Automobiles: Car dealer survey: First sign of slowdown emerges :Edelweiss,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

We conducted a telephonic survey of fourteen Maruti and Hyundai car dealers across nation covering seven states namely, Tamil Nadu, Kerala, Karnataka, Gujarat, Delhi NCR, Haryana and Punjab.

Our questions were aimed at gauging sales outlook, inventory level, incentive levels and status of car financing, thereby assessing the impact of current macro headwinds (with respect to rising inflation, interest rates, increasing fuel prices) on the domestic passenger car demand. Dealers’ confidence, which was evidently strong a few months back, is gradually waning as inventory is piling up and cost of funding is rising. Some key highlights are:

n  Inventory on the rise as growth slows down

Inventory at the dealers’ end has increased to 30-45 days in March 2011 vis-à-vis 15-20 days last year. Sales slowdown is more urban-centric than rural. Karnataka, however, was an exception, bearing no evident sign of any slowdown or inventory built up. In our view, dealers expected hyper sales growth of the past two years to continue in Q4FY11 and, hence, kept building on their inventories. Whereas, growth has slowed down, converging to long-term average growth of 12% versus 28% CAGR observed in the past two years. Dealers now expect car sales to grow in the range of 10-12% for FY12E contrary to their expectation of 15-20% a quarter ago.

n  Incentive levels are disciplined

Discounting level, in general, is under control. In our view, if sales growth continues to slow down, the discipline may not be observed, causing downside risks to margins, as OEMs will have to incentivise more to generate sales.

n  Credit availability intact though interest rates are rising

Interest rates have risen ~250bps to 11.5% in the past eighteen months. State Bank of India (SBI) is still continuing with teaser rate of 9.5% for the first year scheme. Credit availability continues to be good with average loan-to-value ratio (LTV) of ~80%. In our view, rising interest rates should further slowdown growth.

n  Passenger Car Outlook: Growth to moderate

Post our interaction we believe that there are downside risks to our industry growth expectations of 14% for FY12E. With respect to impact on company, we believe there are downside risks to our earnings expectations for Maruti Suzuki, (industry leader).