Automobile sales for May showed some respite after a dull start in April. Positive surprises came from Maruti Suzuki India Ltd (C segment), Tata Motors Ltd (medium and heavy commercial vehicles), Mahindra and Mahindra Ltd, or M&M, (pick-ups) and TVS Motor Co. Ltd (motorcycles), whereas the passenger car segment of Tata Motors and the A2 segment of Maruti Suzuki sprung a negative surprise.
Macro headwinds continue to aggravate and this has increased the ownership cost in the form of higher interest rates, increasing fuel prices and price hikes.
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Consequentially, footfalls at dealerships as well as conversion rates have fallen over the last two months.
We do not see headwinds subsiding as we expect the Reserve Bank of India to sustain its monetary tightening policy. Also, fuel prices may see more hikes in the near future. However, on the positive side, we believe that a good monsoon will play a major role in driving a decent growth in the sector on a high base of FY11.
Hero Honda Motors Ltd reported a volume growth of 15% year-on-year (y-o-y). However, volumes declined on a sequential basis as April saw a higher inventory built-up with the dealers.
TVS Motor’s motorcycle sales grew ahead of expectation at 11% y-o-y, which was the silver lining. Scooters and mopeds continued to grow at a strong pace with an increase of 20% and 24% y-o-y, respectively, for the month.
For M&M, its utility vehicle volumes grew by 14% y-o-y driven by the Bolero and the Scorpio. The Bolero is the largest selling utility vehicle brand doing a monthly run rate of over 8,000 units. Its tractor volume in the domestic market reported a growth of 8% y-o-y. Total three-wheeler and four-wheeler pick-up sales showed a strong growth of 20% y-o-y. Three-wheeler sales moderated and posted a 4% y-o-y growth, whereas the four-wheeler pick-up reported a growth of 28% y-o-y.
Maruti Suzuki reported a marginal 2% y-o-y growth in the overall volume, wherein domestic sales grew by 4%.
Exports showed no sign of recovery and declined by 13% y-o-y. The West Asia markets remained turbulent. On the positive side, the C segment (Omni and Eeco) continues to surprise positively with a 20% y-o-y growth. Despite the occurrence of To maintain our 12-14% volume growth expectations for FY12, the company needs to maintain a monthly run rate of at least 1.1 million units on a high base of FY11.
For Tata Motors, its medium and heavy commercial vehicles sales reported a strong comeback with a 12% y-o-y growth. Its light commercial vehicle sales are going strong with a 24% y-o-y growth during the month.
The passenger car segment disappointed with Indica and Indigo sales failing to revive. The sales of both the Indica and the Indigo declined by 35% y-o-y, while the Nano reported a 25% y-o-y decline over April.
We expect Ashok Leyland Ltd to report volumes of 6,800 units for May, indicating a growth of 5% y-o-y and 23% sequentially. For Bajaj Auto Ltd, we expect motorcycle sales to grow by 17% y-o-y on the back of incremental volumes from the newly launched Discover 125cc. Its three-wheeler sales are expected to grow by 34% y-o-y.
Edited excerpts from a report by Sharekhan Ltd. Your comments are welcome at firstname.lastname@example.org