Auto Sales Update - New year starts on a positive note :: Edelweiss

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Despite weak consumer sentiments, Maruti and Hero posted growth which, in our view, was aided by inventory building with dealers. Tractor sales disappointed while commercial vehicles sales continued to post strong numbers, ahead of our expectations. We prefer an early interest rate cycle play and Maruti Suzuki is our top pick in the sector. 

Cars: Maruti returns to growth

Maruti reported a YoY growth of 5.2% to 115,433 units (15% above our estimate). In our view, the company took advantage of the low inventory with dealers posting strong retail sales in Dec’11. Launch of new Dzire, Ertiga and higher availability of diesel engines should support the momentum going forward. Tata Motors also showed a healthy 15% YoY growth. Among others, Ford and General Motors posted a decline in sales growth while players with new launches like Hyundai and GM saw growth.

Two wheelers: Hero continues sales push

Hero continued to defy the industry trend and grew by 11.5% YoY to 520,272 units (in line). This was exactly opposite to the recent feedback we got from dealers on retail sales which suggested a slowdown and an inventory build-up. Sales growth of TVS Motors’ two wheelers slowed down to 5%.

Commercial vehicles: March continues

Tata Motors reported another month of strong performance for commercial vehicles. Despite the high base and slowdown in haulage segment, MHCV sales grew by 11% whilst LCV grew by 15% YoY. Easing liquidity, softening interest rates and bank willingness to lend could help improve sentiments and sales performance in H2FY13.

Tractors: Rural slowdown takes a toll

Finally, the rural slow down has started to affect tractor sales. This is the third consecutive month of disappointment. M&M posted a decline in tractor sales (down 5.6% in Jan’12). The company clarified that this was due to inventory correction (3-4 weeks).

Maruti Suzuki is our preferred stock to play the early recovery in interest rate cycle. Sales should benefit from new launches while margins from an improved product mix. We have a BUY rating on the stock with a TP of INR1,350 .