Auto Sales Update - ending 2010 on a high note:: Edelweiss

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Auto Sales Update - ending 2010 on a high note

n  Bajaj Auto: Steady volumes

Bajaj Auto’s (BAL) two wheeler sales (up 11% Y-o-Y, down 8% M-o-M) remained steady with exports posting positive growth. Pulsar and Discover continued to contribute over 70% to total sales. Three wheeler sales jumped 5% Y-o-Y and dipped 3% M-o-M. The company raised prices by up to INR 1,500 varying across models w.e.f. January 1, 2011, to mitigate rising raw material costs.

n  Hero Honda: Growing on a higher base

Hero Honda (HH) reported strong volumes of 501,111 units (up 33% Y-o-Y, 16% M-o-M). Volumes are particularly impressive considering the seasonality (December is generally weaker than November). This strong growth may have reflected a certain degree of restocking with dealers. The company has effected price hikes in the INR 500-1,500 range in the domestic market.

n  Mahindra & Mahindra: Sturdy growth across all segments

Mahindra & Mahindra (M&M) reported sturdy volumes across segments with overall volumes growing 13% M-o-M and 38% Y-o-Y. Within the automotive segment, four wheel pickups (up 47% Y-o-Y, 32% M-o-M) were extremely strong, possibly on account of the sub tone Maxximo being rolled out across the country.  Utility vehicles (up 24% Y-o-Y, 29% M-o-M) reflected the strong underlying demand even as tractor volumes (up 31% Y-o-Y) were better than expected. 

n  Tata Motors: Strong MHCV and LCV sales

MHCVs (up 14% Y-o-Y, 18% M-o-M) and LCVs (up 35% Y-o-Y, 21% M-o-M) led overall growth. MHCVs rebounded strongly after two months of sluggish sales (post change in emission norms) whereas LCVs registered the highest ever monthly sales. Passenger vehicles, particularly the small car Indica (down 25% Y-o-Y) continued to disappoint. Nano sales revived in December (5,784 units sold) albeit from a low base.

n  Outlook: Growth rates may slow in 2011

The auto industry ended 2010 on a high note with buoyant sales across segments. Going into CY11, despite potential headwinds (higher interest rates and crude oil prices) as well as a higher base, we expect volume growth to continue backed by a strong economy. The growth rates though may moderate to the mid teens across segments (from the 25%+ levels in CY10). Top picks in the space are Mahindra & Mahindra and Tata Motors  while we are cautious on MSIL.