Automobile - Festive season growth continues... - ICICIdirect

Good growth numbers on dealer inventory ramp-up ahead of festive season!

September saw the second consecutive month of growth for the automotive season, as volumes picked up on dealer inventory ramp-up ahead of the festive season. For September, overall industry volumes grew 12.4% YoY to ~1.86 million units. The growth was led by the twowheeler industry (18.2% YoY growth), aided by high growth in HMSI as production got ramped up (38% YoY increase) and HMCL on the low base of last year. The scooter segment outperformed the entire industry and grew 24% YoY while the motorcycle segment has grown ~18% YoY. Domestic car sales continued to remain flat (up ~1% YoY), which has been disappointing even as market leader MSIL grew ~15% YoY and new product launches cushioned volumes for other car markers. The domestic passenger vehicle segment (inclusive of vans) has de-grown 4% YoY. The M&HCV segment has continued to post lower numbers and de-grew more than ~40% YoY as economic activity levels have remained muted. The LCV segment has also seen a dip in volumes (~18% YoY). Tractor volumes have continued to surprise on the positive side on better monsoons, higher MSPs and pent-up demand.

Rural demand remains supportive even as urban demand weathers out...

With the festive season inventory ramp-up beginning, the industry has seen good volumes for the month. Overall, the rural segment has been able to aid the industry, even as the slowdown hit urban demand more. This has been evident with the smart growth seen in the tractor segment and continued volumes seen for the Bolero. However, with easing of interest rates for the auto industry, we believe urban demand will revive and aid volumes, going ahead.

Festive season delivers for now; new products to help sustain momentum!

With the festive season having aided volume growth for now, it is incumbent for auto makers to push newer products in order to sustain the momentum. With reports of 15 major launches in the next six months, HMCL is likely to garner volumes. Similarly, new product launches by OEs are likely to bring customers back to showrooms even without discounts, as seen in case of the Duster, Ecosport, Amaze and Terrano (bookings).

Industry outlook

Till now, the festive season has been positive for the industry. However, for the full year, we have pared down our volume growth expectations. We expect volume growth in the passenger vehicle segment to be ~1% while the CV segment is expected to de-grow ~1% YoY. The two-wheeler segment is likely to lead growth with ~3% YoY growth. H2FY14E is likely to be strong as it coincides with a pick-up in urban consumption demand after a normal monsoon, which will aid rural sentiments and aid in softening of interest rates.

On the basis of index performance, the BSE Auto index (one-month return -10.0%) has underperformed the BSE Sensex (one-month return -6.0%). Among our I-direct auto-coverage, we remain bullish on frontline OEM stocks like Tata Motors DVR and Maruti Suzuki. In the ancillary coverage, we find favourable valuation and margin stability in JK Tyres.

Source : Equity Bulls

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