November Auto Sales Update - strong & steady: Edelweiss

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n  Hero Honda: Growth moderates on higher base

Hero Honda’s (HH) volumes, at 421,366, were up 10% Y-o-Y and down 17% M-o-M. After the end of the festival season, the sequential decline was broadly in line  with expectation. Management maintained underlying demand remains strong.

n  Mahindra & Mahindra: Strong tractor volume

Overall volumes declined M-o-M largely due to the six-day annual maintenance shutdown. UV sales, at 11,447 units (up 6% Y-o-Y, down 28% M-o-M), were strong. The surprise though came from the tractor segment with domestic volumes at ~17,000 units (up 46% Y-o-Y, down 27% M-o-M), which were ahead of expectations. Strong agriculture production augurs well for tractor demand.

n  Maruti Suzuki: Continues to operate at full capacity

Maruti Suzuki (MSIL) continued to operate at full capacity with current month’s volumes at over 112,000 units (up 28% Y-o-Y, down 5% M-o-M) matching previous month’s production. Domestic volumes crossed 100,000 units for the second month in a row—a reflection of robust demand. Exports, however, have continued to lag. The company faces increased competitive intensity with new launches, particularly the newly launched Toyota Etios.

n  Tata Motors: M&HCVs surprise; Nano disappoints

Tata Motor’s (TTMT) sequential improvement in M&HCV volumes at 14,703 (up 18% Y-o-Y and 8% M-o-M) indicates that volumes maybe picking up faster than expected after the change in emission norms w.e.f. Oct 2010. Passenger vehicles (excluding Nano) continued to disappoint (volumes down 22% Y-o-Y and 35% M-o-M) as Indica (compact segment) sales remained sluggish owing to stronger competition. Nano posted sales of meagre 500 vehicles, partially due to component shortages.

n  Outlook: Sales momentum maintained

The underlying sales momentum remains strong even though post the festive season, sales have moderated in the two wheeler and passenger car segments. Going forward, we expect the strong trend to continue even though growth rates could decline on a higher base. Strong agriculture production augurs well for vehicle demand. Recent launches and those expected in the next few months (notably, Toyota’s Etios, Hyundai’s 800cc offering, Mahindra’s Stallio) could determine the competitive environment for 2011. Our top picks in the space include Mahindra & Mahindra, Tata Motors and Ashok Leyland.