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Strong volume growth continues despite head winds.
We expect auto sector growth to taper off as the lag effect of difficult
economic conditions to begin to set in. Auto sector growth momentum
is more likely to be sustained by commercial vehicle (CV) segment as
better road infrastructure and growing economic activity enables the
vehicle owners to meet the rising operating cost due to fuel hikes and
rising interest rates. Passenger vehicles (PV) and two wheelers are to
see some margin compression as commodities have been on the rise
and inflationary pressures/ rising interest rates expected to see
purchasers postpone their buying decisions.
We expect M&M, and Ashok Leyland to continue to benefit from this
situation, while Maruti, Hero Honda, Bajaj Auto and TVS could see
margin pressures going forward. However Tata Motors having an
exposure to both CV&PV will gain from its JLR global business,
domestically it may see pressure on PV segment owning to rising
competition.
Commercial Vehicle Segment
The commercial vehicle segment which is most vulnerable towards any
negative movement in the economy has witnessed a growth of 23% for
the period of FY 11 over last year. The growth in the commercial
vehicle space has been led by pick ups which grew by 38% and MHCVs
which has grown by 24% and LCVs has grown by 17%.
Against the challenging environment like increasing financing cost,
high commodity prices, the growth in the segment has been significant
mainly because of the positive business sentiments and better
availability of the finance.
Commercial vehicle segment is highly correlated with the
manufacturing and agricultural activity could sustain the growth
momentum on account of better road based transportation and
increase in freight rates. Going ahead we expect CV to grow at 11%
and 12% for FY12E and FY13E.
Passenger Vehicle Segment
Passenger vehicle segment is mainly driven by service sector has
grown by 30% for the period of FY11 over last year. In the passenger
vehicle segment Utility vehicles and multi utility vehicles has grown by
28% in FY 11 as against FY10.Passenger vehicle segment which is
dominated by Maruti Suzuki has seen a growth of 28% in A2 (Alto,
Wagon R, Zen, Swift, Ritz, A star) and 32% in the A3 ( SX4 ,D’Zire).
We believe that the growth was fuelled by rise in disposable income,
favorable demography although the fuel price and interest has not
being favorable. We believe that going ahead passenger segment will
grow T a rate of 15% for FY12E & FY13E.
Two & Three Wheeler segment
Indian 2Ws and 3W segment is mainly dominated by Hero Honda and Bajaj Auto. Two wheelers sector has
witnessed a growth of 18% for the period of FY11 over last year and three wheelers grew by 32% in FY11. Two
wheeler segments is also being driven by service sector along with agricultural output which creates rural
demand. We feel focus on rural demand can shield them from rising interest rates as rural demand is less
depended on financing, Also schemes like NREGA helps the demand to sustain. We forecast the growth in 2Ws to
be around 15%.
Rising Interest rates do not seem to have negative impact on sales growth.
Automobile sales which is a function of interest rates however the recent hike interest rates has not yet been a
dampener because of the
• Availability of finance.
• Robust GDP growth
Impact of Fuel cost
Continuous increase in fuel cost is another factor which can impact the growth negatively, particularly passenger
vehicles and two & three wheelers.
However to hedge the threat of volume tampering off due to hike in fuel cost has led companies to come up with
diesel variant. The diesel prices which are not deregulated gives a benefit over petrol vehicles as the average fuel
cost per Km for diesel driven vehicles comes to around Rs 1.7 per Km as compared to Rs3.5 per Km in case of
petrol driven vehicles. As a result the incremental cost for diesel driven comes down in the long run.
Soaring commodity prices to impact passenger vehicle segment
The basic raw material prices has touched a six year peak in the fourth quarter of FY 10-11.The prices of steel,
rubber, aluminum has risen owning to supply constraints ,mainly driven by natural calamities.
The increase input prices does not impact the volumes directly, however regular pass through by the auto
companies to the end customers may restrict growth.
As per crisil research, commercial vehicle segment steel and rubber accounts for 72% & 8% of the total raw
material expense respectively. In case of 2Ws & passenger vehicle steel, aluminum & rubber have weightage of
50%, 15% and 10% respectively.
Thus the impact of the change in basic raw material prices would be varied across automobile segment. CV
manufacturers are in a better position and have more leeway to pass on the rise in the input cost compare to PVs
& 2Ws as it is mostly driven by business sentiments. The increase in availability of finance secures some visibility
in volume and sustainability of margins of commercial vehicles going ahead.
However Passenger vehicles and two wheelers may face some margin pressure as competition intensifies and rise
in interest rates leaves very less room for passing on the rise in input cost.
Increase in Freight rates to benefit commercial vehicle segment
There has been a rise in road transportation on account of better connectivity, more highways and continuous
thrust on infrastructure, which has led to an increase in the freight rates. The upcoming infra projects to be
completed in the next fiscal year augurs well for the commercial vehicle, Bus and truck manufacturers
Company wise automobile sales data:
Mahindra & Mahindra
M&M has shown a healthy growth 18% in both domestic and export volume for the month of March 11over March 10
and 26% for the same yoy.The maximum growth has been contributed by 3Ws (grew by 40% for the full year), pick
up (grew by 38% for the full year) and logon (on account of low base). The passenger Utility vehicle segment grew
by 12% yoy and by 14% in the month of March.
M&M’s Farm Equipment Sector which includes tractor sales of Swaraj Mazda has reached a new high by recording
highest domestic sales of 18,729 units a growth of 25% in the month of March and for the FY11 it has reported
domestic sales over 200,000 units, which registers a growth of 22% as compared to last year.
Tata Motors:
Tata motors over all volume for the period of FY11 has grown by 25% to 803,322 units as against 642,686 units in
FY10.The growth has been driven by export market which grew by 70% mainly due to low base. The domestic
volume has grown by 22% yoy.
The passenger vehicle segment has reported a growth of 27% in FY11 however it has marginally come down by 4%
in Mar-11.The overall commercial vehicle segment have reported an average volume growth of 22% which was
driven by M&HCVs & UVs, Both of these segments have grown by 26% inFY11.Nano sales increased by 85% YoY to
6,937 units.
TML has increased prices for its Car/UVs, due to the higher raw material cost pressures, effective April 1, 2011. In
passenger cars, depending upon the model, incremental prices will vary.
Maruti Suzuki
MSIL reported robust growth in domestic sales backed by strong demand in A2 and A3 segments, in March 2011. It
reported 43.3% YoY and 33.1% YoY growth respectively in A2 and A3 segment sales. It has sold 103 ‘Kizashi’ in the
domestic market. Due to the slowdown in the European region, the export sales were down by 26.1% YoY.
Moreover, despite the high base effect MSIL is likely to report higher sales, on the expectation of strong traction
in the passenger car segment and commissioning of new capacity at Manesar in the beginning of FY12.
Total sales increased by 28.2% YoY to 1,21,952 units.
Total domestic sales increased by 38.8% YoY to 110,424 units
Hero Honda
Hero Honda has reported its highest ever-monthly sales at 5.15 lakh in March 2011. In FY11, this is the third time
HH reported vehicle sales above 5 lakh in a month. The company’s full year volume grew by 17% to 54.02lakh
units.
Bajaj Auto
Bajaj auto volume for the year FY11 grew by 34% to 5,027,642 units from 3,738,730 units. The robust growth was
driven by motorcycle segment. In the motorcycle segment pulsar & discover contributed around 71% of sales .
Bajaj auto has shown a decent growth in three wheeler segment also, which grew by 28% yoy. The company on
going capex for expansion of three wheeler capacity is being completed and the capacity is 45, ooo units per
month.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong volume growth continues despite head winds.
We expect auto sector growth to taper off as the lag effect of difficult
economic conditions to begin to set in. Auto sector growth momentum
is more likely to be sustained by commercial vehicle (CV) segment as
better road infrastructure and growing economic activity enables the
vehicle owners to meet the rising operating cost due to fuel hikes and
rising interest rates. Passenger vehicles (PV) and two wheelers are to
see some margin compression as commodities have been on the rise
and inflationary pressures/ rising interest rates expected to see
purchasers postpone their buying decisions.
We expect M&M, and Ashok Leyland to continue to benefit from this
situation, while Maruti, Hero Honda, Bajaj Auto and TVS could see
margin pressures going forward. However Tata Motors having an
exposure to both CV&PV will gain from its JLR global business,
domestically it may see pressure on PV segment owning to rising
competition.
Commercial Vehicle Segment
The commercial vehicle segment which is most vulnerable towards any
negative movement in the economy has witnessed a growth of 23% for
the period of FY 11 over last year. The growth in the commercial
vehicle space has been led by pick ups which grew by 38% and MHCVs
which has grown by 24% and LCVs has grown by 17%.
Against the challenging environment like increasing financing cost,
high commodity prices, the growth in the segment has been significant
mainly because of the positive business sentiments and better
availability of the finance.
Commercial vehicle segment is highly correlated with the
manufacturing and agricultural activity could sustain the growth
momentum on account of better road based transportation and
increase in freight rates. Going ahead we expect CV to grow at 11%
and 12% for FY12E and FY13E.
Passenger Vehicle Segment
Passenger vehicle segment is mainly driven by service sector has
grown by 30% for the period of FY11 over last year. In the passenger
vehicle segment Utility vehicles and multi utility vehicles has grown by
28% in FY 11 as against FY10.Passenger vehicle segment which is
dominated by Maruti Suzuki has seen a growth of 28% in A2 (Alto,
Wagon R, Zen, Swift, Ritz, A star) and 32% in the A3 ( SX4 ,D’Zire).
We believe that the growth was fuelled by rise in disposable income,
favorable demography although the fuel price and interest has not
being favorable. We believe that going ahead passenger segment will
grow T a rate of 15% for FY12E & FY13E.
Two & Three Wheeler segment
Indian 2Ws and 3W segment is mainly dominated by Hero Honda and Bajaj Auto. Two wheelers sector has
witnessed a growth of 18% for the period of FY11 over last year and three wheelers grew by 32% in FY11. Two
wheeler segments is also being driven by service sector along with agricultural output which creates rural
demand. We feel focus on rural demand can shield them from rising interest rates as rural demand is less
depended on financing, Also schemes like NREGA helps the demand to sustain. We forecast the growth in 2Ws to
be around 15%.
Rising Interest rates do not seem to have negative impact on sales growth.
Automobile sales which is a function of interest rates however the recent hike interest rates has not yet been a
dampener because of the
• Availability of finance.
• Robust GDP growth
Impact of Fuel cost
Continuous increase in fuel cost is another factor which can impact the growth negatively, particularly passenger
vehicles and two & three wheelers.
However to hedge the threat of volume tampering off due to hike in fuel cost has led companies to come up with
diesel variant. The diesel prices which are not deregulated gives a benefit over petrol vehicles as the average fuel
cost per Km for diesel driven vehicles comes to around Rs 1.7 per Km as compared to Rs3.5 per Km in case of
petrol driven vehicles. As a result the incremental cost for diesel driven comes down in the long run.
Soaring commodity prices to impact passenger vehicle segment
The basic raw material prices has touched a six year peak in the fourth quarter of FY 10-11.The prices of steel,
rubber, aluminum has risen owning to supply constraints ,mainly driven by natural calamities.
The increase input prices does not impact the volumes directly, however regular pass through by the auto
companies to the end customers may restrict growth.
As per crisil research, commercial vehicle segment steel and rubber accounts for 72% & 8% of the total raw
material expense respectively. In case of 2Ws & passenger vehicle steel, aluminum & rubber have weightage of
50%, 15% and 10% respectively.
Thus the impact of the change in basic raw material prices would be varied across automobile segment. CV
manufacturers are in a better position and have more leeway to pass on the rise in the input cost compare to PVs
& 2Ws as it is mostly driven by business sentiments. The increase in availability of finance secures some visibility
in volume and sustainability of margins of commercial vehicles going ahead.
However Passenger vehicles and two wheelers may face some margin pressure as competition intensifies and rise
in interest rates leaves very less room for passing on the rise in input cost.
Increase in Freight rates to benefit commercial vehicle segment
There has been a rise in road transportation on account of better connectivity, more highways and continuous
thrust on infrastructure, which has led to an increase in the freight rates. The upcoming infra projects to be
completed in the next fiscal year augurs well for the commercial vehicle, Bus and truck manufacturers
Company wise automobile sales data:
Mahindra & Mahindra
M&M has shown a healthy growth 18% in both domestic and export volume for the month of March 11over March 10
and 26% for the same yoy.The maximum growth has been contributed by 3Ws (grew by 40% for the full year), pick
up (grew by 38% for the full year) and logon (on account of low base). The passenger Utility vehicle segment grew
by 12% yoy and by 14% in the month of March.
M&M’s Farm Equipment Sector which includes tractor sales of Swaraj Mazda has reached a new high by recording
highest domestic sales of 18,729 units a growth of 25% in the month of March and for the FY11 it has reported
domestic sales over 200,000 units, which registers a growth of 22% as compared to last year.
Tata Motors:
Tata motors over all volume for the period of FY11 has grown by 25% to 803,322 units as against 642,686 units in
FY10.The growth has been driven by export market which grew by 70% mainly due to low base. The domestic
volume has grown by 22% yoy.
The passenger vehicle segment has reported a growth of 27% in FY11 however it has marginally come down by 4%
in Mar-11.The overall commercial vehicle segment have reported an average volume growth of 22% which was
driven by M&HCVs & UVs, Both of these segments have grown by 26% inFY11.Nano sales increased by 85% YoY to
6,937 units.
TML has increased prices for its Car/UVs, due to the higher raw material cost pressures, effective April 1, 2011. In
passenger cars, depending upon the model, incremental prices will vary.
Maruti Suzuki
MSIL reported robust growth in domestic sales backed by strong demand in A2 and A3 segments, in March 2011. It
reported 43.3% YoY and 33.1% YoY growth respectively in A2 and A3 segment sales. It has sold 103 ‘Kizashi’ in the
domestic market. Due to the slowdown in the European region, the export sales were down by 26.1% YoY.
Moreover, despite the high base effect MSIL is likely to report higher sales, on the expectation of strong traction
in the passenger car segment and commissioning of new capacity at Manesar in the beginning of FY12.
Total sales increased by 28.2% YoY to 1,21,952 units.
Total domestic sales increased by 38.8% YoY to 110,424 units
Hero Honda
Hero Honda has reported its highest ever-monthly sales at 5.15 lakh in March 2011. In FY11, this is the third time
HH reported vehicle sales above 5 lakh in a month. The company’s full year volume grew by 17% to 54.02lakh
units.
Bajaj Auto
Bajaj auto volume for the year FY11 grew by 34% to 5,027,642 units from 3,738,730 units. The robust growth was
driven by motorcycle segment. In the motorcycle segment pulsar & discover contributed around 71% of sales .
Bajaj auto has shown a decent growth in three wheeler segment also, which grew by 28% yoy. The company on
going capex for expansion of three wheeler capacity is being completed and the capacity is 45, ooo units per
month.
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