Automobiles - SECTOR UPDATE - Sharekhan

Footing the acceleration pedal with emergency brakes on!

November 2011: Demand spillover negated overall slowdown

The pent up demand for high runners showcased the model specific growth in November 2011 sales. This explains the fact as to why a muted overall auto growth was achieved inspite of adverse macro headwinds. Prominent models with huge waiting periods are the New Swift and the XUV 5OO.

Petrol segment shrinking fast; demand polarisation towards diesel

Polarised demand was witnessed in favour of diesel cars while petrol based four wheelers are witnessing the worst times. Even a category killer product like the Hyundai Eon managed to convert just 10% of its 100,000 enquires into actual bookings. The market leader Maruti Suzuki (Maruti) also presents a similar observation where the petrol portfolio registered a 27% year-on-year (Y-o-Y) decline in sales.

Tata Motors emerged a surprise outperformer, so was Hero Honda

It is heartening to see over 6,000 units of Tata Nano and Indica almost touching 11,000 units in November 2011. This was the best performance by the company in FY2012. Tata Motors' light commercial vehicle (LCV) portfolio also grew by 40% YoY while medium and heavy commercial vehicles (MHCVs) grew at a moderate high single digit rate. The November 2011 sales performance by Tata Motors has now build in our positive expectation that the company is finally making a come back.

Hero Motocorp is another company worth highlighting that grew its two wheeler business by 27% YoY. TVS Motors (TVS) continued to build up on its scooters and mopeds business. Mahindra & Mahindra (M&M) reported a very strong performance in the LCV cargo segment.

Expect broad based sales moderation with selective growth

Petrol cars would remain most vulnerable to macro headwinds. A slowing GDP growth is also likely to moderate MHCV as well as two wheeler sales. We expect demand to revive from January 2012 post peaking of interest rates and some ease in liquidity conditions. Overall, the demand would remain skewed in favour of diesel cars till the budget dictates a decisive verdict.

Source : Equity Bulls

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