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Automobile sales for February

February auto sales numbers were above our expectations as all the auto companies posted outstanding sales in the month, thus resulting in a rally in their stock prices. We believe the strong consumer demand and pre- budget buying of vehicles resulting from expectation of an excise duty rollback are the main reasons for auto sales booming in a month which is seasonally lackluster and has lesser number of working days. Going forward, with positives coming out of the budget for the sector, we do not believe the expected hike in interest rates will have a significantly negative impact on the sector in the medium to long term.

 

Mahindra and Mahindra – (TP- Rs 861, BUY)

M&M reported a strong 20% yoy growth in its auto segment to 33,378 units, with passenger UV sales growing 12%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a 13% growth yoy. Maxximo now has 21% market share in the geographies where it is launched. Logan has posted yet another month of improved sales performance with renewed product and marketing efforts from the company post their split with Renault. In February, M&M sold 1,151 units of Logan as compared to 537 units in February 2010 and 1120 units sequentially. LCV and MHCV sales grew by 5% yoy, on account of the increase in the sales of LCVs and M&HCVs from Mahindra Navistar JV. Farm Equipment Segment(FES) posted a very robust growth of 37% yoy to 19,041 units, while sequentially they declined by 1.5%. On a cumulative basis, the company has grown by 27% and 22% in the auto and FES segments respectively.

 

Maruti Suzuki – (TP – Rs 1589, BUY)

Maruti Suzuki (MSIL) once again held to their promise of selling ~1,10,000 units per month in FY 11 as they sold 1,11,635 units after selling 1.09 lakh units in January, which translates into a 2% mom growth in sales. The sales grew by 15.5% yoy. MSIL have sold 1.14 mn units cumulatively. In the full year we expect it to sell 1.2mn units and post FY11E, management expects to sell 1,16,000 units per month (1.4mn p.a.). Within the segments, the bread and butter A2 segment of hatch backs posted 19.4% growth, while the A3 segment witnessed 27% yoy growth. The newly launched premium segment car Kizashi which falls under the A4 segment sold 25 units in February which were just for the purpose of test drive for dealers, while it will start commercial sales from March onwards. This will not only add to the topline, but will also add up to the margins as it is a highly priced model, however its demand is yet to be gauged in India where the demand is primarily for the hatch back low cost cars. The C segment which contains the Eeco also showed a good expansion of 27% rise on a yoy basis as Eeco also finds demand from public transportation i.e. the taxis. Exports continued to slide down by 15% as non Western European markets are yet to show signs of pick up. We believe the company will miss their export guidance of flat growth in FY 11E in exports as they may run short of 10,000 units of their export targets as they have sold 1.26lakh cumulatively in exports. However, the boom in the domestic auto car market is strong enough for the company to meet its overall sales target of FY 11 which is 1.2 mn.

Tata Motors – (TP – Rs 1650, BUY)

February sales for the company were extremely strong with a 3% mom growth and a 12% yoy growth to 77,543 units, the highest ever sales for the company defying the macro concerns like interest rate hike and inflation worries. CV growth pace was a bit subdued, as M&HCV grew by 1% yoy, while LCV grew by 8% yoy. Overall CV sales grew by 5% yoy, pointing towards a slight slowdown in the CV industry. PV segment grew by 18% yoy to 26,985 units while utility segment sales grew by 16% yoy.  Indica range continued to see a de-growth of 12.7% yoy as competition in the hatch back segment continued its intensification with the market leaders Maruti and Hyundai continued their solid run. Indigo sales saw a sales growth of 22% yoy. Nano sales were higher m-o-m at 8,262 units vis-à-vis 6,703 units in January and the low hit in November performance of just 500 units on attractive  marketing ventures. Cumulative sales of Nano are ~62,000 way below their expected full year target of >100,000 units.

 

TVS Motor – (TP – Rs86, BUY)

TVS sold 177,412 units in February, a growth of 24% yoy, while on a mom basis it showed a 7.2% growth. The sequential sharp jump was due to a temporary maintenance shutdown of its plants in the month of January. Three wheeler sales crossed the 4,000 mark for the first time as it sold  4,212 units. Scooter sales were 49% up to 40,335 units, while motorcycles were up 13% yoy to 71,462 units. Going forward, the company has maintained its annual guidance of 2mn vehicles in FY 11E which we believe will be a cakewalk as the company has cumulatively sold 1.855 mn units and March being a strong month, selling 1.45 lakh units will be very easy. Management is expecting the export volumes(14% of sales in Feb 2011) to pick up in the coming months while domestic volumes to get slightly impacted by interest rate hike, though we believe that 2 wheelers will not get significantly impacted by it.

Hero Honda – (TP – Rs1,527, Underperform)

Hero Honda reported a 23% yoy strong growth to 4.72 lakh units in February, while it was a growth of 1.3% mom. We believe the company will face strong headwinds going forward as Honda goes solo in the Indian markets aggressively and the company underperforms its two wheeler peers on margin as well as volume front in the wake of competition.

 

P.S. Bajaj Auto will come out with their February sales numbers on the 02nd of March 2011.

 

Budget impact on auto sectorThe Indian auto sector for the past couple of months was reeling under the macro concerns such as inflation, possible interest rate hikes, input cost rise, fear of excise duty roll back, tax on diesel vehicles and fuel price hike. However, yesterday’s union budget has been a relief for the auto sector as the excise duty wasn’t rolled back. The budget has also promoted the use of hybrid and electric vehicles by cutting various duties on some of the important parts used for their manufacturing. This will assist companies like M&M who have recently acquired Reva an electric vehicle manufacturer and are already into the hybrid vehicle business through a hybrid model of Scorpio . Also companies like Tata Motors and Ashok Leyland have taken some initiatives towards greener vehicles by launching hybrid buses. Recently Ashok Leyland acquired a 26% stake in UK-based Optare which designs electric buses, while Tata Motors is in the process of launching an electric version of Indica and a hybrid version of Nano. Besides this, Tata Motors and M&M are working on electric versions of Ace and Maxximo respectively. We believe M&M emerged as the biggest beneficiary from this budget within the listed auto space as the budget emphasized on spending more on the agri domain where M&M has its major presence through tractors and other farm equipments and micro-irrigation plans. Furthermore, no increased taxation on diesel vehicles has led to a major sigh of relief for M&M as 100% of its vehicles run on diesel.

 

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Written by Fundamental Side

March 3, 2011 at 10:11 am

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