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Archive for November 4th, 2011

No real cheer in Motown during the festive season

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No real cheer in Motown during the festive season

 With festive pre-buying set in the month of September, October showed comparatively subdued numbers sequentially. Going forward, we believe that seasonality will creep in towards the end of calendar year and the next two months will be even more subdued. Additionally, PVs will face the heat considering the interest rate hikes and fuel price hikes. Two wheeler demand is expected to be firm with positive developments happening in the rural markets such as good monsoon, rise in MSPs and employment schemes enforcement. CVs are expected to grow at a steady pace close to 10% on demand from LCV segment.

 Bajaj Auto – (TP – Rs1,893, BUY) – Curfew at Pantnagar led to a loss of 25,000 units

Bajaj Auto has posted a record October performance by selling 3.95 lakh units, a growth of 7% yoy while it declined 7% mom. This has been the third month post the launch of 150cc Boxer, which again sold 10,000 units. Production got affected due to curfew at Pantnagar to the extent of 25,000 units. The twin brands Pulsar and Discover reported strong growth and contributed ~70% of total motorcycle sales. The company has recorded highest ever motor cycle sales in any October thus indicating that the 2 Wheeler sector is insulated from any macro headwinds. Three wheeler sales came in at 44,191 units, a growth of 8% yoy, and a fall of 5% mom. On the export side, Bajaj Auto sold 1.31 lakh units, a growth of 20% yoy and contributed 33% of sales v/s 29.7% yoy, which indicates a better profitability in the month. For the first seven months of the year, the company reported 15% yoy growth to cross the 2.65 mn mark.

 Hero Motocorp – (TP – Rs1,928, SELL) – Sequential de-growth

HMCL had posted a record breaking volume performance in the month of September as it sold 5.49 lakh units in the festive environment. However, in October it failed to reach that mark and reported just 5.12 lakh units , a growth of 1.2% yoy and a decline of 7% mom. The company mentioned that at retail levels, the sales were more than 6 lakhs in October. With the stretched valuations, we believe that the stock is factoring all the expected positives like the upcoming production plant, foreign venture and improvement in margins on softening RM costs.

 Mahindra and Mahindra – (Under Review) – Tractor sales robust, but auto sales slipped mom

M&M sold 41,506 units, a 20% growth yoy while it declined 6% mom. UV sales in the month grew by 6% yoy to 16,938 units, while declined 7% mom. 4W pick-up segment which includes Gio, Genio and Maxximo posted a robust 41% growth yoy as the LCV segment continued to grow at a strong paceindicating market share gain. Also new variants of Maxximo and Genio launched over the past month, which have performed well. Verito has posted yet another stellar month with a highest ever monthly sales recorded at 1,818 units , 16% mom growth v/s 1,560 units. Export sales moved up by 7% yoy with traction seen in major export markets. Farm Equipment Segment (FES) posted a very robust growth of 31% yoy to 31,838 units, while sequentially they zoomed up by a whopping 29% on festive demand post a strong monsoon and MSP on food grains being hiked. The festive launch of new SUV XUV500 priced in the range of Rs11-14 lakhs is expected to boost the UV sales as it has already attracted bookings of 8000 units and the company has stopped taking any more orders.

 Maruti Suzuki – (TP – Rs 930, Underperformer)- Lowest ever monthly sales in the last decade

Maruti Suzuki (MSIL) ‘s sales in October came at 55,595 units, a sharp decline of 53% yoy, while on mom basis it was down by 35% driven by labour unrest at its plants leading to a production loss of 40,000 units. Also macro factors spoiled the game as PV sector is struggling to gain its lost luster. The company was completely unable to enjoy the festive season this year. The bread and butter segment, the mini segment de-grew by 55%, while the compact segment fell by 56% yoy.  Exports were down by 64% yoy as A Star, the best selling export model faced the brunt of labor unrest at Manesar. We do not see Maruti to punch more than one lakh units in the near future and hence report a negative growth in FY 12. MSIL’s market share in the first half of the year has gone down below 40%. Going forward, the recent and the expected hike in interest rate by RBI will lead to it getting passed to customers sooner or later, which will further impact demand. New launches from competitors and fuel price hikes will add fuel to this. Hence , we believe that Maruti will continue to underperform its peers and the auto industry over the next one year.

 Tata Motors – (Under Review)- Sales slip sequentially

October sales for the company were at 68,009 units, 5% up yoy and 16% up mom. CV sales grew by 13% yoy, out of which LCV sales were up by 6% yoy, signifying some loss of market share to M&M and MHCV sales were 23% higher yoy, a trend reversal. This reflects strong CV sales despite macro headwinds. PV segment sales declined by 3% on macro pressures on the PV segment to 25,746 units while utility segment sales went up by 23% yoy.  Indica range grew by 11% yoy as a new variant of Indica was launched 2 months back. Indigo range sales were also low by 24% yoy. Nano sales grew on lower base at 3,868 units albeit low, up 26% yoy , while on mom basis, Nano’s grew by 30%.


Written by Fundamental Side

November 4, 2011 at 5:18 pm