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Automobiles
Equity Research
Moderation for 2nd consecutive month on cyclical pressures
India auto sales moderate for 2nd consecutive month
Most of the Indian auto companies reported monthly sales for May 2011 -
key takeaways based on aggregate of figures reported so far: -
1) Car sales continued to show signs of moderation in demand, growing
7% yoy (based on players who have reported so far), after 13% yoy growth
in April 2011, and over 20%yoy in FY2011. Maruti Suzuki and Hyundai
Motors India reported higher discounts, and highlighted higher fuel prices
and interest rates as key challenges to growth over next few months.
2) India’s largest tractor maker M&M reported 9%yoy sales growth in May
(14% yoy in April 2011, 22% yoy in FY2011). Auto division sales growth at
this company continued to be healthy at 19%yoy, in our view.
3) 2-wheeler industry continued double digit sales growth at 15%yoy, after
reporting 26% yoy growth in April 2011, and 26%yoy growth in FY2011.
4) Tata Motors reported robust commercial vehicle sales growth of 19%yoy
driven by growth in LCV business (up 24% yoy), in our view. However,
performance of the passenger car division was a concern, in our view, with
a 9% yoy decline in sales volumes, with Indica/Indigo range declining by
35% yoy.
We watch for sales volume announcements from India’s second largest 2-
wheeler player Bajaj Auto, and the second largest commercial vehicle
player Ashok Leyland.
Watch for risks to demand from inflation and rate cycle
As highlighted in our Jan 27 note Increasing cyclical risks; downgrading
Hero Honda, M&M to Sell, 10-year high in inflation and interest rates pose
downside risks to Indian auto demand. We believe we are likely to see
continuing moderation in India auto sales growth, and expect 11% yoy
demand growth in FY2012, after 20% demand growth in FY2011. We
reiterate our Sell ratings on Hero Honda and Mahindra & Mahindra, as we
see higher relative upside on other names in the sector. Further, in a
slowing growth environment, we prefer companies with industry-leading
margins and trading closer to normalized multiples, namely Bosch India
(CL-Buy) and Bajaj Auto (Buy), as we believe the earnings of these
companies are relatively more resilient in a slowing growth and higher
commodity cost environment. Our estimates/target prices are unchanged.
Key risks: Upside – strong near term demand momentum and consequent
impact on operating leverage and margins. Downside – higher than
expected inflation, commodity costs, tax rates and competition.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Automobiles
Equity Research
Moderation for 2nd consecutive month on cyclical pressures
India auto sales moderate for 2nd consecutive month
Most of the Indian auto companies reported monthly sales for May 2011 -
key takeaways based on aggregate of figures reported so far: -
1) Car sales continued to show signs of moderation in demand, growing
7% yoy (based on players who have reported so far), after 13% yoy growth
in April 2011, and over 20%yoy in FY2011. Maruti Suzuki and Hyundai
Motors India reported higher discounts, and highlighted higher fuel prices
and interest rates as key challenges to growth over next few months.
2) India’s largest tractor maker M&M reported 9%yoy sales growth in May
(14% yoy in April 2011, 22% yoy in FY2011). Auto division sales growth at
this company continued to be healthy at 19%yoy, in our view.
3) 2-wheeler industry continued double digit sales growth at 15%yoy, after
reporting 26% yoy growth in April 2011, and 26%yoy growth in FY2011.
4) Tata Motors reported robust commercial vehicle sales growth of 19%yoy
driven by growth in LCV business (up 24% yoy), in our view. However,
performance of the passenger car division was a concern, in our view, with
a 9% yoy decline in sales volumes, with Indica/Indigo range declining by
35% yoy.
We watch for sales volume announcements from India’s second largest 2-
wheeler player Bajaj Auto, and the second largest commercial vehicle
player Ashok Leyland.
Watch for risks to demand from inflation and rate cycle
As highlighted in our Jan 27 note Increasing cyclical risks; downgrading
Hero Honda, M&M to Sell, 10-year high in inflation and interest rates pose
downside risks to Indian auto demand. We believe we are likely to see
continuing moderation in India auto sales growth, and expect 11% yoy
demand growth in FY2012, after 20% demand growth in FY2011. We
reiterate our Sell ratings on Hero Honda and Mahindra & Mahindra, as we
see higher relative upside on other names in the sector. Further, in a
slowing growth environment, we prefer companies with industry-leading
margins and trading closer to normalized multiples, namely Bosch India
(CL-Buy) and Bajaj Auto (Buy), as we believe the earnings of these
companies are relatively more resilient in a slowing growth and higher
commodity cost environment. Our estimates/target prices are unchanged.
Key risks: Upside – strong near term demand momentum and consequent
impact on operating leverage and margins. Downside – higher than
expected inflation, commodity costs, tax rates and competition.
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