Auto Sales Update - strong beginning to the year:: Edelweiss

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n  Hero Honda: Steady volumes

Hero Honda’s (HH) volumes, at 466,524, rose 14% Y-o-Y but dipped 7% M-o-M. We note, however, that the sequential decline was on a higher base (December volumes had been unusually strong on account of restocking). As per the agreement between HH and Honda Motor Company, three new products will be introduced till 2014.

n  Mahindra & Mahindra: UVs steady; tractors robust

UV sales remained strong (up 11% Y-o-Y, 9% M-o-M), whereas pick up sales were steady M-o-M. Tractor sales continued to soar, registering impressive growth (up 22% Y-o-Y, 26% M-o-M) reflecting the strong underlying trend. During the month, Mahindra & Mahindra (M&M) launched the Genio—a pick up vehicle based on the Xylo platform.

n  Maruti Suzuki: Running at full capacity

Domestic sales were strong across all segments. Hatchback (A2) and sedan (A3) sales continued to register stronger volumes, up 28% Y-o-Y and 24% Y-o-Y, respectively. Maruti Suzuki (MSIL) continues to operate at full capacity i.e., 110,000 units per month. The 11% sequential volume growth reflects a low base (December sales had been impacted by a plant shutdown). During the month, the company took a minor price hike (~1%) to counter high commodity costs. In February, it will launch the premium segment sedan Kizashi.

n  Tata Motors: CV sales muted; robust PV sales

MHCV sales (up 5% Y-o-Y, down 5% M-o-M) were marginally disappointing considering that we had expected the impact of emission norms to have been negated. Passenger car volumes (up 2% Y-o-Y, 71% M-o-M) were robust; the Indigo range (sedan segment) has been particularly strong on back of the newly launched Indigo Manza. Nano volumes posted a mini revival on the back of various promotional schemes, registering sales of 6,703 units. Notably, the company stated that JLR continued its upward trend.

n  Outlook: Expect normalized growth rates in 2011

The new year has begun on a strong note for the automobile sector. Going forward, we expect volume growth to moderate to mid teens across segments (from the 25%+ level in CY10) on the back of a higher base as well as potential headwinds (higher interest rates and crude oil prices). Top picks in the space are Mahindra & Mahindra and Tata Motors, while we remain cautious on Maruti Suzuki.