to grow at 14% and
12%, respectively, in FY2012E.
We met with auto financiers (cars and commercial vehicles) as part of our industry channel
checks. Key takeaways from the meetings are as follows:
Interest rates are inching up, but gradual rise in interest rates should not impact
demand
Financiers indicated that car and commercial vehicle interest rates have risen by 100-130 bps
since April 2010 but the rate increase has not impacted demand. Some financiers are very
aggressive, especially in the car finance business and offering rates at below 10%. Hence,
financiers are reluctant to increase interest rates sharply due to strong competition in the
market. Availability of funds has also become tighter over the past few months and
financiers expect it to continue for some time. We believe auto interest rates could rise over
the next few months in light of tight liquidity conditions.
Loan-to-value ratios have improved considerably which has also supported car
demand
Loan-to-value ratio in passenger car financing has increased to ~80% from crisis levels of
~70% due to strong revival in demand and aggressive lending by banks in the passenger car
segment. In fact, on the higher priced cars, LTVs are even greater than 90% as customers
preferred loans over equity due to negative real interest rates in 1HFY11.
Recent correction in commercial vehicle demand was due to migration from BS-
2 to BS-3 emission norms
Commercial vehicle demand corrected sharply in October and November which the
financiers believe was due to migration from BS-2 to BS-3 emission norms in October 2010.
Truck operators are still reluctant to migrate to BS-3 as (1) they are unsure of spare parts
availability and service levels of the BS-3 vehicles, and (2) BS-3 vehicles are 4% more
expensive than BS-2 vehicles. However, demand has picked up slightly in December and we
believe commercial vehicle demand needs to be carefully monitored over the next few
months given concerns on increase in interest rates and moderate pick-up in freight rates.
Large truck operators continue to get favorable interest rates
Large truck operators are continuing to get finance at close to 10% interest rates and have
very low non-performing loans. Financiers also indicated that large fleet operators’
profitability is still good due to fixed contracts with manufacturers which has led to high
utilization of their trucks.
Non-performing loans in the car and commercial vehicle portfolios are still very
low
Non-performing loans in the car and commercial vehicle portfolio for these financiers have
fallen to 17-50 bps from crisis period levels of 100 bps which has also resulted in more
financiers coming into the market. Hence, we do not expect non-performing loans to
increase sharply as financiers have become selective in funding the right set of customers
after the financial crisis.
December auto sales should be better than November
December car and commercial vehicle sales are expected to be better than November.
Commercial vehicle sales are expected to increase by 15-20% mom in December. Maruti
Suzuki could, however, see a fall in December dealer despatches due to a one-week
shutdown at its plants.
No comments:
Post a Comment