Auto Monthly : MoM growth tapering down...: IndiaNivesh,

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Auto Monthly

MoM growth tapering down...
Highlights of the month
 Auto companies showed mixed performance in the month of December 2014;
PV and M&HCV recorded sound growth while some pressure was witnessed
in 2W and 3W sales. LCV continue to show poor performance while strong
recovery was seen in M&HCV sales.
 In Passenger car segment, Tata Motors and Maruti Suzuki performed well
and recorded double digit growth.
 In two wheelers segment, TVS witnessed strong growth in volume while Hero
Motocorp showed muted growth in volume. Though Bajaj Auto is still
struggling to increase volume in domestic market due to slowdown in premium
segment bike, 10% growth in export volume offsetting lower domestic volume.
 In the commercial vehicle segment LCV sales continued to show weakness
while M&HCV sales showed some sign of recovery led by better freight
movement in agri, consumer durables and autos, housing construction
material (in tier I-II cities).
 We believe this positive outlook is more or less captured in consensus. the
recent rally in the auto sector has led to most companies trading at above or
near their fair valuations, based on one-year forward multiples. Considering
these, we keep neutral stance on the sector.
Outlook
 We believe there would be a very short term impact of Excise roll back (2 to 3
months perspective) on auto sales. However, lower fuel prices, lower interest
rate and improving GDP should aid the recovery in automotive industry. We
believe good governance and faster reform would lead to higher employment/
disposable income that will improve consumer sentiment. Overall, we expect
CVs to record the highest recovery on the back of low base and the highest
correlation to the macro improvement. We expect CV volumes to increase
above 20% YoY in FY16. In PVs, we expect an improvement in consumer
sentiment to aid 15% YoY growth in FY16 and FY17. Similarly, for 2Ws, we
expect 12% YoY growth in FY16 and FY17. Within 2Ws, we expect scooters to
outpace motorcycles.
 We expect domestic passenger vehicle (PV) demand to bounce back in FY16
and deliver 15% CAGR over FY15-17 on the back of improving consumer
sentiment (due to economic revival) and moderating fuel costs and interest
rates. One feature of the demand slowdown over the last 2-3 years has been
the sharp decline in the proportion of entry segment car sales from 30% in
FY11 to 24% in FY14. Despite first-time buyers returning in the last 6-8 months,
the share of entry level cars has continued to slide (21% share in YTD FY15).
We expect growth for premium and compacts cars to remain strong, driven
by new launches.
 In the commercial vehicle segment LCV sales continued to show weakness
while M&HCV sales showed some sign of recovery led by an increase in the
replacement of old trucks (particularly by the large fleet operators) and to
the low base effect.
 We believe this positive outlook is more or less captured in consensus. the
recent rally in the auto sector has led to most companies trading at above or
near their fair valuations, based on one-year forward multiples. Considering
these, we keep neutral stance on the sector.
 Top Picks: Bajaj Auto, Exide and Lumax Auto Technologies.

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