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Slowdown persisted in May barring Utility Vehicles and Light Commercial Vehicles. Cars sales were affected by the steep hike in petrol prices. MHCV sales of Tata Motors stayed weak due to pre-buying in Q4 and softer freight rates. The recovery in tractor sales remains muted. Utility vehicles and light commercial vehicles continue to benefit from demand from smaller centers. Hero Motor has been benefitted by the wedding season in North India. We prefer Eicher Motors for its diversified product portfolio and strong earnings visibility. 

Cars: Petrol demand pinches again

Maruti Suzuki posted 5% YoY decline in May at 99k units but was mainly driven by diesel models namely Dzire, Swift and Ertiga. Sale of entry level petrol cars declined 29%. Most of the car makers had reported a sluggish growth in May.   

Commercial vehicles: Sentiments skid further

Strong pre-buying in Q4FY12 and weak economic growth weighed on truck buyers’ sentiments. Tata Motors reported a 20% decline in May sales for Medium and Heavy Commercial Vehicles while demand for Light Commercial Vehicles has benefited from the hub and spoke model hence grew by 25% YoY to 27k units.   

Tractors: Moderate improvement in demand

After declining by 10%-21% during the last three months, M&M’s domestic tractor sales have reported a flattish 18k unit sales in May, indicating that the decline in demand has bottomed. We expect a 5% growth in FY13.

Two wheelers: Mixed bag

While TVS Motors reported a fall in two wheeler demand, Hero Motor reported 11% growth in May, benefitted by the North Indian wedding demand.

We like Eicher for: (1) a diversified product portfolio of trucks, motorcycles and engine business, (2) strong balance sheet with INR432 cash/share and (3) strong 30% EPS CAGR over the next three years driven by new launches, market share gains and margin expansion .

Auto Sales Update - Still on lower gear

       
       
       
       
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