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India Equity Research Reports, IPO and Stock News
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FY11 saw robust growth of 20-30% across segments despite the macro headwinds in the second
half of the financial year. We expect growth to moderate in FY12, but still see double digits (10-
15%) across segments. We have Buys on M&M, Hero Honda, Tata Motors and Ashok Leyland.
Despite a slowdown in recent months, double-digit growth continues
The Indian automobile sector saw growth across segments for the second financial year (ending
March) in succession despite the component shortage (mainly tyres and castings) in 1H and
macro headwinds, such as higher interest rates and fuel prices, in 2HFY11. The 9MFY11 saw
robust growth across segments with growth in the range of 26-35%; however, growth cooled in
the last quarter, although it was still in the range of 15-22%. Our channel checks indicate demand
strength even though high fuel prices and interest rates are raising the cost of ownership, thus
limiting OE pricing power. Further, we believe weakness in industrial production (IIP) growth will
affect CV demand even though financers’ portfolios remain strong. Due to these factors and the
high base impact, we expect volume growth across segments to halve in FY12– M&HCV 12%;
total CV 14%; cars 15%; 2-wheelers 12%; and 3-wheelers 10%.
Market share erosion for segment leaders was the highlight of FY11
The leaders across segments lost market share in FY11. In 2-wheelers, Bajaj gained
predominantly in 1H at the expense of leader Hero Honda, although the trend was partially
reversed in 2HFY11. In passenger cars, the Tata Nano ramp-up and new compact cars from Ford
and VW impacted Maruti marginally, while in UVs, M&M conceded market share after recording
gains for three successive years. Tata lost market share in its stronghold of M&HCV and LCV to
the second-largest players in the respective segment (Ashok and Mahindra). In 3-wheelers,
leaders Piaggio and Bajaj lost market share to smaller players.
Buy M&M, Hero Honda, Tata Motor, Ashok Leyland
We believe a normal monsoon and a reasonably good employment scenario augur well for the
industry in FY12. Exciting new products should be key for outperforming segment growth, but we
think weak pricing power and profit margin pressure will prevail in FY12. In CVs, Tata’s Super
Ace, Venture and Ace zip and Ashok’s new U-platform trucks look promising; in cars, Maruti’s R3,
M&M’s new small Xylo and Hyundai’s new small car are the products to watch out for. M&M, with
its diesel product portfolio and tractor market leadership, remains our top pick in the sector. We
also reiterate our Buy ratings on Hero Honda, Tata Motors and Ashok, all of which intend to
expand capacity through their respective Uttarakhand plants.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY11 saw robust growth of 20-30% across segments despite the macro headwinds in the second
half of the financial year. We expect growth to moderate in FY12, but still see double digits (10-
15%) across segments. We have Buys on M&M, Hero Honda, Tata Motors and Ashok Leyland.
Despite a slowdown in recent months, double-digit growth continues
The Indian automobile sector saw growth across segments for the second financial year (ending
March) in succession despite the component shortage (mainly tyres and castings) in 1H and
macro headwinds, such as higher interest rates and fuel prices, in 2HFY11. The 9MFY11 saw
robust growth across segments with growth in the range of 26-35%; however, growth cooled in
the last quarter, although it was still in the range of 15-22%. Our channel checks indicate demand
strength even though high fuel prices and interest rates are raising the cost of ownership, thus
limiting OE pricing power. Further, we believe weakness in industrial production (IIP) growth will
affect CV demand even though financers’ portfolios remain strong. Due to these factors and the
high base impact, we expect volume growth across segments to halve in FY12– M&HCV 12%;
total CV 14%; cars 15%; 2-wheelers 12%; and 3-wheelers 10%.
Market share erosion for segment leaders was the highlight of FY11
The leaders across segments lost market share in FY11. In 2-wheelers, Bajaj gained
predominantly in 1H at the expense of leader Hero Honda, although the trend was partially
reversed in 2HFY11. In passenger cars, the Tata Nano ramp-up and new compact cars from Ford
and VW impacted Maruti marginally, while in UVs, M&M conceded market share after recording
gains for three successive years. Tata lost market share in its stronghold of M&HCV and LCV to
the second-largest players in the respective segment (Ashok and Mahindra). In 3-wheelers,
leaders Piaggio and Bajaj lost market share to smaller players.
Buy M&M, Hero Honda, Tata Motor, Ashok Leyland
We believe a normal monsoon and a reasonably good employment scenario augur well for the
industry in FY12. Exciting new products should be key for outperforming segment growth, but we
think weak pricing power and profit margin pressure will prevail in FY12. In CVs, Tata’s Super
Ace, Venture and Ace zip and Ashok’s new U-platform trucks look promising; in cars, Maruti’s R3,
M&M’s new small Xylo and Hyundai’s new small car are the products to watch out for. M&M, with
its diesel product portfolio and tractor market leadership, remains our top pick in the sector. We
also reiterate our Buy ratings on Hero Honda, Tata Motors and Ashok, all of which intend to
expand capacity through their respective Uttarakhand plants.
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