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Strong demand momentum despite rising cost of ownership (fuel, interest cost, vehicle price, etc)
continues as companies across the segment scaled historical peak volumes in March. However,
rising input costs are likely to dampen margins slightly. Sustained oil price increase remains a
concern for demand outlook.
Maruti and Tata Motors retraced their marker share in 4QFY11
The Indian automobile industry registered 4% qoq growth in domestic volume in the 4Q despite a
seasonally weaker quarter vs the 3Q. While the commercial vehicles (CVs) and passenger
vehicles segments registered strong double-digit growth, large-volume two-wheelers registered
nominal growth of 1%. Maruti lost significant market share in the 4Q as Tata Nano ramped up
from November lows to gain market share in passenger cars. In two-wheelers, Hero Honda
continued the uptrend of 3Q11, but this time gaining marker share from TVS Motors and marginal
players, whereas Bajaj marginally regained the market share it lost in the 3Q. In the medium &
heavy commercial vehicles (M&HCV) segment, Ashok completely reclaimed the market share it
lost to leader Tata Motors in the wake of an emissions norm upgrade in the 3Q. In light
commercial vehicles (LCV), new-product euphoria appears to have stabilised for M&M, which
marginally lost market share.
4Q11 results preview: rubber and steel likely to have an impact on margins
We expect input cost pressure, particularly from rubber and ferrous, to have an impact on
margins across the sub-segments. Also, discounts for passenger cars were higher in the 4Q vs
3Q. We believe the leaders in PAT growth in the 4Q will be Ashok Leyland qoq and Tata Motors
yoy. We expect Bajaj Auto’s earnings to decline qoq, while we forecast Hero Honda and Maruti’s
earnings will take a dip on yoy basis.
Buy M&M, Hero Honda, Tata Motor and Ashok Leyland
In passenger vehicles, we recommend buying M&M for its diesel vehicle portfolio exposure, as
diesel continues to be subsidised by the government in a rising oil price environment. Hold
Maruti: even though currency and capacity concerns appear to have been alleviated, demand
concerns due to rising fuel and interest rates may limit upside. In domestic CVs, we expect Ashok
Leyland to ramp up production of the Uttarakhand plant in FY12, and we recommend Buy. We
also recommend buying Tata Motors, as we expect strong volume growth in JLR – demand for
which should be least affected by a fuel price hike. We expect the two-wheelers segment to be
least affected by rising fuel and interest rates, although a high base may limit growth. Buy Hero
Honda and Sell Bajaj Auto.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong demand momentum despite rising cost of ownership (fuel, interest cost, vehicle price, etc)
continues as companies across the segment scaled historical peak volumes in March. However,
rising input costs are likely to dampen margins slightly. Sustained oil price increase remains a
concern for demand outlook.
Maruti and Tata Motors retraced their marker share in 4QFY11
The Indian automobile industry registered 4% qoq growth in domestic volume in the 4Q despite a
seasonally weaker quarter vs the 3Q. While the commercial vehicles (CVs) and passenger
vehicles segments registered strong double-digit growth, large-volume two-wheelers registered
nominal growth of 1%. Maruti lost significant market share in the 4Q as Tata Nano ramped up
from November lows to gain market share in passenger cars. In two-wheelers, Hero Honda
continued the uptrend of 3Q11, but this time gaining marker share from TVS Motors and marginal
players, whereas Bajaj marginally regained the market share it lost in the 3Q. In the medium &
heavy commercial vehicles (M&HCV) segment, Ashok completely reclaimed the market share it
lost to leader Tata Motors in the wake of an emissions norm upgrade in the 3Q. In light
commercial vehicles (LCV), new-product euphoria appears to have stabilised for M&M, which
marginally lost market share.
4Q11 results preview: rubber and steel likely to have an impact on margins
We expect input cost pressure, particularly from rubber and ferrous, to have an impact on
margins across the sub-segments. Also, discounts for passenger cars were higher in the 4Q vs
3Q. We believe the leaders in PAT growth in the 4Q will be Ashok Leyland qoq and Tata Motors
yoy. We expect Bajaj Auto’s earnings to decline qoq, while we forecast Hero Honda and Maruti’s
earnings will take a dip on yoy basis.
Buy M&M, Hero Honda, Tata Motor and Ashok Leyland
In passenger vehicles, we recommend buying M&M for its diesel vehicle portfolio exposure, as
diesel continues to be subsidised by the government in a rising oil price environment. Hold
Maruti: even though currency and capacity concerns appear to have been alleviated, demand
concerns due to rising fuel and interest rates may limit upside. In domestic CVs, we expect Ashok
Leyland to ramp up production of the Uttarakhand plant in FY12, and we recommend Buy. We
also recommend buying Tata Motors, as we expect strong volume growth in JLR – demand for
which should be least affected by a fuel price hike. We expect the two-wheelers segment to be
least affected by rising fuel and interest rates, although a high base may limit growth. Buy Hero
Honda and Sell Bajaj Auto.
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