UBS:: April ’11: Hero Honda shines in a slow month

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A pr’11: Hero Honda shines in a slow month
􀂄 Passenger vehicles: Growth slows sharply; M&M robust
Maruti volumes grew 4% YoY (-20%MoM). Domestic volume grew only 9%YoY
due to weak growth in A2 segment (2% YoY). Mgmt. believes April was weak to
advancement of demand to Mar’11. Maruti exports remained weak. M&M UVs
sales grew 15% YoY while Hyundai’s domestic sales increased 11% YoY. Tata
Motors reported only 1% YoY growth for PVs despite strong growth in Nano
shipments as Indica and Indigo volumes declined sharply.

􀂄 2Ws: Hero Honda strong, Bajaj domestic slows while TVS robust
Hero Honda 2W sales grew 39%YoY (flat MoM). Bajaj sales grew 17%YoY
driven by sharp jump in exports (39%YoY). Domestic shipment grew by 5% YoY.
TVS volumes grew 14%YoY driven by strong growth in scooters. Hero Honda
mgmt. reiterated that royalty to Honda will remain at 2.7%-2.8% of sales in FY12
and trend lower going forward (Source: NDTV, PTI). We expect 18% YoY growth
for 2Ws in FY12 driven by strong rural demand.
􀂄 LCVs continue strong growth; MHCVs weak; M&M tractors robust
Tata Motors MHCV grew by 6%YoY (-40% MoM), while LCV segment grew
28%YoY. M&M LCVs (4-W pick ups) recorded a growth of 16%YoY. M&M
domestic tractor shipments grew at 13%YoY and exports grew by 31%YoY.
􀂄 Preferred picks: Hero Honda, Maruti and Tata Motors
Hero Honda is our preferred play on strong 2W demand outlook given its strong
presence in rural areas. We like Maruti as we believe margins have bottomed and
valuations are cheap. We also like Tata Motors given strong outlook for JLR.