Cars benefitted from pre-buying ahead of taxes and duty hikes ; Edelweiss PDF link

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Cars benefitted from pre-buying ahead of taxes and duty hikes. Two-wheeler and tractor demand stayed sluggish owing to poor farm income. MHCV suffered from high base, while LCV continued to benefit from expansion of hub-and-spoke model in smaller towns. We prefer M&M for its inexpensive valuation, strong demand for UVs and better tractor demand May onwards. 

Cars: Diesel demand driver for Maruti

Maruti Suzuki posted 3% YoY growth in March to 126k units, mainly driven by diesel models namely Dzire and Swift. Sales of entry level petrol car models sales declined 10%. Ertiga billing has started from March as launch is due in the second week of April. Most of other car makers also reported strong growth. In our view, pre-buying ahead of union and various state budgets also contributed to this strong growth.   

Commercial vehicles: Marching ahead

MHCV suffered from very high base. As a result, Tata Motors saw March sales decline 6%. We expect Ashok Leyland sales to dip more than 15% in March. However, LCV demand stays robust with Tata Motors and M&M reporting 37% and 28% growth respectively.

Tractors: Rural slowdown continues

After declining 21% in February, M&M’s domestic tractor sales dipped a further 15% YoY in March; in March beginning, the company also undertook plant shutdown to rationalize inventory.  Poor crop prices, weak winter crop yield and banks’ slow disbursal led to such decline. We expect improvement from May as cash flow of winter crop reaches farmers.

Two wheelers: Expect domestic weakness

TVS Motors’ total sales declined 5% YoY. Though Hero Motocorp and Bajaj Auto have to announce sales numbers for March, we expect Hero to report ~540k of sales (up 5% YoY, up 4% MoM) and Bajaj Auto to report ~352k units (up 14% YoY, up 2% MoM).

We like M&M for: (1) its inexpensive valuation, trading at 10x FY13 core EPS; (2) strong UV demand, aided by new launches; and (3) revival in tractor demand May onwards as cash flow of winter crop starts accruing to farmers and crop prices recover.

Auto Sales Update - Cars, LCV maintain growth momentum

       
       
       
       
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