Auto Sales Update - Cars and trucks steal the show:: Edelweiss PDF link

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Car makers benefitted from advancement of purchases, as excise duties are widely expected to go up in the upcoming union budget. Commercial vehicles continue to grow despite weak industrial growth, benefitting from road construction and capacity constraints at Indian Railways. Tractors and two wheelers disappointed due to poor rural demand. We prefer an early interest rate cycle play and Maruti Suzuki is our top pick. 

Cars: Growth accelerates for Maruti

Maruti Suzuki’s YoY growth was up 7% in February 2012, as it posted sales of 119k units. It benefitted from high demand for newly launched Dzire and additional capacity for diesel engine. Most other OEMs also reported growth in February. We expect advancement of purchases to be the main reason, as excise duties are likely to go up in the upcoming union budget on March 16. 

Two wheelers: Exhibit a mixed trend

Hero continued to defy the industry trend and grew 11% YoY to 523,465 units, in line with our estimates. Here on, base turns unfavorable for the company. Total sales for TVS Motors declined 3%.

Commercial vehicles: Marching ahead

Tata Motors posted another month of strong performance for CVs. Despite the high base and slowdown in haulage segment, MHCV sales grew 10%, whilst LCV was up 39%, YoY. Easing liquidity, softening interest rates and bank willingness to lend could help improve sentiments further and thus sales performance going ahead.

Tractors: Rural slowdown aggravates

Rural slowdown has aggravated as witnessed in sales slump in February. Tractor demand fell 21% for Mahindra and Mahindra, the leader. Poor crop prices, weak winter crop yield and banks’ slow disbursal led to such decline. We expect improvement from April as harvesting starts for winter crop. 

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

Auto Sales Update - Cars and trucks steal the show