India Autos - Building up for the festive season - Anand Rathi

Lower base of Sep'12 inflates growth rate. In Sep'13, auto volumes grew 12.4% yoy, marking the second month of yoy growth during 1HFY14. Key growth drivers were - (1) Motorcycles (up 17.5% yoy), due to a lower base for Hero MotoCorp. and TVS Motors and ramp-up in production by Honda Motorcycle & Scooters India; and (2) Scooters, which grew 24.2% yoy. Most other segments grew modestly - passenger cars was up 4.7% yoy and three wheelers up 3.1% yoy; utility vehicles, M&HCVs and LCVs declined 9%, 37.1% and 18.1%, yoy, respectively. For ytd FY14, industry volumes were marginally higher by 1.7 yoy, while production was up 0.7% yoy.

Ford 2nd in UVs; Maruti regains ground in cars. In ytd FY14, UV sales are lower 0.5% yoy, owing to higher base and rising cost of ownership. Growth was primarily driven by the launch of Ford EcoSport, which has pushed Ford to the second place in the UV segment in Sep'13. In PCs, Maruti gained 415bps market share in 1HFY14 as it came off a low base. In ytd FY14, Hyundai and Honda gained market share of 65bps and 235bps, respectively.

HMSI remains on a strong footing. Despite coming off a lower base, both Bajaj Auto and HMC lost market share in motorcycles (down 362bps and 176bps, respectively, in Sep'13). The biggest gainer was HMSI (up 320bps yoy), followed by Mahindra Two Wheelers (up 78bps) after the launch of its new motorcycles Pantero and Centuro.

Our take. We foresee near-term demand weakness, with significant yoy growth unlikely in the festive season for most commuter segments. CV sales are likely to remain depressed. Our top pick in the auto sector is M&M, currently trading at 8.9x FY15e consolidated earnings.

Source : Equity Bulls

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