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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

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Written by Fundamental Side

April 4, 2011 at 3:40 pm

No brakes….only accelerator!

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Automobile sales for February

February auto sales numbers were above our expectations as all the auto companies posted outstanding sales in the month, thus resulting in a rally in their stock prices. We believe the strong consumer demand and pre- budget buying of vehicles resulting from expectation of an excise duty rollback are the main reasons for auto sales booming in a month which is seasonally lackluster and has lesser number of working days. Going forward, with positives coming out of the budget for the sector, we do not believe the expected hike in interest rates will have a significantly negative impact on the sector in the medium to long term.

 

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

M&M reported a strong 20% yoy growth in its auto segment to 33,378 units, with passenger UV sales growing 12%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a 13% growth yoy. Maxximo now has 21% market share in the geographies where it is launched. Logan has posted yet another month of improved sales performance with renewed product and marketing efforts from the company post their split with Renault. In February, M&M sold 1,151 units of Logan as compared to 537 units in February 2010 and 1120 units sequentially. LCV and MHCV sales grew by 5% yoy, on account of the increase in the sales of LCVs and M&HCVs from Mahindra Navistar JV. Farm Equipment Segment(FES) posted a very robust growth of 37% yoy to 19,041 units, while sequentially they declined by 1.5%. On a cumulative basis, the company has grown by 27% and 22% in the auto and FES segments respectively.

 

Maruti Suzuki – (TP – Rs 1589, BUY)

Maruti Suzuki (MSIL) once again held to their promise of selling ~1,10,000 units per month in FY 11 as they sold 1,11,635 units after selling 1.09 lakh units in January, which translates into a 2% mom growth in sales. The sales grew by 15.5% yoy. MSIL have sold 1.14 mn units cumulatively. In the full year we expect it to sell 1.2mn units and post FY11E, management expects to sell 1,16,000 units per month (1.4mn p.a.). Within the segments, the bread and butter A2 segment of hatch backs posted 19.4% growth, while the A3 segment witnessed 27% yoy growth. The newly launched premium segment car Kizashi which falls under the A4 segment sold 25 units in February which were just for the purpose of test drive for dealers, while it will start commercial sales from March onwards. This will not only add to the topline, 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 contains the Eeco also showed a good expansion of 27% rise on a yoy basis as Eeco also finds demand from public transportation i.e. the taxis. Exports continued to slide down by 15% as non Western European markets are yet to show signs of pick up. We believe the company will miss their export guidance of flat growth in FY 11E in exports as they may run short of 10,000 units of their export targets as they have sold 1.26lakh cumulatively in exports. However, the boom in the domestic auto car market is strong enough for the company to meet its overall sales target of FY 11 which is 1.2 mn.

Tata Motors – (TP – Rs 1650, BUY)

February sales for the company were extremely strong with a 3% mom growth and a 12% yoy growth to 77,543 units, the highest ever sales for the company defying the macro concerns like interest rate hike and inflation worries. CV growth pace was a bit subdued, as M&HCV grew by 1% yoy, while LCV grew by 8% yoy. Overall CV sales grew by 5% yoy, pointing towards a slight slowdown in the CV industry. PV segment grew by 18% yoy to 26,985 units while utility segment sales grew by 16% yoy.  Indica range continued to see a de-growth of 12.7% yoy as competition in the hatch back segment continued its intensification with the market leaders Maruti and Hyundai continued their solid run. Indigo sales saw a sales growth of 22% yoy. Nano sales were higher m-o-m at 8,262 units vis-à-vis 6,703 units in January and the low hit in November performance of just 500 units on attractive  marketing ventures. Cumulative sales of Nano are ~62,000 way below their expected full year target of >100,000 units.

 

TVS Motor – (TP – Rs86, BUY)

TVS sold 177,412 units in February, a growth of 24% yoy, while on a mom basis it showed a 7.2% growth. The sequential sharp jump was due to a temporary maintenance shutdown of its plants in the month of January. Three wheeler sales crossed the 4,000 mark for the first time as it sold  4,212 units. Scooter sales were 49% up to 40,335 units, while motorcycles were up 13% yoy to 71,462 units. Going forward, the company has maintained its annual guidance of 2mn vehicles in FY 11E which we believe will be a cakewalk as the company has cumulatively sold 1.855 mn units and March being a strong month, selling 1.45 lakh units will be very easy. Management is expecting the export volumes(14% of sales in Feb 2011) to pick up in the coming months while domestic volumes to get slightly impacted by interest rate hike, though we believe that 2 wheelers will not get significantly impacted by it.

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

Hero Honda reported a 23% yoy strong growth to 4.72 lakh units in February, while it was a growth of 1.3% mom. We believe the company will face strong headwinds going forward as Honda goes solo in the Indian markets aggressively and the company underperforms its two wheeler peers on margin as well as volume front in the wake of competition.

 

P.S. Bajaj Auto will come out with their February sales numbers on the 02nd of March 2011.

 

Budget impact on auto sectorThe Indian auto sector for the past couple of months was reeling under the macro concerns such as inflation, possible interest rate hikes, input cost rise, fear of excise duty roll back, tax on diesel vehicles and fuel price hike. However, yesterday’s union budget has been a relief for the auto sector as the excise duty wasn’t rolled back. The budget has also promoted the use of hybrid and electric vehicles by cutting various duties on some of the important parts used for their manufacturing. This will assist companies like M&M who have recently acquired Reva an electric vehicle manufacturer and are already into the hybrid vehicle business through a hybrid model of Scorpio . Also companies like Tata Motors and Ashok Leyland have taken some initiatives towards greener vehicles by launching hybrid buses. Recently Ashok Leyland acquired a 26% stake in UK-based Optare which designs electric buses, while Tata Motors is in the process of launching an electric version of Indica and a hybrid version of Nano. Besides this, Tata Motors and M&M are working on electric versions of Ace and Maxximo respectively. We believe M&M emerged as the biggest beneficiary from this budget within the listed auto space as the budget emphasized on spending more on the agri domain where M&M has its major presence through tractors and other farm equipments and micro-irrigation plans. Furthermore, no increased taxation on diesel vehicles has led to a major sigh of relief for M&M as 100% of its vehicles run on diesel.

 

Written by Fundamental Side

March 3, 2011 at 10:11 am

Momentum Continues in Mo-Town

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Automobile sales for January– Macro pressures fail to dampen the momentum

Hero Honda – (TP – Rs1,777, NEUTRAL)

Hero Honda reported a 19.7% yoy strong growth to 4.66 lakh units in January, but it was a ~7% dip mom. We believe the company will face strong headwinds going forward as Honda goes solo in the Indian markets aggressively and the company underperforms its two wheeler peers on margin as well as volume front in the wake of competition.

Mahindra and Mahindra – (TP- Rs 878, BUY)

M&M reported a strong 22% yoy growth in its auto segment to 35,718 units, with passenger UV sales growing 11%yoy and the 4W pick-up segment which includes Gio and Maxximo posting an 18% growth yoy. Maxximo has maintained its 23% market share in the geographies where it is launched. The company has recently announced the launch of another LCV ‘Genio’ priced at Rs5lakhs. Since the termination of JV with Renault, Logan seems to be regaining its lost pride, as it is posting strong growth month on month. In January, M&M sold 1,120 units of Logan as compared to 555 units in January 2010 and 896 units sequentially. LCV sales grew by 28% yoy, marked by the increase in the sales of LCVs from Mahindra NavistarJV. Farm Equipment Segment(FES) posted a very robust growth of 22% yoy to 19,340 units, while sequentially also they grew by 17%. On a cumulative basis, the company has grown by 28% and 21% in the auto and FES segments respectively.

Maruti Suzuki – (TP – Rs 1589, BUY)

Maruti Suzuki (MSIL) once again sold volumes in the vicinity of 1,10,000 units at 1,09,743 units after a lackluster December. This was a growth of 15% yoy and 22% mom. The company has stuck to its guidance of selling 1,10,000 units per month till the end of FY 11E. MSIL have sold more than 1 mn units cumulatively in the interim of the year for the first time. In the full year we expect it to sell 1.2mn units and post FY11E, management expects it to sell 1,16,000 units per month (1.4mn p.a.). Within the segments, the bread and butter A2 segment of hatch backs posted 24% growth, while the A3 segment witnessed 33% growth. The C segment which contains the recently launched Eeco also showed a good traction of 28% rise on a yoy basis. Exports continued to slide down by 36% as non Western European markets are yet to show signs of pick up.

Tata Motors – (TP – Rs 1580, BUY)

January sales for the company were extremely strong with a 12% mom growth and a 15% yoy growth to 75,423 units, the highest ever sales for the company defying the macro concerns like interest rate hike and inflation worries. CV growth pace was robust in the month, as M&HCV grew by 5% yoy, while LCV grew by 17% yoy. Overall CV sales grew by 12% yoy. PV segment grew by 14% yoy to 28,460 units while utility segment sales grew by 26% yoy. Indica range saw a de-growth of 8% yoy as competition has started to intensify in the hatch back segment where the company has a limited product portfolio in the PV segment, especially the hatch backs. Indigo sales saw a sales growth of 17% yoy. Nano sales were higher m-o-m at 6,703 units vis-à-vis 5,784 units in December and a dismal November performance of just 500 units on attractive marketing ventures. Cumulative sales of Nano are ~53,000 way below their expected full year target of >100,000 units.

TVS Motor – (TP – Rs86, BUY)

TVS sold 165,152 units in January, a growth of 30% yoy, while on a mom basis it showed a 4% decline. The sequential drop was due to a temporary maintenance shutdown of its plants in the month of January. Three wheeler sales came at 3,427 units. Going forward, the company has maintained its annual guidance of 2mn vehicles in FY 11E by selling more than 1.75 mn units per month in the remaining two months. Management is expecting the export volumes to pick up in the next two months while domestic volumes to get slightly impacted by interest rate hike, though we believe that 2 wheelers will not get significantly impacted by it.

Written by Fundamental Side

February 1, 2011 at 6:02 pm

LKP reports: Automobile sales for the month December – Back on track

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From the desk of Ashwin Patil.

Mahindra and Mahindra – (TP- Rs 878, Outperformer)
M&M reported a healthy 42% yoy growth in its auto segment, with UV sales growing 24%yoy and the 4W pick-up segment which includes Gio and Maxximo posting a stellar growth of 47% yoy. Logan reported 896units of sales, a growth of 191% marking a revival of the sedan. LCV sales grew by 22% yoy. On a qoq basis, auto sales have grown by 28%. FES segment posted a very robust growth of 31% yoy to 16,334 units on good monsoon and rabi season picking up in the Northern parts of the country. On a cumulative basis, the company has grown by 29% and 21% in the auto and FES segments respectively.

Tata Motors – (TP – Rs 1580, Outperformer)
December sales for the company were very strong with a 23% mom growth and a 31% yoy growth to 67,441 units thus marking the company’s comeback after a lackluster November. CV growth pace was robust in the month, as M&HCV grew by 14% yoy, while LCV grew by 35% yoy with the highest ever monthly sales of the ACE family. Overall CV sales grew by 25% yoy. PV segment grew by 28% yoy to 19,977 units while utility segment sales grew by 62% yoy on the launch of Tata Aria. Indica and Indigo sales saw a sales growth of 40% and 3% respectively, marking a renewed demand for them. Nano sales were back on track at 5,784 units a 60% yoy growth after a dismal November sales which were at just 500 units. We believe this is due to the company’s rejuvenated marketing efforts and pushing volumes to the dealer end.

TVS Motor – (TP – Rs80, Neutral)
TVS reported 171,190 units of sales in December, a growth of 42% yoy and a 9% mom. This signifies a significant spurt in demand for its existing and new bikes post a slump in November. Three wheeler sales came at 3,431 units. Going forward, we expect the company to report numbers of close to 1.8 lakh per month, which will be growth over December numbers due to wholesale demand for its new models Jive and Wego picking up and three wheeler sales picking up in the traditionally strong quarter.

Hero Honda – (Under Review)
Hero Honda reported a 16% yoy strong growth to 5.01 lakh units in December, but it was a ~19% spurt mom. Though the company has cleared clouds over the royalty issue post its split with Honda and has posted stellar monthly sales numbers, we remain cautious on the stock as it will continue to face added pressures from strengthening presence of Honda and aggressive strategies by its other competitors as well. Hence, we will take a closer look at the stock post Q3 results and revise our rating and target price accordingly.

Bajaj Auto – (TP – Rs 1630, Outperformer)
Though Bajaj Auto has posted its best ever December sales, they have fallen well short of their monthly guidance of 3 lakh units as they posted 2.76 lakh sales this month. It was a growth of just 10% yoy and a dip of 18% mom. The company attributes this to capacity constraints and logistic issues. Henceforth they have guided us of getting back to the 3 lakh mark in each of the remaining 3 months.

Maruti Suzuki – (TP – Rs 1788, Outperformer)
Maruti’s December sales were 17% up yoy while 12% down on mom basis at ~99,000 units in line with our expectations as the company had its bi-annual maintenance shutdown at its various plants for 7 days in December. Due to this the production was low and thus sales. Domestically, the company reported sales close to 89,000 units while exports were close to the 10,000 mark as expected. Going forward, we believe Maruti will once again punch volumes anywhere in between 1,10,000 and 1,15,000 for the rest of the year as demand remains intact. For the full year, we expect volumes to be close to 1.2mn.

Visit www.lkpsec.com for more reports & analysis.

Written by Fundamental Side

January 6, 2011 at 7:20 am