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Sector Update: AutoCheck for December2011 - Way2Wealth Brokers
Posted On : 2012-01-03 20:23:48( TIMEZONE : IST )
The "Resilient" Equation - "Reversed"
Brief
The Month has witnessed the 'Resilient Equation' reversing between the 2 Wheeler (2W) segment and the 4 Wheeler (4W) segment. The 2W segment has observed subdued growth on a High Base with Modest Demand (Lower Conversions), whilst the 4W's in terms of Passenger Cars (PC) showed a divergent trend with volumes supported by year -end promotional offers and pre-buying in expectations of a price hike in January. Commercial Vehicles (CV) continued to show a steady growth riding on the back of the Hub and Spoke Model of the LCV segment, whilst 3Wheelers (3W) continued to under perform. The single digit growth among the Moped segment also raised concerns on Rural Demand.
We expect forthcoming 2Wheeler sale volumes to remain 'Meek, but not Weak' as High base kicks in and growth rate starts adjusting to macro economic impediments. Volume out performance alongwith inherent strength of the Industry in terms of High Return Ratios and High Asset Turnovers have accounted for P/E Multiples to be on the higher side.
The segments, which are falling short on the mathematic rule of (66% of sales being covered in 8 months) are the PC & 3W Industry. Following the demand behaviour, Petrol Models are being pushed with higher discounts and promotional offers, whilst Diesel models are facing high waiting periods. Capitalizing - well on the Diesel Wave has been Tata Motors, which is reflective in its December offtake.
Q3FY12 sale performance would lag the growth witnessed in Q2FY12 for the Two Wheeler Space and Maruti Suzuki India among the PC space. Tata Motors offtake would be better in Q3 as against Q2. M&M would see a similar growth of >20% as that observed in Q2FY12, whilst Ashok Leyland would see a growth of >25% on a low base.
We foresee 2 reasons of a trend reversal between the 2W & 4W space over the next 6-8 months. Probability of a cut in interest rates & Easing of Commodity (Input) Prices would prove to be sentiment triggers with deferred purchases coming up as pent-up demand.
