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Archive for April 2012

4-Wheelers marching ahead in March…

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4-Wheelers marching ahead in March…

The month of March witnessed an expected surge in auto volumes as pre budget buying was prevailing in the first half of the month and since there was no negative news for diesel cars except the expected hike of 2% in the excise duty across the board, the cheer continued in the second half as well. Seasonally a strong month – March saw companies like Tata Motors, Maruti and M&M (our top picks in that order) post all time high monthly sales numbers with each of their segments performing well. With Tata Motors touching the magic figure of 1 lakh, Maruti crossing its pre strike volume number and M&M with its new launches helping them to put up a record high in UV sales the auto industry saw a firm uptick. On the other hand, TVS continued its disappointment, signaling that Honda is taking its toll on their performance . Each of their segments saw a sharp fall in growth- thus showing fundamental weakness. TVS’s peers also posted a subdued show, however better than TVS. 2 wheeler companies have given a word of caution stating that they are still in a slowdown mode and there is nothing motivating to predict a bullish overtone to the 2 wheeler space in the coming year as of yet.

 

Ashok Leyland (TP – Rs30, Neutral)

Ashok Leyland’s March sales exceeded our expectations, as they sold 14,285 units, a growth of 17% yoy. This constituted the newly launched LCV Dost which sold 2,211 units, while the actual MHCV volumes declined by 0.8% yoy to 12,074 units. However, MHCV sales grew by 27% mom and LCV sales grew by 40% mom. The total sales surpassed Ashok Leyland’s full year target of 1 lakh units. In FY 12, the company grew at a pace of 8.4%. The company sold 94,416 MHCVs and 7,593 LCVs in FY12. Improvement in South Indian markets will remain a key to success in FY13.

 

Bajaj Auto (TP – Rs 1,620, Neutral)

Bajaj posted just 9% yoy growth in March and a 4% dip on mom basis. Motorcycles grew by 10% yoy while 3 wheelers grew by 4% yoy. Despite March being a strong month for auto industry, Bajaj like its peers posted a soft performance, below our expectations. In FY 12, the growth was 14%, while the company estimates to grow at 15% in FY 13, which we believe is a bit too optimistic considering the difficult operating environment in the midst of a slowdown. Exports of the company will also feel the heat with Sri Lanka (20% of exports) increasing import duties.

 

Hero Motocorp (TP- Rs 2,000, Neutral)

Hero posted a flattish growth in March at 5.28 lakh units, while on a yoy basis it was a growth of just 2%. The subdued performance of two wheelers signifies slowdown and sluggishness in the domestic two wheeler industry. However, competition from Honda may eat up the market share of TVS ( which has already started to happen), followed by Bajaj and then compete with Hero as the gap between the scale of Hero and Honda is very wide. Hence, we believe that within 2 wheelers, Hero is one of the stocks to look at.

 

Mahindra and Mahindra – (TP- Rs783, BUY) – Auto segment sails through, FES segment recovers…

M&M sold 47,001 units in the auto segment, a 25% growth yoy which was a stellar figure for M&M, a record high. This performance was better than our expectations. Passenger UV sales in the month grew by 30% yoy to 21,257 units, which was 14% growth mom. The strong sales on the recently launched XUV 500 and the new Xylo led to this strong growth. 4W pick-up segment which includes Gio, Genio and Maxximo posted a robust 28% 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 1,763 units up a mammoth 73% yoy v/s 1,619 units in February. Export sales moved up by 31% yoy  to 2,659 units, however, this was flattish mom. 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 units in December and continued to go down with a negative growth of 6% yoy in January. This negativity went further deep in February, as M&M reported 20% dip in this month on issues of increasing delinquencies on the agri credit, slowdown of farm yields and overall tepid growth in Indian economy. However, March showed some revival in tractor sales on a mom basis, as they sold 17,405 units, almost a 15% growth mom. However, yoy they declined by 12%.  In FY 12, the company’s auto sales grew by 28%, while FES ended the year with just 10%, v/s 17-18% projected growth by management in October.

 

Maruti Suzuki – (TP – Rs 1,475, BUY)- Performance in line with expectations.

Maruti Suzuki (Maruti)‘s sales in this month came at 125,952 units as compared to 121,952  units, 3.3% growth on yoy basis, while on mom basis it was up by 6%. 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 10% yoy. The compact segment comprising Swift, Ritz and Estilo showed a solid growth of 23.6% as demand for diesel cars is moving northwards on the backdrop of gap between petrol and diesel prices increasing and the production of high demand new Swift getting back to normalcy of >17,000 units per month.  Vans segment grew by 146% yoy as the pre-launch dispatches of Ertiga started in March itself. Only the SX4 model faced a huge decline of about 58.1% yoy as there was dearth of diesel engines. Exports grew by 14.7% yoy, while growing at 17% mom to sell 13,228 units with non European geographies like Asia-Pacific, CIS countries and Africa showing growth momentum . In line with the new Dzire model launched in February, it has started creating a base of 15000-16000 units per month as it grew 60% yoy to 16,541 units in March. 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. Status quo maintained on diesel cars taxation is a good news for Maruti and the cheer is expected to continue in coming months though 2% excise duty hike getting passed on have made cars costlier. State level levy of extra excise duty on cars will impact sales in those states in coming months(eg:- Maharashtra). Expansion of diesel engine capacities will help the company to cater to the bludgeoning demand for diesel cars. In FY 12, Maruti’s sales de-grew by 10.8% on competition, fuel price hikes, interest rate increase and strikes at the Manesar plant.

 

Tata Motors – (TP- Rs318, BUY)- Record high!

March sales for the company were at a record high of 100,414 units, 20.5% up yoy and 9% up mom. CV sales grew by a healthy 16.7% yoy, out of which LCV sales were up by a healthy 37% 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 however slipped by 5.8% yoy while growing by 13.7% mom. PV segment sales have started to pick up since last quarter as they grew by 33.6% yoy on strength coming from Indica range which was up 64.6% yoy mainly on prebuying effect of budget and on new launch of Indica Vista launched a quarter back. Utility segment sales went up by 40.5% yoy. Indigo range sales were also up by 15% after underperforming in February. Nano sales were the star performer as they grew smartly up at 10,475 units, 20.3% up yoy and 13.6% mom. Continued strength in CV business aided by LCVs and robust PV sales have led to a continuous solid growth in volumes of the company. Total FY 12 growth of the company has been 13.3%.              

 

TVS Motor – (TP- Rs 50, Neutral)- Seasonally up… though the broad picture remains negative

TVS sold 1.83 lakh units in March in line with our subdued estimate. This was a de-growth of 4% yoy and a growth of 6% mom. Motorcycles de-grew by 17% yoy, while scooters fell by 7.6% yoy. However, the low cost mopeds performed well by growing 16% yoy. 3 Wheelers have continued their underperformance as they declined 33% yoy and 26.5% mom. In FY 12, TVS sales grew by just 7.9%. With rising competition in the scooter segment from Honda, M&M and Suzuki, slowdown in motorcycle segment and structural weakness in 3 Wheeler segment , we continue to believe that TVS will be a laggard in the 2W segment.