Auto Sales Update - ending fiscal 11 on a high note :Edelweiss,

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n  Passenger car sales: Strong March for Maruti; not so for others

Maruti Suzuki (MSIL) reported strong sales of 121,952 units (up 28% Y-o-Y, 9% M-o-M) primarily on advancement of capacity expansion. Barring MSIL, sales were below par as Hyundai’s sales at 52,007 units were up a mere 1% Y-o-Y and 7% M-o-M. Even Tata Motors (TTMT) disappointed with car sales (14,134 units) dipping 26% Y-o-Y and 25% on M-o-M, indicating high inventory built up in the system as highlighted in our note “Edel Pulse – Car Dealer survey” dated March 29, 2011.

n  Two wheelers:  Hero Honda and TVS posts robust growth

Industry continues to witness buoyant demand wherein Hero Honda (HH) and TVS reported ~10% M-o-M growth. Though HH had lost market share in the 1HFY11, but have remarkably recovered partially in the 2HFY11. TVS continues to perform on all the verticals and have been able to improve market share marginally. Bajaj volumes are expected to be positive (Edel estimate is at 345,000 units).

n  Commercial vehicle (CV) sales: Shining spot for Tata Motor (TTMT)

TTMT’s M&HCV sales at 23,337 units (up 12% Y-o-Y, 32% M-o-M) posted one of the highest sequential growth in the past seven years, whereas on the LCV front sales stood 26,416 units, a strong spurt after being stagnant for some time. Buoyant growth indicates stable freight rate and strong freight availability, the primary reason driving truck demand. Year-end sales push was also one of the reasons behind firm truck demand. We also expect similar strong numbers from Ashok Leyland, (Our estimates are 11,460 units).

n  Tractor sales: Strong growth for M&M; Expect same for Escorts

Mahindra & Mahindra (M&M) reported 4% M-o-M and 23% Y-o-Y growth. Even though sequential growth was one of the leanest observed for March month in last many years, we believe it is due to strong February sales which other-wise is considered leanest month in Q4. We expect 7,000 units (14% Y-o-Y, up 25% M-o-M growth) for Escorts.

n  Outlook: Challenging

Rising interest rates and inflation has made outlook challenging for OEMs in FY12. We expect sales to slow down in FY12 and the worst affected should be cars and commercial vehicles, of which sales are heavily dependent on bank funding and are susceptible to rise in interest rates and inflation. We prefer companies with high rural exposure and high exports content. Our top pick for the sector are M&M and TTMT.