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Domestic sales volume growth slowed sharply for M&HCVs and cars in the June quarter.
This is likely to impact companies' quarterly results; notably, we expect Ashok and Maruti to
record a sharp qoq and yoy dip in profits. However, strong exports should help Bharat Forge
and Bajaj lead the pack in terms of yoy growth.
LCVs, two-wheelers and UVs drove June quarter growth in domestic volumes
For April-June, the leading segments in terms of yoy domestic volume growth were light
commercial vehicles (LCVs), two-wheelers and utility vehicles (UVs) in that order. The
laggards were medium & heavy commercial vehicles (M&HCVs) (5%) and cars (7.2%). The
sharp slowdown in car sales surprised us, but the slow M&HCV growth was as we had
expected. Key qoq changes in domestic market share: in M&HCVs, Tata Motors took share
from Ashok Leyland; in passenger vehicles, Hyundai and M&M gained at the expense of
Maruti and Tata Motors; in two-wheelers, Hero Honda took share from Bajaj and TVS.
Fewer winners than losers in quarterly results
The slower-than-expected volume growth coupled with higher commodity costs, especially
for aluminium and rubber, poses profitability concerns. For the quarter, we expect Bharat
Forge to report the highest yoy profit growth followed by Bajaj, as they were able to
overcome domestic pressure thanks to being the export leaders in their respective segments.
In terms of qoq growth, we expect Bajaj and Hero Honda to lead as two-wheeler segment
sales volume hit a new peak. We expect Ashok Leyland followed by Maruti Suzuki to be the
laggards for the quarter as we expect their earnings to decline sharply.
Export plays have edge over domestic consumption in June quarter
Ongoing export profitability of Bharat Forge and Bajaj hinges on continuation of the DEPB export
incentive scheme, on which clarity is still forthcoming. We prefer Bharat Forge, which should
benefit from a US and Europe heavy truck market recovery. In two-wheelers, rising aluminium
cost pressure is a concern, which could lead to disappointment in Hero Honda’s results, although
its sharp share-price rise in recent weeks on strong volume growth may be used to book profits
ahead of the results. Bajaj's domestic market share loss could soon weigh on profitability, Sell.
M&M, due to its rural focus, continues to drive high volume growth home and we maintain Buy.
We think Tata Motors, driven by strong premium car and LCV demand, should be able to
overcome this tough quarter before reaping benefits from the Evoque launch. Weak M&HCV
growth could impact Ashok Leyland, Hold. Maruti is likely to be facing two more quarters of sharp
EPS dip and we recommend Hold.
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