Edelweiss: Auto Sales Update - omens of a strong festival season

n  Hero Honda: Steady growth

Amidst strong rumours of strains with the JV partners, Hero Honda’s (HH) monthly sales remained strong. The current volumes of 4.33 mn units (up 8% Y-o-Y; 2% M-o-M) imply a near full capacity utilisation. Ahead of the festival season, HH launched two new variants of the best selling Splendor.

n  Mahindra & Mahindra: Robust sales

Mahindra & Mahindra’s (M&M) volumes were robust with both domestic utility (up 8% Y-o-Y; 27% M-o-M) and tractor segments (up 3% Y-o-Y; 30% M-o-M) performing strongly. While Xylo and Scorpio reported strong growth, management indicated that supply constraints have eased out leading to the strong sequential growth. On seasonally adjusted basis, tractors performed credibly.

n  Maruti Suzuki: Operating at full capacity

Maruti Suzuki (MSIL) continued to debottleneck its production capacity, raising volumes by 3% M-o-M, to ~108,000 units (up 30% Y-o-Y). Going forward, the company is likely to expand its monthly production by another 2,000 units to over 110,000. The sequential growth was driven by the A2 segment that benefitted from the launch of Alto K-10.

n  Tata Motors: CV sales a tad below expectations

While Tata Motors’ (TTMT) MHCV’s sales were up 12% M-o-M, the growth seems to be muted largely considering the potential pre-buying (with change in emission norms w.e.f. October 1, 2010). The company has announced a price hike in vehicles on account of this change.

Volumes in passenger vehicles (up 17% Y-o-Y, 7% M-o-M) were driven by the Indigo sedan and UV range. LCV volumes (down 8% M-o-M; up 4% Y-o-Y) were disappointing as were the Nano volumes (5,520 units; down 32% M-o-M). Significantly, the company stated that JLR volumes remained strong.

n  Outlook: Festive season to be strong

With the buoyant economy, this festival season could remain strong across the two wheeler and passenger car segments. However, though production capacities have expanded, constraints persist. Commercial vehicle volumes could dip M-o-M with the waning impact of pre-buying (due to a change in emission norms). Going forward, the focus would be on new product launches by new players, notably M&M in the two-wheeler space and Toyota’s Etios in the passenger segment. Our top picks in the sector are M&M and TTMT.