PINC Research has come out with its report on auto sector. The research firm has maintained neutral rating on the sector.
Finance, Fuel cost, Strike.... Indian automotive industry continues to witness soft demand emanating from high fuel cost and increase in interest rates. The passenger car industry has been the worst impacted by this and reported their worst performance over the last 30 months. Beside the slow demand, the industry was also besieged by employee strike at Maruti Suzuki’s Manesar plant. In this gloom, 2-wheeler segment maintained their outperformance with strong double digit growth. The prime factors behind strong performance of 2-wheeler segment is their low dependence on financing and lower operational cost. The surprise during the month was growth in medium and heavy commercial vehicle (MHCV) segment despite their high dependence on financing and weak freight market owing to monsoon.”
“We expect MHCV segment sales to see a decline over next 3 months due to increase in diesel price announced in June 2011. Moreover, last year the segment was doing very well due to recovery in the economy and impending emission norm changes.”
Two-wheelers: Industry dispatches grew by 16% to 1.24mn units. Market leader, Hero Honda, maintained its over 0.5mn units run rate. Bajaj Auto dispatches were higher by 14% to 323k units.
Passenger Vehicles: Passenger vehicles dispatches had a low single digit growth with adverse impact due to strike at Manesar plant of Maruti Suzuki. Toyota became the latest entrant in the compact car segment with launch of ‘Etios Liva’. Next few months are expected to be busy for the industry with several launches scheduled. M&M was one of the outperformer in the segment with its array of diesel powered utility vehicles.
Commercial Vehicles: MHCVs volumes contrary to our expectation witnessed a growth. LCV segment continues to see strong demand.
Our Viewpoint: We expect automobile demand to remain soft till the month of August. Demand revival is expected to happen with the onset of the festive season in the month of September’11. We estimate 15% growth in 2-wheelers and passenger vehicles demand during FY12. However for passenger car segment, demand is expected to remain weak during H1FY12. Our top picks in the sector are Bajaj Auto, Mahindra & Mahindra and Maruti Suzuki.
Hero Honda Motors (HH):
Hero Honda (HH) maintained a monthly runrate of over 0.5mn units for the fourth consecutive month. Dispatches during June’11 grew 20.1% to 512k units and were inline with estimates. The company has reported record 1.53mn dispatches in Q1FY12. The company is expected to finalise the location for its fourth plant shortly. Gujarat and Karnataka are expected to be on the top of the list for possible location. HH is expected to invest Rs8bn on the new facility with a capacity of 1mn units per year. We maintain a ‘HOLD’ rating on the stock with a target price of Rs1,806 discounting FY13E earnings 14x.
Bajaj Auto (BJAUT):
Bajaj Auto (BJAUT) dispatches for the month of June’11 were ahead of our estimates with an overall growth of 16.2% YoY to 367k units. While three wheelers dispatches were inline with estimates, the motorcycle segment exports were ahead of estimates. Overall motorcycle dispatches grew 14.2% YoY to 323k units. The company had launched the Discover 125cc in April’11 and is expected to launch the new 150cc Boxer in the near future. Three wheeler dispatches were up 34.4% YoY and were inline with estimates. Exports jumped 24.6% YoY and 12.1% MoM to 142k units. Overall dispatches for Q1FY11 crossed the 1mn unit mark to 1.1mn units, the highest ever for the company. We maintain a ‘BUY’ recommendation on the stock with a target price of Rs1,665 discounting FY13E earnings 13.5x.
Hero Honda (HH) maintained a monthly runrate of over 0.5mn units for the fourth consecutive month. Dispatches during June’11 grew 20.1% to 512k units and were inline with estimates. The company has reported record 1.53mn dispatches in Q1FY12. The company is expected to finalise the location for its fourth plant shortly. Gujarat and Karnataka are expected to be on the top of the list for possible location. HH is expected to invest Rs8bn on the new facility with a capacity of 1mn units per year. We maintain a ‘HOLD’ rating on the stock with a target price of Rs1,806 discounting FY13E earnings 14x.
Bajaj Auto (BJAUT):
Bajaj Auto (BJAUT) dispatches for the month of June’11 were ahead of our estimates with an overall growth of 16.2% YoY to 367k units. While three wheelers dispatches were inline with estimates, the motorcycle segment exports were ahead of estimates. Overall motorcycle dispatches grew 14.2% YoY to 323k units. The company had launched the Discover 125cc in April’11 and is expected to launch the new 150cc Boxer in the near future. Three wheeler dispatches were up 34.4% YoY and were inline with estimates. Exports jumped 24.6% YoY and 12.1% MoM to 142k units. Overall dispatches for Q1FY11 crossed the 1mn unit mark to 1.1mn units, the highest ever for the company. We maintain a ‘BUY’ recommendation on the stock with a target price of Rs1,665 discounting FY13E earnings 13.5x.
TVS Motor (TVSL):
TVS Motor (TVSL) monthly dispatches for Jun’11 were inline with estimates albeit with a poorer mix. Lower single digit growth in the motorcycle segment was compensated by the 20% plus growth in the scooter segment. Overall dispatches grew 14.3% YoY to 182k units. Motorcycle sales reported a moderate single digit growth of 5% to 70k units. We estimate that domestic motorcycle dispatches have declined during the month and reflects further marginalisation of TVSL in domestic market. Scooter segment continued to outperform with a growth of 21% to 44k units.
TVS Motor (TVSL) monthly dispatches for Jun’11 were inline with estimates albeit with a poorer mix. Lower single digit growth in the motorcycle segment was compensated by the 20% plus growth in the scooter segment. Overall dispatches grew 14.3% YoY to 182k units. Motorcycle sales reported a moderate single digit growth of 5% to 70k units. We estimate that domestic motorcycle dispatches have declined during the month and reflects further marginalisation of TVSL in domestic market. Scooter segment continued to outperform with a growth of 21% to 44k units.
However, given the capacity expansion by market leader HMSI, we see threat to scooter segment of TVSL. Low margin-high volume Moped segment maintained its steady growth of 21% to 64k units. Three wheeler dispatches for the month are at 3.8k units. Overall domestic dispatches grew by 10% to 155k units while the exports reported a growth of 48% to 23k units. We expect TVSL to clock volumes of 2.28mn units in FY12. We maintain a ‘HOLD’ rating on the stock with a target price of Rs64 discounting FY13E earnings 12x.
Maruti Suzuki India (MSIL):
Maruti Suzuki (MSIL) dispatches for the month of Jun’11 at 80k units were 6.7% below our estimates. The company reported an 8.8% decline in dispatches to 80k units. The company reported a decline in monthly numbers after a gap of 30 months as monthly dispatches fell to the lowest level since July’09. Operations during the month were severely impacted due to the worker strike at the Manesar facility. Additionally, the company took a planned annual maintenance shutdown at the Gurgaon facility for 6 days and Manesar facility for 4 days. The Manesar facility was expected to do into a maintenance shutdown in July. The company had undertaken a similar maintenance shutdown in June last year.
The A3 segment (Sx4 and Dzire) was severely impacted as dispatches slumped 60% YoY (76% MoM) to 3k units. Both Sx4 and Dzire are exclusively manufactured at Manesar and hence were impacted the most due to strike. The A2 segment (Alto, WagonR, Swift, Ritz) dispatches were marginally higher by 2.3% to 53k units. This segment was also adversely impacted as Swift and A-Star are manufactured at Manesar facility. MPV segment (Omni, Eeco) grew 22.9% YoY to 12k units. Overall domestic dispatches were down 3.8% to 70k units. Exports slumped 32.7% YoY to 10k units. We have a ‘BUY’ recommendation on the stock with a target price of Rs1,658 discounting FY13E earnings 15x.
Maruti Suzuki India (MSIL):
Maruti Suzuki (MSIL) dispatches for the month of Jun’11 at 80k units were 6.7% below our estimates. The company reported an 8.8% decline in dispatches to 80k units. The company reported a decline in monthly numbers after a gap of 30 months as monthly dispatches fell to the lowest level since July’09. Operations during the month were severely impacted due to the worker strike at the Manesar facility. Additionally, the company took a planned annual maintenance shutdown at the Gurgaon facility for 6 days and Manesar facility for 4 days. The Manesar facility was expected to do into a maintenance shutdown in July. The company had undertaken a similar maintenance shutdown in June last year.
The A3 segment (Sx4 and Dzire) was severely impacted as dispatches slumped 60% YoY (76% MoM) to 3k units. Both Sx4 and Dzire are exclusively manufactured at Manesar and hence were impacted the most due to strike. The A2 segment (Alto, WagonR, Swift, Ritz) dispatches were marginally higher by 2.3% to 53k units. This segment was also adversely impacted as Swift and A-Star are manufactured at Manesar facility. MPV segment (Omni, Eeco) grew 22.9% YoY to 12k units. Overall domestic dispatches were down 3.8% to 70k units. Exports slumped 32.7% YoY to 10k units. We have a ‘BUY’ recommendation on the stock with a target price of Rs1,658 discounting FY13E earnings 15x.
Mahindra & Mahindra (M&M):
Mahindra & Mahindra (M&M) Jun’11 dispatches exceeded our estimates with an impressive growth in the tractor segment. Auto division dispatches too were 4% higher than estimates, growing 29% YoY to 35.6k units. Passenger UVs, wherein M&M is the market leader, grew 14.1% to 14.5k units. The pickup & SCV segment was propped up by incremental volumes from the Maxximmo and grew 64.9% to 11.6k units. Verito (earlier Logan) dispatches at 1,510 units were at a 30 month high.
Mahindra & Mahindra (M&M) Jun’11 dispatches exceeded our estimates with an impressive growth in the tractor segment. Auto division dispatches too were 4% higher than estimates, growing 29% YoY to 35.6k units. Passenger UVs, wherein M&M is the market leader, grew 14.1% to 14.5k units. The pickup & SCV segment was propped up by incremental volumes from the Maxximmo and grew 64.9% to 11.6k units. Verito (earlier Logan) dispatches at 1,510 units were at a 30 month high.
Commercial vehicle dispatches were marginally down 9% to 1,010 units. Auto exports were up 37.4% to 1,812 units. The growth in the farm equipment (FES) division was surprising. Domestic tractor sales surged 39.8% YoY to 21.5k units. This is the second highest monthly dispatch for the company. Tractor exports were flat at 1,178 units. We maintain a ‘BUY’ recommendation on the stock with a SOTP based target price of Rs836.
Tata Motors (TTMT):
Tata Motors’ (TTMT) dispatches at 66k for the month of Jun’11 were 7% ahead of our estimate of 62k units. The product mix too was better than expected with commercial vehicle segment outperforming our estimates. Domestic MHCV dispatches grew by 6.2% YoY to 16k units as against our expectation of a marginal decline. LCVs continued their impressive performance, growing 18% YoY to 23k units. The passenger car segment, which has been suffering from the pangs of competition, witnessed a 20.9% decline to 18.5k units. Nano dispatches were at 5.5k units (down 29%) while Indica dispatches were at 8k units (down 9%). Indigo dispatches were down 35% YoY for the second consecutive month to 4.9k units. Utility vehicle dispatches were down 3.6% to 3.5k units. As a result of the weak passenger vehicle segment, total domestic dispatches were down 2.1% YoY to 61k units. Exports were flat at 5k units. We do not have a rating on the stock.
Tata Motors’ (TTMT) dispatches at 66k for the month of Jun’11 were 7% ahead of our estimate of 62k units. The product mix too was better than expected with commercial vehicle segment outperforming our estimates. Domestic MHCV dispatches grew by 6.2% YoY to 16k units as against our expectation of a marginal decline. LCVs continued their impressive performance, growing 18% YoY to 23k units. The passenger car segment, which has been suffering from the pangs of competition, witnessed a 20.9% decline to 18.5k units. Nano dispatches were at 5.5k units (down 29%) while Indica dispatches were at 8k units (down 9%). Indigo dispatches were down 35% YoY for the second consecutive month to 4.9k units. Utility vehicle dispatches were down 3.6% to 3.5k units. As a result of the weak passenger vehicle segment, total domestic dispatches were down 2.1% YoY to 61k units. Exports were flat at 5k units. We do not have a rating on the stock.
Source:moneycontrol.com
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