PINC Sector Report - Automobile Monthly Sales Update

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PINC Sector Report - Automobile Monthly Sales Update

HOPE FOR A BETTER 2012

The passenger vehicle industry put in a sedate performance in the month of December with a single digit growth. 2011 started on a promising note with 20% plus growth in the first three months, however, mid way through the year all momentum was lost as rising interest rates and fuel price increases marred sentiment. With an improved performance in Nov and Dec’11, the industry can now look forward to 2012 with anticipation. The new year kicks off with the highly awaited Auto Expo’12 accompanied by a slew of launches. We expect the industry to return to growth from April’12 onwards aided by a softening in interest rates and a depleted base. During the month, Maruti Suzuki (MSIL) dispatches outperformed estimates with a boost from exports. Mahindra & Mahindra (M&M) had a mixed month as disappointme nt in the tractor volumes was compensated by a 25% growth in the automotive division. Commercial vehicle dispatches led by market leader Tata Motors posted a healthy growth on back of sustained demand for small commercial vehicles (SCVs). In the two wheeler space, market leader Hero MotoCorp (HMCL) belied concerns on growth after Bajaj Auto (BJAUT) and TVS Motor posted disappointing volumes. HMCL posted its second highest ever monthly volume, thus beating our estimates by 6%.

· Two-wheelers: HMCL dispatches defied gravity with a 0.7% MoM growth. Although BJAUT posted a YoY growth the management outlook on volumes was cautious. HMSI with increased capacity continued to pile pressure on TVS Motor in its bid to secure the number three spot.

· Passenger Vehicles: MSIL beat our estimates with an aid from exports. The company undertook a planned maintenance shutdown which limited volumes. M&M continues to ride the wave of XUV500 while Tata Motors posted strong volumes both on Indica and Indigo.

· Commercial Vehicles: MHCV makers posted mid single digit growth. LCV volumes continue to post strong growth on demand for the smaller variants.

Our Viewpoint

We expect the passenger car industry to end FY12 with flattish to mildly negative growth in the last quarter. Double digit growth is expected to make a come back in FY13 as monetary policy eases and low base effect kicks in. Although we are positive on the two wheeler industry, the industry could move out of the limelight as focus shifts back to the larger vehicles. Post the sharp correction in stock prices we have upgraded BJAUT and HMCL a notch higher to ‘BUY’ and ‘ACCUMULATE’ respectively.