Auto Sector Preview – Q3FY15:: HDFC Securities

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Auto sector was showing some positive signs of recovery after the formation of a stable government at the centre in May 2014. But, if we look at the Q3FY15 volume
trend, we can see that industry had witnessed subdued volume; except 3Ws, PVs and M&HCVs other segments like Motor Cycles, Tractors and LCVs witnessed decline in
sales. Q3FY15 sales were also partly impacted by the timing difference of festive season vis-à-vis last year. There was some improvement in sales in the passenger
vehicle segment partly because of buyers trying to beat an anticipated increase in prices in January 2015. The government allowed a 4-6% reduction in excise tax
announced in last February 2014 to lapse at the end of 2014. Since the beginning of this month, car companies such as Maruti Suzuki, Hyundai Motor and Honda Motor
have increased prices.
Going forward, factors such as improvement in the overall economy, supported by reduction in interest rates, possible incentives in the upcoming union budget and fall
in fuel prices would favor the industry, whereas ending of a lower excise duty regime and price hikes would weigh on the sector in the near term.
Q3FY15 Volumes (in units)
Company Q3FY15 Q3FY14 % YoY Q2FY15 % QoQ
Bajaj Auto 984520 993690 -0.9 1055582 -6.7
Hero MotoCorp 1648566 1680940 -1.9 1697742 -2.9
Tata Motors 126273 130337 -3.1 126624 -0.3
Maruti Suzuki 323911 288151 12.4 321898 0.6
Mahindra Auto 113396 129424 -12.4 115653 -2.0
Mahindra Tractors 59714 78419 -23.9 61152 -2.4
(Source: Company, HDFCsec Research)
Likely improvement in Realizations and Margins
Consumer sentiment continued to improve; this coupled with the cut in Petrol and Diesel prices on the back of a slump in global crude oil prices are some key positives
going forward. Some of the key parameters that one will be looking at are realizations and margins. As far as realization is concerned, Product mix and currency
movement plays a key role. In Q3FY15, most of the companies are likely to post better realization. If we do a breakup of sales for Maruti Suzuki, it is clear that the
contribution of Mini and UV segment declined, and the contribution of Compact, Midsize (Ciaz) and Vans have increased. Mini Segment is a low margin segment, so the
decline in Mini segment and the increase in contribution from high margin segment could result into better realizations for Maruti. Depreciation of Yen will also aid in
boosting realization as Maruti imports directly or indirectly raw materials and components from Japan.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010659