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Good come back!

 Better than expected January performance surprised us as December was quite a low for many of the companies. Maruti was more than a surprise as quickly getting back to recovery after abysmal October sales was not expected. However, sustainability of the same is a question as government’s stand on diesel vehicles will play a big role in future sales of Maruti. Also, competition, and higher fuel prices are still downside risks for the company. M&M put up a robust show on the auto side and is expected to excel further as XUV500 sales gains momentum. On FES side, the performance was down yoy, but showed a good pull back sequentially. Tata Motors stunned one and all on the street as all of its segments showed a strong performance. CV sales were buoyant on strong LCV sales, while PV sales were up on strong Indica and Indigo sales. TVS was a big disappointment as its market share is getting cut on strong competition all around. Given the rally witnessed in stock prices, currently we believe that the valuations of most of the auto companies seem stretched. Hence, we are neutral to underperformer on most of the auto stocks now. We however maintain Buy on M&M and Ashok Leyland.

 

Hero Motocorp – (TP – Rs1,996, Neutral)Still holding on…

HMCL sold 5.2 lakh unts in January, which was a 11.55 yoy growth and a fall of 3.7% mom. This was slightly lower than our expectation of 5.25 lakh units. The YTD growth of the company now stands at 17.4%, the strongest among the two wheeler companies, while we are expecting 15% growth in FY 12. HMCL has been the only two wheeler company which is still showing traction in growth vis-à-vis other players who have shown moderation. A sudden fall in mom volume growth cannot be ruled out if HMCL is pushing volumes to the dealers.

 

Mahindra and Mahindra – (TP- Rs772, BUY) – Auto segment posts strong performance, FES slows down further

M&M sold 44,718 units, a 22% growth yoy while it was a growth of 5% mom. This performance was better than our expectations. Passenger UV sales in the month grew by 15% yoy to 18,446 units, which was 2% 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 1,529 units up 37% yoy v/s ~1,300 units in December. Export sales moved up by 95% yoy  to 3,348 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 in November, and moved down even further to 15,315 in December has posted a negative growth of 6% yoy in January. This was still better than what we had expected and is above the December number of ~15,500. Opening up of bookings for XUV 500 again in 19 cities of India in January will lead to a better volume performance from this model in FY 13. Since the booking have opened, XUV 500 has registered bookings of more than 5,900 units. 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 1015, Underperformer)- Strong recovery

Maruti Suzuki (MSIL)‘s sales in January came at 115,433 units as compared to 92,161 units, 25% growth on mom basis, while on yoy basis it  was up by 5.2%. 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 2.4% yoy. The compact segment comprising Swift, Ritz and Estilo showed an improvement as demand for diesel car is moving northwards on the backdrop of gap between petrol and diesel prices increasing.  Vans segment also declined by 11% yoy, but showed a good growth of ~40% mom. Exports were the star performer again as they grew by 54.3% yoy as they sold 14,386 units a jump over ~9300 units yoy, while mom, it was lower by 300 units only. However, SX4 and Dzire segments posted yoy de-growth, at 12% and 10% 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 and on the other hand any call on the diesel cars in upcoming budget may hamper diesel car sales. Launch of Ertiga needs to be watched out as low ground clearance may pose a setback to the company while pricing between Rs7-8 lakh will push sales.

 

Tata Motors – (TP- Rs253, Neutral)- Stellar performance!

January sales for the company were at 87,465 units, 16% up yoy and 6% up mom. CV sales grew by a healthy 14% yoy, out of which LCV sales were up by 15% 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 11%, which was a strong growth again. PV segment sales have started to pick up since last couple of months as they grew by 14% yoy on some strength coming from Indica range which was up 9% yoy on new launch of Indica Vista launched a quarter back. Utility segment sales went up by 38% yoy. Indigo range sales were smartly up by 10% yoy. Nano sales grew at 7,723 units  15% up yoy and showing a quick recovery over the past few months and lows hit at 500 units in November 2010. Continued strength in CV business aided by LCVs and recovery in PV sales have led to a solid growth in volumes of the company.

 

TVS Motor – (TP – Rs55, Underperformer)- Losing out to competition

TVS sold just 1.73 lakh units in January missing our estimate of 1.82 lakh by a good margin. This was a growth of just 3% mom and 5% yoy. Scooters segment grew by just 2% yoy to 41,469 units, while motorcycle sales in January reported a de-growth of 5%. Three wheelers are posting a consistently disappointing performance as the company sold just 2,402 units v/s 3,427 units a year ago. Mopeds segment, which is the major volume earner for TVS declined by 13.8% yoy to 45,937 units v/s its monthly run rate of~64,000 units. With rising competition in the scooter segment, slowdown in motorcycle segment and structural weakness in 3wheeler segment , we now believe TVS will be a laggard in the 2W segment.

 

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Written by Fundamental Side

February 8, 2012 at 6:32 pm

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