MotoGaze – October, 2014 :: ICICI Securities, PDF link

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Festive season signals return of growth!!!
Strong festive season cheers OEs as long-awaited return to growth fructifies
September saw strong growth momentum continuing with festive season
dispatches on full throttle. As macro headwinds like inflation and low
growth recede, the festive season is likely to be a strong one over
previous year. With the major festive season falling in October this year
vis-à-vis November last year, YoY growth numbers are not strictly
comparable. Overall, volume growth was led by the two-wheeler (2-W)
segment, which grew ~24% YoY to ~1.8 million units. The scooter
segment continued to lead the way and outperformed the industry with
~42% YoY growth as HMSI’s new capacity ramps-up fully. The
motorcycle segment grew ~19% YoY with strong growth coming from
market leader HMCL (up ~28% YoY). The passenger vehicles segment
growth has slowed done compared to last month and grew ~1% YoY,
with growth coming mainly from the UV segment, which grew ~27% YoY.
The CV segment has also grown ~9% YoY with bulk of the growth
contributed by the M&HCV segment (up ~22% YoY) while the LCV
segment has managed to show positive growth after 17 months and grew
~3% YoY on account of a slight pickup in demand and also low base.
Pre-festive season momentum continues as industry revival on strong wicket
With the auto industry finally showing signs of a recovery after nearly two
years of demand slump, the festive season has brought back growth in
dispatches for OEMs as consumers are back in showrooms. New launches
and product refreshes coupled with improved sentiment and latent
demand have led to this turnaround in auto demand for the OEMs.
Reduction in fuel prices has also been instrumental in aiding the demand
situation.
Macro tailwinds likely to pick up with economic revival!
To provide a boost to the auto sector, excise duty cuts have been
extended by about six months to December. Going ahead, with an
improvement in overall economic activity, we believe macro headwinds
like currency, interest rate and inflation will turn positive and help the
industry. For the current month, both CPI/WPI have shown a considerable
decline (lowest in ~18 months) which gives the RBI adequate room for
cutting rates as global crude prices too have corrected sharply.
Industry outlook
We expect an improvement in demand sentiments and believe the overall
industry will grow 10-12% for FY15E. For the passenger vehicle segment,
we expect 7-9% growth while the M&HCV segment is likely to improve 5-
7% with a major recovery likely in H2. The LCV segment is likely to
underperform the M&HCV segment and remain flat. The 2-W segment is
likely to grow ~11-13%, led by strong growth in the scooter segment and
macro factors helping discretionary spending. On a longer term basis, we
remain positive on the growth prospects of the industry with a rise in
incomes augmenting auto penetration levels in the country.
On the basis of index performance, for September, the BSE Auto index
(2.6%) has outperformed the BSE Sensex (flat YoY). Among our I-direct
auto coverage, we remain bullish on frontline OEM stocks like Tata Motors
as well as Eicher Motors. However, with favourable impact of operating
leverage due to increased demand as well as favourable raw material
prices, earnings growth trajectory for ancillary stocks is likely to remain on
the uptrend and thereby the valuations for the same are likely to remain
on elevated vis-à-vis last five-year averages.

LINK
http://content.icicidirect.com/mailimages/IDirect_Motogaze_Oct14.pdf