Auto Sales Update - Slowdown continues; Edelweiss, PDF link

Slowdown persisted in June, especially in cars, two wheelers and MHCVs, though utility vehicles and light commercial vehicles continued to perform well. Tractor sales for Mahindra & Mahindra (M&M) reversed the declining trend with 5% YoY growth. Car sales were affected by the steep hike in petrol prices in May 2012. Maruti Suzuki (MSIL) managed to report decent growth due to favarouble base and recent launches. Tata Motors’ (TTMT) MHCV sales stayed weak due to pre-buying in Q4FY12 and slowdown in the economy. Hero Motocorp’s (HMCL) growth dipped to 4% YoY in the absence of wedding season benefit. We prefer MSIL (an early interest rate cycle play) and M&M (quasi interest rate play with new launches in automotive segment). 

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Cars: New launches, favourable base drive growth

MSIL posted 20.3% YoY growth in June at 96,600 units supported by favourable base and recent launches. Sale of entry level petrol cars declined 10.4% YoY. Ford and General Motors also reported YoY decline in sales by over 25%. Though Hyundai and Toyota managed to post growth led by new launches.

Commercial vehicles: Weakness continues

Strong pre-buying in Q4FY12 and weak economic growth weighed on truck buyers’ sentiments. TTMT reported 21% YoY decline in June sales for MHCVs while demand for LCVs, benefiting from the hub-and-spoke model, grew 22% YoY. Eicher Motors (EIM) posted 9% YoY growth in CV segment. Ashok Leyland (ALL) is yet to report numbers, but we expect flat growth YoY.  

Tractors: Growth after five months of slump

After continuous decline since January 2012, M&M’s domestic tractor sales grew 4.4% to 22,500 units.  We expect the segment to grow hereon with 5% average growth in FY13.

Two wheelers: Weak performance

June performance was weak in the absence of the wedding season. HMCL’s growth dipped to 4% whereas domestic sales for Bajaj Auto (BAL) and TVS Motors (TVS) declined 6% and 5% YoY, respectively.

We like MSIL (an early interest rate cycle play) and M&M (quasi interest rate play with new launches in automotive segment.).

Auto Sales Update - Slowdown continues

       
       
Regards,