BRICS on Wheels - Monthly Auto Update - Top picks Tata Motors, TVS

After the festival-led month of Oct 2012, sales of BRICS auto universedeclined 1% yoy and 6% mom in Nov 2012, despite a low base. Astrong growth in UVs drove PV sales (up 5% yoy), while CV salesdeclined (2% yoy) due to poor industrial production. Two wheelersales also declined 3% yoy, but tractors surprisingly saw strongdomestic sales. UV sales drove a growth of 38% yoy in M&M's PVsales and Tata Motors' PV sales fell 35% yoy, while healthy pick up inAlto 800 sales failed to reflect in Maruti's PV sales (up 13% yoy). Intwo wheelers, Hero MotoCorp's sales declined 6% yoy and BajajAuto's sales fell 2% yoy, while TVS' sales increased 3% yoy. Thegrowth in Tata Motors' LCV sales negated the decline in its M&HCVsales, while Ashok Leyland's Dost posted its first mom decline sinceits launch, thus contributing to overall decline of 6% yoy. The marriageseason in Dec 2012 will help maintain PV sales, though the growth inthe rest of the segments is expected to remain strained in Q3FY13.

Two-wheelers: Industry sales declined 3% yoy and 6% mom. TVSmaintained its sales for the month, with sales of motorcycles up 5% yoyand mopeds up 12% yoy, while scooter sales declined 15%. Bajaj Auto'ssales declined 2% yoy to 326,727 units, with the high margin Pulsar andDiscover brands contributing 68% of sales. Hero MotoCorp's performanceremained weak, with sales declining sharply by 6% yoy to 502,305 units,indicating loss of market share to HMSI and Bajaj Auto.

Passenger cars: Growth normalized to 5% yoy post festive sales, albeitled once again by the UV segment. Maruti's sales grew 13% yoy (flatmom) to 103,200 units. The company has received 40,000 bookings forthe Alto800, though its mini segment's sales were still down 6% yoy. TataMotors' PV sales fell 35% yoy to 18,031 units, with the UV segment beingthe only one to provide some relief (up 7% yoy). M&M's PV sales grew38% yoy (down 7% mom) to 24,604 units.

Commercial vehicles: CV sales declined 2% yoy due to low industrialproduction and finally also impacted the growth in LCV sales, whichslowed down. Ashok Leyland's sales fell 6% yoy, as its LCV Dost reportedits first mom decline since its launch in September 2011. Tata Motors' CVsales remained flat yoy, as a growth of 22% yoy in LCV sales offset adecline of 41% yoy in M&HCV sales.

Tata Motors and TVS our preferred bets

Tata Motors: We believe JLR's performance will continue to drive TataMotors' stock, as it contributes 75% of revenue and90% of profit. Wevalue the standalone business at Rs37/share, 12x our FY13 core earningsestimate, and JLR at 7x FY13 earnings (adjusted for capitalisation forproduct development) at Rs304 per share. We assign a 20% discount to itsinvestments/subsidiaries (Rs264/share) to arrive at a SOTP-based targetprice of Rs299. Maintain Buy.TVS: At the current market price, the stock trades at 13x FY13E and 7xFY14E. We value TVS at 8x FY14E earnings with a target price of Rs44.Maintain Add.

Source : Equity Bulls

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