Ramesh Pathania/Mint
Ramesh Pathania/Mint

Auto makers register healthy sequential growth in September

Auto sales may rise as demand is expected to revive partially, thanks to the festival season.

For September, auto makers posted poor year-on-year (y-o-y) sales. However, y-o-y comparison becomes meaningless in view of the shift in festival season to October-November this year as against October in 2011. Sequentially, auto makers registered a healthy growth (excluding Hero Motocorp Ltd), which was a positive surprise.

While momentum in the sales of light commercial vehicles (LCVs) and utility vehicles (UVs) was maintained, medium and heavy commercial vehicles (MHCV), tractors and two-wheelers sales continued to witness a challenging environment due to demand slowdown. Among bigger auto manufacturers, Mahindra and Mahindra Ltd (M&M), Maruti Suzuki India Ltd (MSIL) and Ashok Leyland Ltd reported a significantly better-than-expected growth. Hero MotoCorp registered a sluggish performance led by build-up in inventory. We remain cautiously optimistic on auto sales as we expect demand to revive partially led by the festival season.

Tata Motors Ltd reported marginally better-than-expected volumes led by a strong 15.2% y-o-y (11.4% month-on-month, or m-o-m) growth in LCV sales. Total volumes, however, registered a fall of 3.8% y-o-y (up 5.5% m-o-m) as passenger vehicle (PV) sales declined by 17.2% y-o-y (2.8% m-o-m). Commercial vehicle (CV) sales posted a modest growth of 3.2% y-o-y (9.4% m-o-m) due to a 16.6% y-o-y (up 5.3% m-o-m) decline in MHCV sales, which were affected by slowdown in industrial activity.

Ashok Leyland registered a 20.7% y-o-y (12.6% m-o-m) growth during the month on the back of strong momentum in its small commercial vehicle, Dost. Total volumes, excluding Dost, registered an 11.7% y-o-y (up by a strong 15.1% m-o-m) decline on account of sluggish MHCV demand led by slowdown in economic activity.

MSIL posted a better-than-expected sales growth of 9.8% y-o-y (73.6% m-o-m) as production at its Manesar plant continued to improve post the lock-out. Volumes during the month also benefited from a ramp up in production at the Gurgaon plant ahead of the festival season. While domestic sales increased 12.7% y-o-y (77.1% m-o-m), exports sales were down 23.1% y-o-y (up 28.9% m-o-m). The sales in the mini segment, which had been on a declining spree since the last one year, turned positive during the month registering a 4.9% y-o-y (77.5% m-o-m) growth.

M&M continued with its strong sales momentum in the automotive segment (aided by XUV5OO and new Verito) registering a 9.5% y-o-y (5.5% m-o-m) growth in volumes, which was ahead of our estimates. Total volumes, however, registered a 0.6% y-o-y decline (up by a robust 15.8% m-o-m) led by an 18.6% y-o-y decline in tractor sales. On a m-o-m basis, however, tractor volumes recovered 51.8%.

During the month, M&M launched a compact sports utility vehicle, Quanto at an attractive price point of 5.8 lakh (ex-showroom Thane).

Outlook: We believe the long-term structural growth drivers of the Indian automobile industry such as gross domestic product growth (leading to increasing affluence of rural and urban consumers), favourable demographics, low penetration levels, entry of global companies and easy availability of finance are intact, which should support an estimated 10-12% compounded annual growth rate in auto volumes over FY2012-14.

As such, we prefer stocks that have strong fundamentals, high exposure to rural and export markets and command superior pricing power. We remain positive on Ashok Leyland, M&M and Tata Motors.

Edited excerpts from a report by Angel Broking. Comment at mintmoney@livemint.com