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India Equity Research Reports, IPO and Stock News
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Automobiles
India
Discretionary consumer spends slowing down. December auto volumes reflected
weak consumer discretionary spends in both rural and urban markets. Two-wheelers,
MHCV, tractor and passenger car volumes were below our expectations while utility
vehicle and LCV volumes exceeded our expectations. We advise investors to remain
selective in the sector as macro economic outlook is not conducive for significant
increase in consumer discretionary spends.
Two-wheeler volume growth moderated in December 2011
Domestic two-wheeler volumes for the three two-wheeler majors (Hero Motocorp, Bajaj Auto and
TVS Motors) grew by ~5% yoy in Dec 2011, in our view. Hero Motocorp posted 8% yoy growth in
Dec 2011 driven by inventory build-up at the dealer-end as our channel checks indicate retail
volumes continue to remain weak for the company. We expect low single-digit volume growth for
Hero Motocorp in 4QFY12E. Bajaj Auto posted a 10% yoy growth in volumes boosted by 26% yoy
growth in export volumes while domestic motorcycle volumes grew by ~2% yoy. TVS Motors
reported a sharp decline of 17% yoy in domestic motorcycle volumes while scooter and moped
volume growth also moderated to single digits.
Maruti Suzuki domestic volume growth was below expectations
Maruti Suzuki’s domestic volumes declined by 13% yoy driven by 41% yoy decline in Omni/Eeco
volumes and 16% yoy decline in small car segment in Dec 2011. Export volumes rose by 51% yoy
which partially offset weakness in domestic volumes. We expect Maruti Suzuki to report flat
volume growth in 4QFY12E driven by increase in diesel engine capacity and launch of Ertiga (new
utility vehicle). However, operating margins are likely to remain under pressure due to sharp
appreciation of Yen versus Rupee in 2HFY12.
UV volumes continue to remain robust while tractor volumes disappoint for M&M
Mahindra posted 26% yoy growth in auto volumes boosted by strong sales of Scorpio, Bolero and
XUV500 in Dec 2011. Maxximo and Gio volumes rose by 35% yoy in Dec 2011 while threewheeler
volumes declined by 3% yoy. Tractor volumes were flat yoy in Dec 2011 which
disappointed as we expected volumes to pick up after a weak November. We believe tractor
volumes will likely pick up in the Jan-Feb 2012 period due to strong rabi crop.
Passenger car and LCV volumes continue to surprise positively for Tata Motors
Domestic LCV and passenger car volumes grew by 20% and 40% yoy in Dec 2011 driven by
refreshed model launches of Nano and Indica. Domestic MHCV volumes grew by ~5% yoy; we
expect MHCV volumes to remain weak in 4QFY12E due to moderating IIP growth and inventory
build-up at the dealer-end. Our channel checks indicate dealer inventory levels have increased to
40 days (from normal levels of 30 days) in MHCV. However, we believe our volume estimates are
likely to be revised upwards for FY2012E driven by stronger-than-expected LCV and passenger car
volumes.
We maintain M&M as our top pick in the sector
We maintain M&M as our top pick in the sector (only BUY-rated stock in our coverage universe)
due to strong volume growth and stable operating margin outlook. We also prefer Bajaj Auto over
Hero Motocorp in the two-wheeler space due to stronger export franchise and premium product
profile. We see limited triggers for Maruti over the next six months but believe downside is limited.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Automobiles
India
Discretionary consumer spends slowing down. December auto volumes reflected
weak consumer discretionary spends in both rural and urban markets. Two-wheelers,
MHCV, tractor and passenger car volumes were below our expectations while utility
vehicle and LCV volumes exceeded our expectations. We advise investors to remain
selective in the sector as macro economic outlook is not conducive for significant
increase in consumer discretionary spends.
Two-wheeler volume growth moderated in December 2011
Domestic two-wheeler volumes for the three two-wheeler majors (Hero Motocorp, Bajaj Auto and
TVS Motors) grew by ~5% yoy in Dec 2011, in our view. Hero Motocorp posted 8% yoy growth in
Dec 2011 driven by inventory build-up at the dealer-end as our channel checks indicate retail
volumes continue to remain weak for the company. We expect low single-digit volume growth for
Hero Motocorp in 4QFY12E. Bajaj Auto posted a 10% yoy growth in volumes boosted by 26% yoy
growth in export volumes while domestic motorcycle volumes grew by ~2% yoy. TVS Motors
reported a sharp decline of 17% yoy in domestic motorcycle volumes while scooter and moped
volume growth also moderated to single digits.
Maruti Suzuki domestic volume growth was below expectations
Maruti Suzuki’s domestic volumes declined by 13% yoy driven by 41% yoy decline in Omni/Eeco
volumes and 16% yoy decline in small car segment in Dec 2011. Export volumes rose by 51% yoy
which partially offset weakness in domestic volumes. We expect Maruti Suzuki to report flat
volume growth in 4QFY12E driven by increase in diesel engine capacity and launch of Ertiga (new
utility vehicle). However, operating margins are likely to remain under pressure due to sharp
appreciation of Yen versus Rupee in 2HFY12.
UV volumes continue to remain robust while tractor volumes disappoint for M&M
Mahindra posted 26% yoy growth in auto volumes boosted by strong sales of Scorpio, Bolero and
XUV500 in Dec 2011. Maxximo and Gio volumes rose by 35% yoy in Dec 2011 while threewheeler
volumes declined by 3% yoy. Tractor volumes were flat yoy in Dec 2011 which
disappointed as we expected volumes to pick up after a weak November. We believe tractor
volumes will likely pick up in the Jan-Feb 2012 period due to strong rabi crop.
Passenger car and LCV volumes continue to surprise positively for Tata Motors
Domestic LCV and passenger car volumes grew by 20% and 40% yoy in Dec 2011 driven by
refreshed model launches of Nano and Indica. Domestic MHCV volumes grew by ~5% yoy; we
expect MHCV volumes to remain weak in 4QFY12E due to moderating IIP growth and inventory
build-up at the dealer-end. Our channel checks indicate dealer inventory levels have increased to
40 days (from normal levels of 30 days) in MHCV. However, we believe our volume estimates are
likely to be revised upwards for FY2012E driven by stronger-than-expected LCV and passenger car
volumes.
We maintain M&M as our top pick in the sector
We maintain M&M as our top pick in the sector (only BUY-rated stock in our coverage universe)
due to strong volume growth and stable operating margin outlook. We also prefer Bajaj Auto over
Hero Motocorp in the two-wheeler space due to stronger export franchise and premium product
profile. We see limited triggers for Maruti over the next six months but believe downside is limited.
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