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Archive for January 2012

Two wheelers hit a roadblock, 4 wheelers better than expectations

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Two wheelers hit a roadblock, 4 wheelers better than expectations

 In a lean month of December, 4 wheeler companies posted a good performance despite severe pressures in terms of consumer sentiments, higher cost of ownership, high fuel prices, maintenance shutdowns at few companies and expected slowdown in demand. Maruti continued to sell more than 90,000 units, while M&M sold >42,000 units of auto sales including SUVs, LCVs and 3 wheelers, which was a good growth. Tata Motors also improved its PV sales performance with Nano putting one of its best performances in the recent past. On the CV side, LCVs continued their robust performance while MHCV grew within their limits. 2 wheeler sales spoiled the otherwise good show from the auto pack, as Bajaj Auto posted a dismal show and TVS Motor put up a suppressed growth. Going forward, with seasonally strong Q4 coming up, we see some recovery in auto sales. Any cut in interest rates or any moves by the government in budget like application of higher excise duty on diesel cars will be the triggers to the sector. Expected price hikes from most of the players may have a contra-intuitive impact on the volume performance of the sector. We continue our cautious view on the sector.


Bajaj Auto – (Under review) – Unexpected weakness witnessed

Bajaj posted a very disappointing sales performance in December as sales plummeted by 18% mom to 3,05,000 units, while growing at just 10% yoy.  Motorcycle sales were up 8% yoy and down 21% mom. A maintenance shutdown for 4-5 days, increasing inventories at the dealers’ end, weakening demand for premium segment two wheelers and lukewarm response to the recent launch of Boxer bike led to a tepid performance by Bajaj Auto. Exports de-grew by 7% mom while growing by 25% yoy. Going forward, as retail inventory gets cleaned up and seasonally good Q4 comes up, we are expecting Bajaj Auto to get back to the level of >350,000 units.


Hero Motocorp – (TP – Rs1,928, Neutral) – Solid resilience!

HMCL has surprisingly held a 5.4 lakh units  of sales  performance, a growth of 7.8% yoy and flat growth mom.  The company is a proxy to the rural growth in India and continues to post stellar numbers on growing rural economy even when its competitors are faltering. We expect them to put up a volume growth of 15% in FY 12, however we are concerned about competition coming up from Honda in FY 13 as they are rapidly ramping up the capacities against Hero who are at nascent stage of setting up new capacities which may become a constraint to their  growth. Slightly stretched valuations and margin concerns are other worries.


Mahindra and Mahindra – (TP- Rs889, BUY) – Auto segment posts decent performance, FES slows down

M&M sold 42,761 units, a 26% growth yoy while it was a growth of 5% mom. UV sales in the month grew by 23% yoy to 18,078 units, which was 8% growth mom. 4W pick-up segment which includes Gio, Genio and Maxximo posted a robust 35% growth yoy as the LCV segment continued to grow at a strong pace indicating expansion in the total sub 1 tonne LCV market. Verito sales were strong in the month at 1,263 units up 41% yoy v/s 896 units. Export sales moved up by 89% yoy  to 2,870 units with traction seen in major export markets like South Africa and US. Farm Equipment Segment (FES) which had posted a very robust growth of 71% in October almost halved to 17,527 as inventory correction happened in November and moved down even further to 15,315 in December and we expect the current monthly run rate of tractors to be maintained, thus punching a growth of close to 18% in FY 12. Opening up of bookings for XUV 500 again in 5 cities of Mumbai, Pune, Bangalore, Chennai and Delhi in January will lead to a better volume performance from this model in FY 13. Pan India launch will happen once the capacities move up to >5,000p.m. levels in May from current levels of 2,000 p.m.


Maruti Suzuki – (TP – Rs 887, Underperformer)- Stable sales performance

Maruti Suzuki (MSIL)‘s sales in December came at 92,161 units, flattish mom, while on yoy basis it was down by 7% as consumer sentiments in PV industry deteriorated off late. The flattish growth indicates signs of stability at Maruti’s end even when there was a maintenance shutdown at their plants. Had the  shutdown not been there, sales would have come close to 100,00 level. In a scenario where petrol prices are moving up, the bread and butter segment, the mini segment of Maruti comprising Alto, Wagon R and A Star de-grew by 16% yoy. The compact segment comprising Swift, Ritz and Estilo remained flat yoy.  Vans segment also declined by 42% yoy. Exports were the star performer as they grew by 50.5% yoy s they sold 14,686 units a jump over 11,000 run rate observed over the past few months. However, SX4 and Dzire segments posted growth, at 11% and 6% respectively. Any rate cut by the central bank of India may have a positive impact on the volumes, while petrol price hike will impact sales adversely. New launches from competitors add fuel to this. The upcoming auto expo in January will see two MPV launches from Maruti (one being named as Ertiga).


Tata Motors – (TP- Rs195, Neutral)- Performance par excellence!

December sales for the company were at 82,278 units, 22% up yoy and 7% up mom. CV sales grew by a healthy 14% yoy, out of which LCV sales were up by 20% yoy signifying LCV segment’s defiance of the macro uncertainties. New launches like the variant of Ace Zip led to the growth in LCV. MHCV sales also grew by 5%. PV segment sales have started to pick up since last couple of months as they grew by 47% yoy on some strength coming from Indica range which was up 57% yoy on new launch of Indica Vista launched a quarter back. Utility segment sales went up by 35% yoy. Indigo range sales were smartly up by 32% yoy. Nano sales grew at 7,466 units  29% up yoy and showing a quick recovery over the past few months and lows hit at 500 units in November 2010.


TVS Motor – (TP – Rs60, BUY)- Still below the monthly mark of 2lakh…

TVS Motor failed again this month to sell 2 lakh units. In October they had missed due to an unexpected maintenance shutdown. However, the fall in November came on weak motor cycle sales and the same continued in December as well. Total sales showed a flattish to a slight negative growth on yoy basis at 170,428 units, while sequentially they de-grew by 3%. Scooter sales grew by 7%, while motor cycle sales declined by 8%. Bloating up of inventory pipeline on weak retail demand led to such an underperformance. TVS’s 3 wheeler sales are on a lower trajectory as they sold just 2,523 units from 3,431 units sold in last December. Exports grew by 6% yoy. We believe that 15% volume guidance by management looks too optimistic. We expect 9% growth from TVS this year. In view of attractive valuations, upcoming new launches and economies of scale, we remain positive on TVS even after factoring 9% volume growth this year and 11% next year.