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India auto sector
Channel checks: Demand remains weak
Event
We attended the annual convention of Society of Indian Automobile
Manufacturers (SIAM) in New Delhi. The convention was attended by the
heads of the automobile manufacturers and suppliers in India. While industry
participants are bullish on the medium-term growth prospects, they remain
pessimistic about demand pick-up in the near term, especially the upcoming
festive season. This view was confirmed by our channel checks with one of
the largest auto financiers (HDFC bank) and various car dealerships.
Impact
Near-term sentiment remains weak. The cost of car ownership has risen
materially due to hardening of interest rates, rising fuel prices and increase in
vehicle prices. SIAM has indicated that they will be looking to revise down
their current FY12 passenger vehicle growth projection from 10–12%. The
major car companies are increasingly expressing pessimism over any
significant demand pick-up during the upcoming festive season.
Our channel checks confirm the continued weakness in car sales. We
met with the head of the auto loan business at HDFC bank, which is one of
the largest financiers in this space. The key takeaway was that the growth in
passenger and commercial vehicle segment is likely to remain subdued in the
coming months. We got a similar response from our checks at the
dealerships. The discounts/incentives offered by car makers have increased
or continue at higher levels, which is quite unusual at this time of the year.
Industry remains bullish in the medium term. Given the low penetration of
passenger vehicles in India, rising disposable incomes and favourable
demography, industry participants remained very positive on the medium- to
long-term growth potential. SIAM expects passenger vehicle sales to reach
5.6m (domestic – 14% CAGR) and 1.3m (exports – 19% CAGR) by 2017. The
industry expects the PV market to grow at 12% CAGR to 8.5m, CV at 15%
CAGR to 2.6m and two-wheelers at 10% CAGR to 32m by 2020.
Industry faces several challenges in pursuit of this growth. The key
challenges for the industry, as discussed at the SIAM convention, were: 1) the
transition to the international parity fuel pricing as we enter the world of high
energy prices and India can’t sustain this growth without making this
transition, 2) slow progress on the development of road and urban
infrastructure, 2) capacity of the supplier base, and 4) availability of skilled
human capital.
Outlook
Switch from Maruti Suzuki (MSIL IN) to Mahindra & Mahindra (MM IN).
MSIL is facing a challenging operating environment due to sluggish volume
growth and increasing competitive intensity. MSIL’s margins will likely be
under-pressure due to higher discounts and R&D costs and a stronger Yen.
M&M has a large exposure to the rural and semi-urban markets, where
automobile demand has been resilient. Strong pipeline of new products
should help M&M to continue to outperform the industry in volume
terms. MSIL and M&M's core auto business is trading at 13x FY12E earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India auto sector
Channel checks: Demand remains weak
Event
We attended the annual convention of Society of Indian Automobile
Manufacturers (SIAM) in New Delhi. The convention was attended by the
heads of the automobile manufacturers and suppliers in India. While industry
participants are bullish on the medium-term growth prospects, they remain
pessimistic about demand pick-up in the near term, especially the upcoming
festive season. This view was confirmed by our channel checks with one of
the largest auto financiers (HDFC bank) and various car dealerships.
Impact
Near-term sentiment remains weak. The cost of car ownership has risen
materially due to hardening of interest rates, rising fuel prices and increase in
vehicle prices. SIAM has indicated that they will be looking to revise down
their current FY12 passenger vehicle growth projection from 10–12%. The
major car companies are increasingly expressing pessimism over any
significant demand pick-up during the upcoming festive season.
Our channel checks confirm the continued weakness in car sales. We
met with the head of the auto loan business at HDFC bank, which is one of
the largest financiers in this space. The key takeaway was that the growth in
passenger and commercial vehicle segment is likely to remain subdued in the
coming months. We got a similar response from our checks at the
dealerships. The discounts/incentives offered by car makers have increased
or continue at higher levels, which is quite unusual at this time of the year.
Industry remains bullish in the medium term. Given the low penetration of
passenger vehicles in India, rising disposable incomes and favourable
demography, industry participants remained very positive on the medium- to
long-term growth potential. SIAM expects passenger vehicle sales to reach
5.6m (domestic – 14% CAGR) and 1.3m (exports – 19% CAGR) by 2017. The
industry expects the PV market to grow at 12% CAGR to 8.5m, CV at 15%
CAGR to 2.6m and two-wheelers at 10% CAGR to 32m by 2020.
Industry faces several challenges in pursuit of this growth. The key
challenges for the industry, as discussed at the SIAM convention, were: 1) the
transition to the international parity fuel pricing as we enter the world of high
energy prices and India can’t sustain this growth without making this
transition, 2) slow progress on the development of road and urban
infrastructure, 2) capacity of the supplier base, and 4) availability of skilled
human capital.
Outlook
Switch from Maruti Suzuki (MSIL IN) to Mahindra & Mahindra (MM IN).
MSIL is facing a challenging operating environment due to sluggish volume
growth and increasing competitive intensity. MSIL’s margins will likely be
under-pressure due to higher discounts and R&D costs and a stronger Yen.
M&M has a large exposure to the rural and semi-urban markets, where
automobile demand has been resilient. Strong pipeline of new products
should help M&M to continue to outperform the industry in volume
terms. MSIL and M&M's core auto business is trading at 13x FY12E earnings.
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