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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sales slide continues…
Demand shrinks as buyers face stiff barriers to purchase…
June volumes continued to weaken as consumers balked at purchases in
the grim scenario of high interest rates and dearer fuel prices. The
industry clocked ~1.6 million units in June 2011, down 0.8% on an MoM
basis. Sluggish sales in what is generally considered to be a seasonally
weak quarter can be attributed to near-term macro headwinds. Volumes
remain robust in the two-wheeler segment on account of lesser
dependency on vehicle financing and persistent growth from Tier-II cities
and rural areas. We believe that although consumer demand is more
structural today as compared to previous years, volume growth would
remain stunted (till H1FY12) as the interest rate cycle peaks out. For
FY12E, we continue to maintain our volume estimates of ~13% for the
industry. The volume growth of the industry in June 2011 has been 14.6%
YoY with the passenger car (PV) segment languishing with ~6.8% YoY
growth rate. The commercial vehicle (CV) segment performed above
expectations, growing at 18.7% with MH&CV improving volumes by
~7.2% YoY. Two-wheeler segment growth continued to beat industry
growth rates, growing at ~15.5% YoY on a high base.
Lagged effect of tightening rates comes through…
The interest rate hikes we witnessed in previous months have impacted
the demand side in both the CV and PV space. Demand is expected to
face stiff pressures as the RBI seems to have shifted its focus towards
containing inflation in the near term. This could lead to further rate hikes.
On the brighter side, inflation seems to be moderating and any positive
surprise in declines could lead to an early peaking of the interest rate
cycle.
Global commodities slowing down on global concerns…
Global commodity prices have witnessed mild declines in various
commodities ranging from oil to metals. Commodity prices ranging from
steel to aluminium have seen a cool off of a couple of percentage points.
Also, natural rubber, a commodity that remains critical to the auto sector,
has slowed down to a slight extent. It has come off its peak of ~| 235 and
is at ~| 210 (down 12%). Our in-house auto RM index is down ~1% YoY
(refer Exhibit 16), showing mild declines on an MoM basis. We believe
global commodity prices are expected to slow down in the near to
medium term as global growth rates seem to taper off from earlier
estimates.
Industry outlook
The outlook towards volume growth in the sector is positive. We expect
industry wide volume growth of ~13% for FY12E. On an index
performance basis, the BSE Auto index has marginally outperformed the
BSE Sensex with YoY return of 7.7% as compared to 3.3% during the
same period. The demand side, which remained robust in FY11, has
shown early signs of a slowdown amid the challenges. Though we believe
demand is structural, immediate concerns for the sector like higher
interest rates and commodity hikes could cause serious concerns for the
whole industry as profitability and volume growth could see erosion.
Among our ICICIdirect.com auto coverage, we remain bullish on frontline
OEM stocks like Tata Motors. In the ancillary coverage, we find favourable
valuation and business growth perspectives in Bharat Forge and Exide
Industries.
News & views
• Bajaj Auto has undergone expansion in its Pantnagar
manufacturing facility. The capacity of the plant is being raised to
150,000 units per month. An initial investment of | 75 crore has
already been made. Production at the Pantnagar plant is
considered to be the highest among all plants
• The Etios Liva, Toyota's first hatchback and perhaps Maruti
Suzuki's most serious competition, has hit the Indian roads. The
base version of the Liva is priced at a psychologically significant
point of | 3.99 lakh (ex-Delhi showrooms) - a few thousand rupees
below Maruti's Ritz petrol model and its most successful car in
premium hatchbacks, the Swift. The aim of the management is to
sell more than 100,000 Etios sedans and hatchbacks in 2012
• The 13-day strike at Maruti's Manesar plant ended after the
management agreed to take back the sacked employees though
no new union separately was formed. The 13-day strike has led to
a revenue loss of almost | 420 crore and a production loss of
12,600 units. The Manesar plant rolls out about 1,200 units every
day in two shifts. The factory produces hatchbacks Swift and AStar and sedans Dzire and SX4
• With petrol prices spiralling upward, Ford India will largely focus
on diesel-run cars for future launches. Ford India had lined up
eight product launches by the middle of the decade. Clocking a
sales figure of 83,000 units in 2010, the company has already
crossed sales of 58,000 units so far. The management is targeting
the one-lakh mark this year.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sales slide continues…
Demand shrinks as buyers face stiff barriers to purchase…
June volumes continued to weaken as consumers balked at purchases in
the grim scenario of high interest rates and dearer fuel prices. The
industry clocked ~1.6 million units in June 2011, down 0.8% on an MoM
basis. Sluggish sales in what is generally considered to be a seasonally
weak quarter can be attributed to near-term macro headwinds. Volumes
remain robust in the two-wheeler segment on account of lesser
dependency on vehicle financing and persistent growth from Tier-II cities
and rural areas. We believe that although consumer demand is more
structural today as compared to previous years, volume growth would
remain stunted (till H1FY12) as the interest rate cycle peaks out. For
FY12E, we continue to maintain our volume estimates of ~13% for the
industry. The volume growth of the industry in June 2011 has been 14.6%
YoY with the passenger car (PV) segment languishing with ~6.8% YoY
growth rate. The commercial vehicle (CV) segment performed above
expectations, growing at 18.7% with MH&CV improving volumes by
~7.2% YoY. Two-wheeler segment growth continued to beat industry
growth rates, growing at ~15.5% YoY on a high base.
Lagged effect of tightening rates comes through…
The interest rate hikes we witnessed in previous months have impacted
the demand side in both the CV and PV space. Demand is expected to
face stiff pressures as the RBI seems to have shifted its focus towards
containing inflation in the near term. This could lead to further rate hikes.
On the brighter side, inflation seems to be moderating and any positive
surprise in declines could lead to an early peaking of the interest rate
cycle.
Global commodities slowing down on global concerns…
Global commodity prices have witnessed mild declines in various
commodities ranging from oil to metals. Commodity prices ranging from
steel to aluminium have seen a cool off of a couple of percentage points.
Also, natural rubber, a commodity that remains critical to the auto sector,
has slowed down to a slight extent. It has come off its peak of ~| 235 and
is at ~| 210 (down 12%). Our in-house auto RM index is down ~1% YoY
(refer Exhibit 16), showing mild declines on an MoM basis. We believe
global commodity prices are expected to slow down in the near to
medium term as global growth rates seem to taper off from earlier
estimates.
Industry outlook
The outlook towards volume growth in the sector is positive. We expect
industry wide volume growth of ~13% for FY12E. On an index
performance basis, the BSE Auto index has marginally outperformed the
BSE Sensex with YoY return of 7.7% as compared to 3.3% during the
same period. The demand side, which remained robust in FY11, has
shown early signs of a slowdown amid the challenges. Though we believe
demand is structural, immediate concerns for the sector like higher
interest rates and commodity hikes could cause serious concerns for the
whole industry as profitability and volume growth could see erosion.
Among our ICICIdirect.com auto coverage, we remain bullish on frontline
OEM stocks like Tata Motors. In the ancillary coverage, we find favourable
valuation and business growth perspectives in Bharat Forge and Exide
Industries.
News & views
• Bajaj Auto has undergone expansion in its Pantnagar
manufacturing facility. The capacity of the plant is being raised to
150,000 units per month. An initial investment of | 75 crore has
already been made. Production at the Pantnagar plant is
considered to be the highest among all plants
• The Etios Liva, Toyota's first hatchback and perhaps Maruti
Suzuki's most serious competition, has hit the Indian roads. The
base version of the Liva is priced at a psychologically significant
point of | 3.99 lakh (ex-Delhi showrooms) - a few thousand rupees
below Maruti's Ritz petrol model and its most successful car in
premium hatchbacks, the Swift. The aim of the management is to
sell more than 100,000 Etios sedans and hatchbacks in 2012
• The 13-day strike at Maruti's Manesar plant ended after the
management agreed to take back the sacked employees though
no new union separately was formed. The 13-day strike has led to
a revenue loss of almost | 420 crore and a production loss of
12,600 units. The Manesar plant rolls out about 1,200 units every
day in two shifts. The factory produces hatchbacks Swift and AStar and sedans Dzire and SX4
• With petrol prices spiralling upward, Ford India will largely focus
on diesel-run cars for future launches. Ford India had lined up
eight product launches by the middle of the decade. Clocking a
sales figure of 83,000 units in 2010, the company has already
crossed sales of 58,000 units so far. The management is targeting
the one-lakh mark this year.
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