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Automobiles
India
Strong bounceback. December auto sales were significantly better than our
expectations, which we believe was due to some prebuying ahead of price hikes taken
by manufacturers in January. Hero Honda sales were significantly better than our
expectations, which we think was due to inventory build-up as retail demand has not
been so buoyant. We expect the volume growth to moderate in 4QFY11E as base effect
stiffens and demand slows down after the price hikes.
Hero Honda gains back market share but temporary, in our view
Two-wheeler volumes for three majors were up 27% yoy and 9% mom boosted by Hero Honda
dealer dispatches which were up 19% mom. Our channel checks suggest that retail sales for Hero
Honda was not that buoyant and we believe the company is building inventory levels at the dealer
end. Hero Honda could have gained 7.3% mom market share largely from Bajaj Auto which lost
5.8% market share as per the dealer dispatch numbers. Mopeds and scooter segment continued
to outpace motorcycles indicating demand in rural India is buoyant.
Mahindra sales buoyed by utility vehicles and LCVs
Mahindra sales surprised positively after a sharp bounceback by passenger utility vehicles (+24%
yoy, 28% mom) and robust growth in Maxximo & Gio volumes (+47% yoy, +32% mom). Tractor
sales were also robust (+31% yoy) which bodes well for Mahindra’s margins. Mahindra also had a
one-week plant shutdown in November which led to lower dealer dispatches. Company plans to
launch six to seven new variants of light commercial vehicles, variant of Xylo and a new SUV over
the next 12-18 months which should keep volume growth strong, in our view.
Tata Motors: All-round performance
Medium commercial vehicle sales recovered after a correction in October-November (17% mom)
driven by (1) prebuying ahead of price increases in January, and (2) replenishment of dealer
inventories with Euro 3 vehicles which were facing supply shortages. We expect a yoy decline in
commercial vehicle sales in 4QFY11E as base effect stiffens. Passenger car volumes also rose
sharply driven by (1) rebound in Nano sales (5,784 units) boosted by lower finance rates, Rs99
maintenance contract and a 4-year free warranty scheme, and (2) robust growth in Indica sales.
Tata Motors has raised prices by Rs3,000-15,000 in passenger vehicles and Rs1,500-30,000 in
commercial vehicles.
We see upside risks to M&M and Tata Motors volume estimates
Mahindra and Mahindra auto sector volumes [UVs, three-wheelers, LCVs (Maxximo and Gio)]
could see upgrades by 5-7% in 4QFY11E as December sales were much better than expectations,
but we expect volume growth to be muted due to the strong base effect. Tata Motors’ MHCV
volumes could get revised upwards by 5-7% while passenger car volumes are expected to decline
sharply despite strong revival in Nano sales.
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