India Autos: 2Ws and LCVs still holding up In Jun-11::CLSA

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2Ws and LCVs still holding up
In Jun-11, India’s car sales grew 4% YoY, 2Ws grew 15% YoY while CVs
grew 17% YoY. 2Ws and goods LCVs are the only segments which continue to
report double digit growth. We expect growth of 10%, 13% and –5% for cars,
2Ws and M&HCVs respectively in FY12. FY12 is set to be a tough year for
Indian auto stocks given the weak demand environment and continued input
cost pressures. FY13 might be better if interest rates start to decline and
demand recovers. M&M remains our top 12m pick.
Cars & UVs: Single digit growth rates continue in June
q Domestic car sales rose just 4% YoY in Jun-11. YTD growth stands at 9%. Car sales
volumes in Jun-11 were partly impacted by the strike at Maruti’s Manesar plant.
q We expect car industry volumes to grow at 10% in FY12.
q Maruti’s market share was down 8ppts MoM to 43% in Jun due to the strike; Tata
Motors was the key beneficiary gaining 3ppts MoM market share
q UV sales grew just 6% YoY for the 3rd month in a row.
CVs: Trucks growth has moderated; goods LCVs still robust
q Truck sales rose a modest 9% YoY in Jun. YTD growth stands at 7%. We expect 5%
YoY decline in volumes in FY12 post two years of 30%+ growth.
q Goods LCVs growth was still robust at 32% YoY in Jun-11.
q Tata Motors lost some market share in trucks (to ALL) and in goods LCVs (to M&M).
2Ws/3Ws: 2W growth is holding up better but 3Ws have slowed down
q 2W sales grew at 15% YoY in Jun-11. 2Ws growth is holding up better than 4W
growth. Scooters growth was relatively modest at 11% YoY and has been lower
than motorcycles in FY12.
q Hero Honda gained 1.8ppt MoM market share in motorcycles while Bajaj lost 1ppt
market share in Jun.
q Passenger 3W sales were flat YoY in Jun. Market shares of Bajaj and Piaggio
remained almost stable MoM
Tough year for autos; 2Ws near-term defensive, favour M&M on 12m view
q We see FY12 as a tough year for auto stocks given weakening demand, rising
competition and no respite in input cost pressures.
q 2Ws might be a better near-term defensive given better volumes and earnings
growth, but we see limited absolute return potential due to rising competition FY13
onwards.
q 4W stocks could underperform in the near-term but should recover towards end-
FY12 if interest rates start moving down and demand recovers. Our top pick on
12m view is M&M (BUY, TP Rs800).