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Cars gearing down in June.

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Cars gearing down in June.

June, the month which is seasonally sluggish before the onset of monsoon was indeed sluggish for a few companies like Maruti Suzuki, not to forget the 10 day strike and maintenance shutdown at its plants. Fuel price hike and another round of interest rate hike is set to take their toll on the PV industry, which was evident from June sales of PVs. Tata Motors also continued to witness a severe slowdown in PV segment fuelled by intensifying competition. On the CV side, there is still some resilience shown by companies like Tata Motors and M&M, where these companies have performed above expectations. LCVs outperformed the overall CV industry. Two wheeler industry has also performed well in June, as it seemed the most insulated sector from the macro headwinds. We remain positive on Bajaj Auto, Tata Motors and M&M, while we have turned negative on Maruti Suzuki and Ashok Leyland, and continue to be negative on Hero Honda. TVS remains a Neutral for us.

Mahindra and Mahindra – (TP- Rs 804, BUY) – The bright spot!
In a scenario where auto companies are showing signs of slowdown, M&M continues to outperform the industry through robust sales in its well-diversified product portfolio. M&M reported a strong 29% yoy growth in its auto segment to 35,584 units, with passenger UV sales growing 14%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a robust 65% growth yoy. Verito has posed yet another month of improved sales performance with a growth of 168% yoy with sales recorded at 1,510 units , 24% mom above 1,219 units sold in May and 1,050 sold in April. M&M is smartly increasing the sales of Verito on product revamp of the unsuccessful Logan. Farm Equipment Segment (FES) posted a very robust growth of 37% yoy to 22,730 units, while sequentially they were up 20% on pre monsoon purchases.

Maruti Suzuki – (TP – Rs 1,195, Underperformer)- Life after ‘LIVA’ to be difficult
Maruti Suzuki (MSIL) reported a 8.8% yoy de-growth in volumes, by selling 80,298 units in June which was about 16% fall on May, marred particularly by the 10 day long strike at its Manesar plant (loss of ~13,000 vehicles) and a 6 day maintenance shutdown at its Gurgaon plant and a similar ongoing shutdown at Manesar plant. Additionally, MSIL was the first to face the macro headwinds to the PV segment. A2, the bread and butter segment of MSIL posted just 2.3% yoy growth as the strike affected plant of Manesar produces the successful models such as Swift and A Star. Similarly, A3 segment, which was the top performing segment in April and May, also massively underperformed posting a de-growth of a whopping 60% yoy, again due to the strike. Kizashi sales were at 32 units. C segment sales were up by 23% due to continued success of Eeco in both private as well as taxi segments. Exports remained stable mom at 10,278 units, down by 33% yoy. Management has guided for a continuous export sales of 10,000 units every month, which implies a double digit(lower teens) degrowth in FY 12. Headwinds continue to be there for the PV segment on the back of rising fuel prices and interest rates. Competitive launches such as the recent launch of Toyota Liva pitched directly and aggressively against Swift will make things difficult for MSIL along with a slew of competitive launches, thus leading to a higher single digit growth in the domestic markets.

Tata Motors – (Under review)- CVs strong, PVs lack the zeal
June sales for the company were at 66,358 units, 1% up yoy and a growth of 6.5% mom. CV sales grew by 13% yoy, out of which LCV sales were up by 18% yoy and MHCV sales were 6% higher yoy. PV segment sales were down by 21% yoy to 21,993 units while utility segment sales fell by 4% yoy and equally on mom basis. Indica range continued to see a de-growth of 9% yoy as competition in the hatch back segment continued its intensification with the market leaders Maruti and Hyundai also feeling the heat. Indigo range sales were also low by 35% yoy. Nano also underperformed, which sold only 5,451 units as compared with 10,000 odd units in April, and ~6,500 in May.

TVS Motor – (TP- Rs 63, Neutral)- Still robust
TVS sold 1.82 lakh units in June, a strong growth of 14% yoy, while on a mom basis it showed a 2% de-growth. This growth indicates that the macro concerns have still not hit the two wheeler sector and TVS’s brands are showing a good demand. Two wheeler sales also grew by 14% yoy, while 3 wheelers are showing a consistent performance touching 4,000 units time and again.

Written by Fundamental Side

July 4, 2011 at 11:35 am

Posted in Auto Segment

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Surpassing yearly targets!

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Key Observations:

March sales numbers were significantly above our expectations as all the auto companies posted outstanding sales in the month aided by the strong seasonality factor, wherein auto companies try hard to push their products before the financial year ends. This doesn’t mean that the sales momentum was purely because of the push at the dealers’ end, but it also confirms the continuation of the robust demand in the auto sector, thus enabling a few companies to not only meet their yearly guidance but also surpass them. Going forward, in FY 12, the growth rate of the auto sector will not be as robust as it was in FY 11 mainly due to the high base effect, interest rate hikes, higher fuel costs and inflation. We expect  approximately a mid teen digit growth in the auto segment, which may wary according to the sub sectors within the segment – PV(15-17%), 2W(12-13%) and CV(13-14%). However, companies which have a unique product portfolio(M&M), increasing market shares on account of new launches and scalability(Bajaj Auto), deeper penetration in the rural markets( M&M and Maruti Suzuki) and a strong international presence(Tata Motors) will have an edge over their competitors.

Hero Honda – (TP – Rs1,527, Underperform)

Hero Honda reported a 24.4% yoy strong growth to 5.15 lakh units in February, while it was a growth of 9% mom. With this strong growth, the company has surpassed its full year guidance of 5 mn selling 5.4mn units in FY 11. This was on the back of 7 new launches including variants and refreshes in FY 11. Going forward, with the Honda split done, the company will face strong competition from Honda, raising concerns regarding R&D and maintaining the brand name. Margins remain to get impacted on this account and also due to additional spending the company has done on advertising during Cricket World Cup in Q4 FY11 . New production plant, opportunities in export markets and new launches can provide a trigger to the stock price in the medium to long term.

Bajaj Auto – (TP – Rs 1,680, BUY)

Bajaj Auto reported a 12% yoy growth in total sales in March to post sales of 3.07 lakh units. The monthly sales were 6% down on mom basis, as the company’s exports took a hit on account of crisis in Middle East and North Africa region, but one should not read further into it, as 32,000 vehicles are in transit and will be accounted additionally in April sales. The company ended this year short of their guidance of 4mn units due to vendor constraints and export performance in March. In March, the company sold 75,000 Pulsars and 1,25,000 Discover units. In FY 12, the company expects to sell 4.6mn units which will be a growth of 20% over FY 11, out of which, 4.1mn will be two wheelers and 0.5mn will be 3 wheelers. Out of the two wheelers,  1.1-1.2 mn will be Pulsars, 1.7-1.8mn will be Discover, while the rest will be Platina and Boxer. The company has recently launched Discover 125cc bike and is expecting to bring its international bike Boxer in the Indian markets which will help boost its volumes. They are also increasing their dealer base by 130 from April. Also the company has enhanced its 3 wheeler capacity to 45,000 units per month, which will help the company to achieve its new year target.

Mahindra and Mahindra – (TP- Rs 861, BUY)

M&M reported a strong 18% yoy growth in its auto segment to 37,522 units, with passenger UV sales growing 14%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a 15% growth yoy. Maxximo now has 23% market share in the geographies where it is launched. Logan has posed yet another month of improved sales performance with a growth of 190% yoy will sales recorded at 1,018 units. This has been a very consistent performance from Logan which is expected to get a further lift in performance post M&M  brand getting associated with it shortly. LCV and MHCV sales declined  by 11% yoy, as the Navistar JV is at its initial stage and will take some time to enter strongly in the higher tonnage market with a stronger product portfolio. Farm Equipment Segment(FES) posted a very robust growth of 23% yoy to 19,848 units, while sequentially they were up by 4%. In the year FY 11, the Auto and the FES segments have grown by 26% and 22% respectively. M&M is setting up a new Tractor plant at Zaheerabad, AP, with a capacity of 1,00,000 units for an investment of Rs3bn, the production of which is expected to start in FY 2012.

Maruti Suzuki – (TP – Rs 1589, BUY)

Maruti Suzuki (MSIL) reported their highest ever sales by selling ~1,21,952 units in March, a growth of 28% yoy and 10% mom, thus taking their full year volumes beyond their target of 1.2mn at 1.27mn. The company for the first time in this year showed a growth in the A1 segment (M800) of 5.5% yoy, which we believe is a temporary phenomenon. However, it has reported a whopping 43% and 33% growths in A2 and A3 segments. The higher sales of A3 can be attributed to the launch of SX4 diesel in March, which would mean higher margins for Maruti.  The newly launched premium segment car Kizashi which falls under the A4 segment sold 103 units in March. This will not only add to the top line, but will also add up to the margins as it is a highly priced model, however its demand is yet to be gauged in India where the demand is primarily for the hatch back low cost cars. The C segment which includes the Eeco continued to show a good expansion of 32% rise on a yoy basis as Eeco also finds demand from public transportation i.e. the taxis (20% demand). Exports continued to slide down by 26% as non Western European markets are yet to show signs of pick up and it also reflects the crisis in West Asia, North Africa and Japan upto some extent. The company has missed its full year export target of a flat growth in FY 11 as the company has posted a 6% fall this year . However, the boom in the domestic PV market was strong enough for the company to surpass its overall sales target for FY 11 which was 1.2 mn. The capacity expansion coming up in the next 1.5 years will lead to significant jump in the company’s volumes and topline, however in the short term, the company will struggle maintaining its margins against appreciating yen leading to higher royalty payouts, vendor issues rising from Japanese crisis, increasing fuel costs, inflation  and rising commodity prices.

Tata Motors – (TP – Rs 1650, BUY)

March sales for the company were extremely strong with a 7% mom growth and a 11% yoy growth to 83,363 units, the highest ever sales for the company defying macro concerns like interest rate hikes and inflation worries. CV growth again gained pace after a subdued February, as they grew by 15% yoy, while  M&HCV grew by 12% yoy and LCV grew by 18% yoy. PV segment sales declined by 1% yoy to 29,543 units while utility segment sales grew by 24% yoy on the success of newly launched Aria.  Indica range continued to see a de-growth of 40% yoy as competition in the hatch back segment continued to intensify with the market leaders Maruti and Hyundai continuing their solid run. Indigo range sales were also low by 5% yoy. Nano sales were higher m-o-m at 8,707 units vis-à-vis 8,202 units in February (on strong marketing initiatives) and the low hit in November performance of just 500 units. Cumulative sales of Nano are ~71,000 way below their expected full year target of >100,000 units. In India, JLR sold 891 units v/s 242 sold In FY 10. In FY 11, Tata Motors sold 803,322 units, a growth of  25% yoy.

TVS Motors – (TP – Rs86, BUY)

TVS sold 191,208 units in March, a growth of 28% yoy, while on a mom basis it showed a 7.9% growth. Consistent performance from the 2 wheeler and 3 wheeler segments led to such a strong performance from TVS leading the company to surpass its full year target of 2mn to 2.04mn. In March, three wheeler sales were at 4,427, up on mom basis. Scooter sales were 50% up to 42,655 units, while motorcycles were up 24% yoy to 79,462 units. The company has also showed good traction in the exports business(14% of volumes). Management is expecting export volumes to pick up in the coming months while domestic volumes to get slightly impacted by interest rate hike, but will get support from the higher utilization rates post capacity expansion happened in FY 11.

From the desk of : Ashwin Patil

Written by Fundamental Side

April 4, 2011 at 3:40 pm