Delhi Visit - SIAM Conclave, dealer check & Auto Expo, 2012 - MSFL Research

In our recent trip to New Delhi, we attended SIAM Conclave, interacted with two-wheeler dealers across the OEMs and visited the Auto Expo to get a feel of things happening in the auto and auto ancillary industry.

We attended the Annual Society for Indian Automobile Manufacturers' (SIAM) conclave 'Looking Ahead' on January 4 in New Delhi, where the discussion centered on economic and industry outlook for FY 13. The two wheeler OEM's sounded the most confident with industry growth in ranging from 10-12% (scooters to grow at faster rate) while passenger car OEM's sounded most pessimists with growth ranging from 5-10% depending upon the government stand on the differential fuel pricing. The CV players expect volume growth to remain strong in the LCV segment (15-20%) - driven rural demand and under penetration while they expected M&HCV segment to grow at 6-8%.

We visited two wheelers dealer across OEM's to enquire about the current trends in the industry. Retail demand was quite strong across OEM's except TVS which continues to struggle due missing executive segment motorcycle in their portfolio. TVS and Bajaj dealers indicated a price hike between Rs.500 – 1,500 across the product range soon. Further Bajaj Auto had started interest subvention scheme from 11.9% to 9.9% in January. However no dealer is offering discounts on the product range. Pulsar 150cc, Splendor, Passion and Activa remains the key volume drivers. The scooter segment driven by HMSI increased production has resulted in waiting period to come down for its Activa model from three months to 20-25 days while motorcycle models from one month to 10 days. We will need to wait for a couple of more months to see if it is able to maintain its strong growth in medium term as well.

We attended the business days at Auto Expo 2012 held in New Delhi to get a feel of things happening in the auto and auto ancillary industry. The Expo was driven clearly by the OEM's branching out their product portfolio to safeguard them from cyclical nature of different business segments (2011 kind situation). So while the passenger car players introduced UV's, motorcycle players introduced scooters and CV player's entered/extended portfolio in the LCV's and HCV's across tonnage points.

Our key take from the Expo is increasing competition across industry (small car segment peaking out) and we expect leaders in the segment to fight hard to maintain their market share. Though we expect long term growth story to remain intact we believe growth will be shared by all the players. We further expect higher marketing & promotional expenditure by companies to impact operating margins as they aggressively market their vehicles/brand.

We continue to like players in the two wheeler space post correction in last few weeks as the industry has been relatively insulated from slowdown seen. Though there has been near term concerns on slowing urban demand we believe the segment will be first to catch up as sentimental factors improve. We like Bajaj Auto (TP – 1,922) due to higher exposure to exports & launch on new Pulsar and TVS Motors (TP – 73) as we expect new launches in coming months will push sales and help maintain operating margins. We still remain wary of volume growth for MSIL post FY 13 due to higher competition in the segment. We would like to take a call on better placed ancillary companies rather than highly competitive PC and CV segment.

Source : Equity Bulls

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