CV still a challenge, 2Ws stable, pick up likely in PVs
We interacted with over 40 individuals including dealers, auto
financers and fleet operators to ascertain the demand and financing
trends and the impact of recent excise cuts. Car dealers were
optimistic as the number of enquiries had doubled and some OEMs passed
on the benefits of the excise cut to dealers. 2W dealers indicated
stable demand. CV dealers, financers and fleet operators, saw no
change in the state of affairs, which reaffirms our cautious stance on
Ashok Leyland (Hold) and Eicher Motors (Hold) and negative view on
financiers, Shriram Transport (Sell) and Mahindra Finance (Hold).
$ Passenger Vehicles - most optimistic - price reduction and early
festival can boost demand: Car dealers were most optimistic post the
excise cut reflected in doubling of customer enquiries. Dealers
indicated that early festival this time (Gudi Padwa in March vs. April
last year) and recent reduction in prices can help medium term
consumer sentiment. Reversal in income criterion by SBI to Rs0.3mn p.a
from Rs0.6mn earlier (raised in September 2013) was seen as a welcome
move. To mitigate the loss on inventory due to excise cut, MSIL
reduced consumer offers effective 18th Feb'14 across models while M&M
compensated dealers. Hyundai dealers may absorb the hit as the company
was unlikely to compensate them.
$ Two-wheelers - demand and pricing environment still stable: Dealers
indicated stable demand environment and no significant change in
customer enquiries post excise cut. Most OEMs passed on the benefits
to customers. On the positive side, inventory continued to remain
comfortable (1 month of sales). Pricing too remains stable with 'no
discounts' across the board (loyalty scheme extended by Hero to
Feb'14). But all players had tie-ups for attractive financing schemes.
The share of finance has inched up to an 40%, up from 25-30% few
months back.
$ Commercial Vehicles - no respite, demand remains challenging:
Interaction with fleet operators, DSA agency and collection centres of
leading NBFCs vindicate our cautious stance on the segment. Lending to
the M&HCV segment is currently on hold and greater efforts were
underway to recover dues. Repossession rates have almost doubled and
subventions are being offered to borrowers to help them meet loan
obligations. DSA margins have shrunk. The second-hand vehicle market
slumped with dismal demand for used vehicles. Financing is now for
80-85% of the net invoice price vis-à-vis 100% of the chassis value
(pre-discount) in the past.
$ Valuation and Recommendations: Within the automotive segment, we
continue to maintain Buy on MSIL, M&M, Tata Motors, Hero MotoCorp and
Bajaj Auto and Hold rating on Ashok Leyland and Eicher Motors. We
prefer passenger car/2W financing assets to commercial vehicles due to
the differences in the underlying industries. Prefer retail
auto-financing banks (ICICI Bank and Axis Bank) over CV financiers
(Shriram Transport - Sell, M&M Financial services - Hold).
Thanks & Regards
--
��
We interacted with over 40 individuals including dealers, auto
financers and fleet operators to ascertain the demand and financing
trends and the impact of recent excise cuts. Car dealers were
optimistic as the number of enquiries had doubled and some OEMs passed
on the benefits of the excise cut to dealers. 2W dealers indicated
stable demand. CV dealers, financers and fleet operators, saw no
change in the state of affairs, which reaffirms our cautious stance on
Ashok Leyland (Hold) and Eicher Motors (Hold) and negative view on
financiers, Shriram Transport (Sell) and Mahindra Finance (Hold).
$ Passenger Vehicles - most optimistic - price reduction and early
festival can boost demand: Car dealers were most optimistic post the
excise cut reflected in doubling of customer enquiries. Dealers
indicated that early festival this time (Gudi Padwa in March vs. April
last year) and recent reduction in prices can help medium term
consumer sentiment. Reversal in income criterion by SBI to Rs0.3mn p.a
from Rs0.6mn earlier (raised in September 2013) was seen as a welcome
move. To mitigate the loss on inventory due to excise cut, MSIL
reduced consumer offers effective 18th Feb'14 across models while M&M
compensated dealers. Hyundai dealers may absorb the hit as the company
was unlikely to compensate them.
$ Two-wheelers - demand and pricing environment still stable: Dealers
indicated stable demand environment and no significant change in
customer enquiries post excise cut. Most OEMs passed on the benefits
to customers. On the positive side, inventory continued to remain
comfortable (1 month of sales). Pricing too remains stable with 'no
discounts' across the board (loyalty scheme extended by Hero to
Feb'14). But all players had tie-ups for attractive financing schemes.
The share of finance has inched up to an 40%, up from 25-30% few
months back.
$ Commercial Vehicles - no respite, demand remains challenging:
Interaction with fleet operators, DSA agency and collection centres of
leading NBFCs vindicate our cautious stance on the segment. Lending to
the M&HCV segment is currently on hold and greater efforts were
underway to recover dues. Repossession rates have almost doubled and
subventions are being offered to borrowers to help them meet loan
obligations. DSA margins have shrunk. The second-hand vehicle market
slumped with dismal demand for used vehicles. Financing is now for
80-85% of the net invoice price vis-à-vis 100% of the chassis value
(pre-discount) in the past.
$ Valuation and Recommendations: Within the automotive segment, we
continue to maintain Buy on MSIL, M&M, Tata Motors, Hero MotoCorp and
Bajaj Auto and Hold rating on Ashok Leyland and Eicher Motors. We
prefer passenger car/2W financing assets to commercial vehicles due to
the differences in the underlying industries. Prefer retail
auto-financing banks (ICICI Bank and Axis Bank) over CV financiers
(Shriram Transport - Sell, M&M Financial services - Hold).
Thanks & Regards
--
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