Demand pull remains strong
The volume numbers reported for September 2010 indicate that demand pull
remains strong. Medium and heavy commercial vehicle (MHCV) numbers from
TTMT have weakened, but still indicate healthy growth of 21% for FY11.
Passenger vehicle categories continue to do well
Most passenger vehicle companies continue to report strong growth. With India’s
festival season due to start from October, we expect demand to remain buoyant in
the coming months. We also note that the base is high as the festival of Diwali was
on 17 October in 2009 and hence, channel filling would have taken place in
September 2009 as well. Since the festival falls on 5 November this year, October
sales are also likely to remain strong, we expect.
Margin pressures could ease a bit in 2Q FY11F
Most auto companies have reported a decline in margins in 1Q FY11 due to higher
material costs. We believe margin pressures will likely ease off a little by 2H FY11F
as raw material prices have declined and companies have taken price hikes. Tata
Motors announced price increases from 1 October, ranging from Rs5,000 to
Rs40,000, and MM announced price increases in the range of Rs3,000 to Rs8,000
for its auto segment. This should result in improved margin performance in 2Q
FY11, in our view.
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