Tough times continue…festivities to spur growth?
High inventory levels…few takers
Overall auto sales for August have de-grown 5.1% YoY at 1.58 million units.
Passenger vehicles’ decline of 8.4% was more than expected owing to
loss of production at Maruti Suzuki’s Manesar plant and sluggishness of
demand. Even for diesel vehicles, which witnessed high waiting periods
and premium pricing, the slowdown has caused carmakers to offer
discounts to ride out the demand slump. The UV segment continued to
grow at a healthy rate of ~70% (~57% growth YTD). Demand in the
M&HCV segment has been sluggish for a long time now and the excess
inventory in the system has now begun to ease out. The LCV segment has
continued to perform better in the CV space. However, for this segment
hit hard by low industrial output, a return to growth seems daunting. The
two-wheeler segment has seen a decline for the first time in three years
and declined by ~5% YoY for August. The decline for motorcycles was
more severe at ~8% YoY while the scooter segment has continued to
grow; albeit at a slower rate of ~10% YoY growth. Given the slowdown,
OEMs are in the inventory correction phase with emphasis on ramping up
newer models as the festive season arrives.
Increase in fuel prices to further curb growth....
Increase in international crude prices and a continued weakness in the
domestic currency has led to an increase in the fuel subsidy burden. With
a view to contain the bloating fiscal deficit, an increase in fuel prices looks
imminent. This may lead to a further deferral of demand as consumers
wait for a favourable interest rate regime and higher incentives on vehicle
purchases.
Will festive season bring back demand for OEMs?
OEMs have always relied on the festive season to drive demand. This time
around, with the gloom surrounding the demand scenario and high
interest rates, the festive season is more important than ever. The festive
season that is slightly late this year could lead to higher demand for
October as inventory ramp-up at the dealers end would start about three
to four weeks in advance. Improved monsoon in the latter half of the
season may lead to better sowing in the Rabi season and, thereby,
revitalise discretionary spending. Reversal of the interest rate cycle is also
expected in the second half of the year. This would have a positive impact
on the demand situation in both the commercial vehicles as well as
passenger vehicle segments.
Industry outlook
The volume growth outlook for the industry is mildly positive with growth
ranging between 8% and 10% in FY13E. Volumes are likely to increase in
the scooter segment in the two-wheeler space and UV segment in the
passenger vehicle space. However, the rapid growth is unlikely to be
sustained. In the three-wheeler space, goods carriers are likely to remain
under pressure as the onslaught from LCVs continues, which will continue
to drive growth in the CV segment.
On the basis of index performance, the BSE Auto index (one-month return
3.2%) has outperformed the BSE Sensex (one-month return 2.2%).
Among our I-direct auto-coverage, we remain bullish on frontline OEM
stocks like Maruti Suzuki, M&M and Tata Motors. In the ancillary coverage,
we find favourable valuation and business growth perspective in Bharat
Forge and Balkrishna Industries.
http://content.icicidirect.com/mailimages/ICICIdirect_Motogaze_September2012.pdf
http://content.icicidirect.com/mailimages/ICICIdirect_Motogaze_September2012.pdf
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