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India Equity Research Reports, IPO and Stock News
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May volumes continue to slide as demand wanes…
Demand slows down as buyers hit from all sides…
May sales have continued to slow down as consumers have been hit on
both the purchase side, with higher product prices as producers combat
input costs rise, and rising interest rates, which have increased the EMIs
for buyers. Fuel prices, which have kept increasing in FY11, have made
immediate purchases for first time buyers more difficult as the cost of
running has gone up. Overall industry growth has come off from ~24% in
April 2011 to 15.6% in May 2011 at ~1.6 million units. This can be
attributed to the growing base effect along with medium-term macro
issues plaguing the environment. The volume driver continues for the
two-wheeler segment, which is generally the least financed purchases and
is least affected in this scenario. Though we believe that today consumer
demand is more structural compared to previous years, in the near term
(till H1FY12) as the interest rate cycle peaks out, volume growth could
remain stunted. On the full year FY12E, we maintain our volume estimates
of ~13-16% for the industry. The volume growth of the industry in May
2011 has been ~13.2% with the passenger car (PV) segment sluggishly
up at 7.4%. The commercial vehicle (CV) segment performed above
expectations, growing at 19.6% with MH&CV improving volumes by
~10% YoY. The two-wheeler segment growth also tapered off and grew
~13.3% YoY on a high base.
Lagged effect of tightening rates comes through…
The interest rates hikes we witnessed in the previous months have
impacted the demand side in both the CV and PV space. This decline in
demand is expected to face stiff pressures as the RBI seems to have
shifted its focus towards containing inflation in the near term. This could
lead to further rate hikes. On the brighter side, inflation seems to be
moderating and any positive surprise in declines could lead to an early
peaking of the interest rate cycle. We would keep a watch on any decline
in manufacturing led inflation, which remains a concern due to its
significant contribution to the overall inflation.
Global commodities showing mild pause… QE3 to be game changer!
Global commodity prices have witnessed mild declines in various
commodities ranging from oil to metals. Commodity prices ranging from
steel to aluminium have seen a cool off of a couple of percentage points.
Also, one commodity that remains critical to the auto sector and has
slowed down to a slight extent is natural rubber that has come off its peak
of ~| 235 and is at ~| 220 (down 7% MoM). Our in-house auto RM index,
however, is up ~16% YoY (refer Exhibit 16), showing mild declines on a
MoM basis. According to our understanding, global commodity prices
would continue to remain uncertain till any details emerge from the US
Fed towards any possibility of QE3 that may fuel the commodity cycle
further. However, any slowdown in developed economies could also lead
to a probable cool-off in the commodities market.
Industry outlook
The outlook towards volume growth in the sector is positive. We expect
volume growth to range between 13% and 16% in FY12E. On an index
performance basis, the BSE Auto index has marginally outperformed the
BSE Sensex with YoY return of 7.5% as compared to 5.6% during the
same period. The demand side, which remained robust in FY11, has
shown early signs of slowdown amid the challenges. Though we believe
demand is structural, immediate concerns for the sector like higher
interest rates and commodity hikes could cause serious concerns for the
whole industry as profitability and volume growth could see erosion.
Among our ICICIdirect.com auto-coverage, we remain bullish on frontline
OEM stocks like Tata Motors and Maruti Suzuki. In the ancillary coverage,
we find favourable valuation and business growth perspectives in Bharat
Forge and Exide Industries.
News & views
• Bajaj Auto and Kawasaki have launched their pro biking offering
Ninja 650R that would sell and serviced exclusively through Bajaj
Probiking, one of the largest dealership networks for premium
motorcycles in the country. The Ninja 650R with a power of 72 PS
and a torque of 66 Nm is priced at | 4.57 lakh (ex-showroom
Delhi)
• India's top car maker, Maruti Suzuki, is considering building a
factory in Gujarat with a production capacity of one million units.
The senior management of Maruti Suzuki met with Gujarat Chief
Minister Narendra Modi and expressed an interest to set up a
manufacturing plant in the state at an initial investment of | 6000
crore
• Honda Siel Cars India recently announced a new price structure
for its volume model Honda City. The price reduction has been
attributed to cost reduction efforts in the supply chain and
manufacturing. The Honda City would now start from | 7.49 lakh
(ex-showroom Delhi)
• Maruti Suzuki India’s Manesar plant has stopped functioning due
to a rift between the Maruti management and its workers. The 10-
day strike has already hit the company’s bottomline by over | 400
crore. The striking workers have been demanding recognition of a
new union Maruti Suzuki Employees Union (MSEU) – independent
of the existing one, which is dominated by workers of the
Gurgaon plant
Two–three wheeler industry
The two-wheeler industry has continued on the growth trend and posted
strong 19.8% YTD growth. Market leader Hero Honda posted another 5.0
lakh units plus sale even as its base keeps growing. Bajaj Auto has also
witnessed a rebound post March 2011 with ~20% YoY growth. The twowheeler segment continues to outperform the PV segment. Scooter sales
growth rates continued to remain among the highest in the two-wheeler
segment. However, the next few months would be an important indicator
towards the demand scenario.
Market share movement
According to the data released by the Society of Indian Automobile
Manufacturers (SIAM), the domestic market share of two and threewheeler players is as below for May 2011.
Four-wheeler industry
Commercial vehicles growth witnessed a mild bounce post the April 2011
disappointment with an overall growth of ~20%. On the positive side, the
M&HCV segment witnessed better than expected ~10% growth.
However, this segment would continue to face challenges on the interest
rates front and could receive a boost if the infra and capital goods
segment witnesses a stronger pick-up in H2FY12E. The passenger car
market has seen slackening of demand in the A2 segment with overall
growth of meagre 7.4% in May 2011. Input prices remain an overhang
with rising prices. Hence, material prices could further rise on a longer
term. On the positive side, however, OEMs have some degree of leverage
on pricing as demand grows, thus supporting a likely margin decline.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
May volumes continue to slide as demand wanes…
Demand slows down as buyers hit from all sides…
May sales have continued to slow down as consumers have been hit on
both the purchase side, with higher product prices as producers combat
input costs rise, and rising interest rates, which have increased the EMIs
for buyers. Fuel prices, which have kept increasing in FY11, have made
immediate purchases for first time buyers more difficult as the cost of
running has gone up. Overall industry growth has come off from ~24% in
April 2011 to 15.6% in May 2011 at ~1.6 million units. This can be
attributed to the growing base effect along with medium-term macro
issues plaguing the environment. The volume driver continues for the
two-wheeler segment, which is generally the least financed purchases and
is least affected in this scenario. Though we believe that today consumer
demand is more structural compared to previous years, in the near term
(till H1FY12) as the interest rate cycle peaks out, volume growth could
remain stunted. On the full year FY12E, we maintain our volume estimates
of ~13-16% for the industry. The volume growth of the industry in May
2011 has been ~13.2% with the passenger car (PV) segment sluggishly
up at 7.4%. The commercial vehicle (CV) segment performed above
expectations, growing at 19.6% with MH&CV improving volumes by
~10% YoY. The two-wheeler segment growth also tapered off and grew
~13.3% YoY on a high base.
Lagged effect of tightening rates comes through…
The interest rates hikes we witnessed in the previous months have
impacted the demand side in both the CV and PV space. This decline in
demand is expected to face stiff pressures as the RBI seems to have
shifted its focus towards containing inflation in the near term. This could
lead to further rate hikes. On the brighter side, inflation seems to be
moderating and any positive surprise in declines could lead to an early
peaking of the interest rate cycle. We would keep a watch on any decline
in manufacturing led inflation, which remains a concern due to its
significant contribution to the overall inflation.
Global commodities showing mild pause… QE3 to be game changer!
Global commodity prices have witnessed mild declines in various
commodities ranging from oil to metals. Commodity prices ranging from
steel to aluminium have seen a cool off of a couple of percentage points.
Also, one commodity that remains critical to the auto sector and has
slowed down to a slight extent is natural rubber that has come off its peak
of ~| 235 and is at ~| 220 (down 7% MoM). Our in-house auto RM index,
however, is up ~16% YoY (refer Exhibit 16), showing mild declines on a
MoM basis. According to our understanding, global commodity prices
would continue to remain uncertain till any details emerge from the US
Fed towards any possibility of QE3 that may fuel the commodity cycle
further. However, any slowdown in developed economies could also lead
to a probable cool-off in the commodities market.
Industry outlook
The outlook towards volume growth in the sector is positive. We expect
volume growth to range between 13% and 16% in FY12E. On an index
performance basis, the BSE Auto index has marginally outperformed the
BSE Sensex with YoY return of 7.5% as compared to 5.6% during the
same period. The demand side, which remained robust in FY11, has
shown early signs of slowdown amid the challenges. Though we believe
demand is structural, immediate concerns for the sector like higher
interest rates and commodity hikes could cause serious concerns for the
whole industry as profitability and volume growth could see erosion.
Among our ICICIdirect.com auto-coverage, we remain bullish on frontline
OEM stocks like Tata Motors and Maruti Suzuki. In the ancillary coverage,
we find favourable valuation and business growth perspectives in Bharat
Forge and Exide Industries.
News & views
• Bajaj Auto and Kawasaki have launched their pro biking offering
Ninja 650R that would sell and serviced exclusively through Bajaj
Probiking, one of the largest dealership networks for premium
motorcycles in the country. The Ninja 650R with a power of 72 PS
and a torque of 66 Nm is priced at | 4.57 lakh (ex-showroom
Delhi)
• India's top car maker, Maruti Suzuki, is considering building a
factory in Gujarat with a production capacity of one million units.
The senior management of Maruti Suzuki met with Gujarat Chief
Minister Narendra Modi and expressed an interest to set up a
manufacturing plant in the state at an initial investment of | 6000
crore
• Honda Siel Cars India recently announced a new price structure
for its volume model Honda City. The price reduction has been
attributed to cost reduction efforts in the supply chain and
manufacturing. The Honda City would now start from | 7.49 lakh
(ex-showroom Delhi)
• Maruti Suzuki India’s Manesar plant has stopped functioning due
to a rift between the Maruti management and its workers. The 10-
day strike has already hit the company’s bottomline by over | 400
crore. The striking workers have been demanding recognition of a
new union Maruti Suzuki Employees Union (MSEU) – independent
of the existing one, which is dominated by workers of the
Gurgaon plant
Two–three wheeler industry
The two-wheeler industry has continued on the growth trend and posted
strong 19.8% YTD growth. Market leader Hero Honda posted another 5.0
lakh units plus sale even as its base keeps growing. Bajaj Auto has also
witnessed a rebound post March 2011 with ~20% YoY growth. The twowheeler segment continues to outperform the PV segment. Scooter sales
growth rates continued to remain among the highest in the two-wheeler
segment. However, the next few months would be an important indicator
towards the demand scenario.
Market share movement
According to the data released by the Society of Indian Automobile
Manufacturers (SIAM), the domestic market share of two and threewheeler players is as below for May 2011.
Four-wheeler industry
Commercial vehicles growth witnessed a mild bounce post the April 2011
disappointment with an overall growth of ~20%. On the positive side, the
M&HCV segment witnessed better than expected ~10% growth.
However, this segment would continue to face challenges on the interest
rates front and could receive a boost if the infra and capital goods
segment witnesses a stronger pick-up in H2FY12E. The passenger car
market has seen slackening of demand in the A2 segment with overall
growth of meagre 7.4% in May 2011. Input prices remain an overhang
with rising prices. Hence, material prices could further rise on a longer
term. On the positive side, however, OEMs have some degree of leverage
on pricing as demand grows, thus supporting a likely margin decline.
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