Market Buzz

Everything you need to know about the stocks market

Archive for September 2012

Weak monsoon further dampens 2W demand

leave a comment »

Weak monsoon further dampens 2W demand

 August is traditionally a weak month due to monsoon. This year, the overall economy is on a weak wicket and monsoon has been a dampener due to which customers have been cautious while buying a vehicle. This sentiment was clearly reflected in the August numbers as two wheeler makers like Hero are facing the brunt of heavy inventories at the dealers’ ends as the 2W industry is softening. TVS expectedly underperformed, while Bajaj’s weak domestic business got somewhat offset due to exports improvement. On the 4wheeler side, Maruti’s sales came below expectations due to the lockout at Manesar, while M&M(Auto business) and Tata Motors performed as per expectations. We like Hero Motocorp from this level, followed by Bajaj Auto as we see an improvement in their numbers in the ensuing months, especially festive months of September-November. We continue to remain negative on Maruti and TVS, while Tata Motors and Ashok Leyland remain our top pick. M&M has run up a lot, due to which we see a limited upside from current levels.

 Ashok Leyland (BUY, T.P – Rs 29)- Inline performance better than the closest peer

Ashok Leyland (ALL)’s MHCV sales dipped by 8.6% yoy to 6,597 units while Dost sales came in at 2,835 units. On the back of strong performance of Dost, total volumes went up by 30.4% yoy to 9,432 units. On mom basis, MHCV sales declined by 5.5%, while Dost sales went up by 1.1%. Total sales volumes were down by 3.6%. On a YTD basis, MHCV sales are down by just 1.5% which looks much better than its peer and CV market leader Tata Motors, whose MHCV sales have declined by 20.7% YTD. This also indicates that ALL has won market share in the CV segment and discounting is much higher than Tata Motors.

 Bajaj Auto (BUY, T.P. – Rs 1,776) – Bajaj Auto’s sales numbers in the month of August came in at 3,44,906 units, a de-growth of 9.9% yoy and flattish mom growth. Motorcycle sales de-grew by 10% yoy to 3.04 lakhs. 3W segment declined by 9.2% yoy, while improved significantly by 14.9% mom to 40,544 as Sri Lanka and Egypt have shown some recovery. Total exports declined by just 4.8%, while they improved by 4.8% mom. As exports are seen normalizing as per expectations,  the company expects the new launches in the motorcycle segment to revive their domestic business from festive season onwards.

 Hero Motocorp (BUY, T.P. – Rs 2,187) – The dent which was seen in the company’s July performance deepened as sales in August declined by 11.9% yoy and 8.3% mom to 4,43,801 units which signals lower demand in the 2W industry and inventory pile up at the dealers’ ends as demand is rural India is also shrinking in line with the weak monsoon. We expect the sales to bounce back during festive months of September-November.

 Mahindra and Mahindra – (TP- Rs828, Outperformer) Auto business support the flagging FES volumes

M&M sold 46,226 units in the auto segment, 22.7% growth yoy and a 1.8% mom decline. Passenger UV sales in the month grew by 39.4% yoy to 21,831 units, which was a 1% mom fall. The UV sales growth came on the back of ramp up in the production of XUV5oo and a pan India launch of the same in June. 4W pick-up segment which includes Gio, Genio and Maxximo posted a 13.6% growth yoy as the LCV segment continued to grow at a strong pace indicating strong demand in the sub 1 tonne market despite a slowdown in the bigger version of the CV sector. 3Ws showed some improvement as the sales remained flat yoy after several months of negative growth. Exports grew by a whopping 56.1% yoy to 3,010 units as XUV5oo was launched in South Africa and traction was seen from geographies like Chile, Africa, Middle East and the US. FES segment weakened significantly as M&M sold just 13,234 units, which was a 17.3% dip yoy and 20% mom dip as monsoon in the southern peninsula of India was deficient and in many of the districts in Maharashtra and Karnataka, some of the major markets of M&M was declared a drought.

 Maruti Suzuki – (TP – Rs 1,123, Underperformer)-Lockout + Petrol underperformance

Maruti Suzuki (Maruti)‘s sales in this month came at 54,154 units as compared to 91,442  units, down by 40.8% and 34.1% qoq as lockout jolted the production from their Manesar plant which produces the high demand diesel vehicles like Swift and Dzire. This was well below our expectations of 60,000. 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 thick and fast by 41.2% yoy, despite the company providing >10% discounts on Alto and Wagon R. The recent unfortunate turn of events at the Manesar plant which resulted into a lockout at this plant for almost the full month of August led to a 62.2% decline in the diesel segment yoy. Dzire model which has been a star performer for Maruti succumbed to the lockout and declined by 60.7% yoy. Vans segment continued to de-grow by 7.3% yoy as vehicles such as Omni and Eeco underperformed. In the MPV segment, the newly launched Ertiga sold 6,883 units thus maintaining its high demand base of ~7,000 units. SX4 model declined heavily by about 76.4% yoy as there was dearth of diesel engines and competition from VW Vento and Honda City hit its performance. Exports looked weak this month again due to the lockout as they fell by 72% yoy. We do not expect the September sales also to post a strong growth as although the Manesar plant has re-started under tight security, it is producing only 150 units per day which will get slowly ramped up.

 Tata Motors – (TP- Rs283, BUY)- Volumes as per expectations

August sales for the company were higher by 12.1% yoy, while on mom basis, it fell by 3.1%. CV sales grew by 4.9% yoy, out of which LCV sales were up by 15.6% 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 12.1% yoy as macro weaknesses continued to trouble in the month, however on mom basis it jumped by 14.8% thus showing some improvement in MHCV segment. PV segment sales grew by a handsome 32% yoy while it slipped by 15% mom. Nano segment grew by 441% yoy to 6,507 units, while it was an 18.6% growth mom, thus indicating success of the 2012 model of Nano, which is getting received very well in the market. Indica range dominated by diesel portfolio expanded by 5.3% yoy while Indigo products posted 29% decline yoy and 46.8% mom. Utility segment sales grew by 38% yoy while it declined by 9.9% mom.

 TVS Motor – (TP- Rs 36, Underperformer)- Reeling under competitive pressures and slowdown

TVS sold 1.55 lakh units in August which was very much in line with our expectations. This was a 4.1% mom and a de-growth of 20% yoy. Motorcycles de-grew by 30.9% yoy and 0.6% mom, while scooters de-grew by 26.9% yoy and 6.6% mom. 3 Wheelers improved mom performance by 18.4%, while yoy they declined by 17.1%.  In line with this, we continue to be negative on the stock as intensifying competition, high percentage of mopeds in the volumes, higher advertising expenses and weak product portfolio and bleeding subsidiary are weighing too much on the stock. Also the 2W industry is seeing some softness as well, which is weighing down on TVS a bit too much as compared to its peers.