Automobiles - SIAM conclave: Drooping shoulders;:: Edelweiss

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We attended the annual Society for Indian Automobile Manufacturers’ (SIAM) conclave ‘Looking Ahead’ on January 4 in New Delhi, where the discussion centered around growth outlook for FY13. The mood was downbeat as consumer sentiment has weakened. Industry is optimistic on rural demand despite soft December sales numbers. Near to medium term outlook stays weak, though long term growth outlook is still robust. While truck and two wheeler makers sounded most optimistic, car makers were the most conservative in growth expectations. In our view, deterioration in demand is sharper than estimated and thus poses downside risk to our FY13 volume growth expectations across segments. Bajaj Auto is our top pick due to its high exposure to exports.

Present tense as reflected in conservative outlook

·         Weak consumer sentiments have started to affect demand across segments. As a result, participants sounded conservative in their growth outlook. The previous conclave had seen optimistic sales growth projections for FY12, which in hindsight appear bullish.

·         Though opinions on rural slow down were divided, participants were unanimous that rural demand continues to outpace urban demand. 

CV and two wheeler makers most optimistic for FY13

·         Car makers were most conservative for FY13 growth outlook and expect growth of 5-10%. Fall in interest rates may lead to postponement of purchases as buyers would wait for further fall, thus delaying recovery.

·         Truck makers believe FY13 growth could be higher than 8% as mining ban reversal coupled with road construction activity could boost growth.

·         Two-wheeler makers (viz., Hero Motocorp, Honda, TVS Motor) expect FY13 demand to be in the 10-12% range. They believe December sales disappointment was more due to high base. Strong rural demand and need for mobility are expected to support demand.

Long-term bullish outlook intact

·         Long-term outlook remains robust on low penetration and favourable demographics. However, weak sentiments pose downside risk to our FY13 sales growth expectations. We expect car and two wheeler sales growth in mid single digits versus earlier assumption of early teens. Truck demand expectations stay unchanged at low single digit.

·         We prefer Bajaj Auto due to its high exposure to exports.