Strong onset of festive season - LKP Finance

October 2015 witnessed a strong traction in most of the auto segments. The month of October this year had the inauspicious shradh paksha followed by the auspicious festive season of navratra. However, the festive navratra season had a larger bearing on the auto sales numbers. We saw passenger car sales like never before. Not only the listed car makers like Maruti Suzuki, Tata Motors and the UV maker M&M posted robust growth, but the unlisted players like Honda, Toyota, Ford, Hyundai and Renault too posted a very strong growth. This can be attributed to the new model launches like Maruti Baleno, Renault Kwid, previous month launch of Hyundai Creta, Elite i20/Active, M&M's dual launches of TUV3oo and Supro. Apart from this, attractive price offerings, lower fuel costs and interest rate cycle moving down the spiral have added further to the festive mood. This has made October the highest ever month of auto sales with growth of 22%. We must also note that this growth has come despite having a high base of last year when both Dashera and Diwali were in October. On the two wheeler front too, except for Bajaj Auto, all the other two wheeler companies posted a double digit growth. MHCV saw slight softening of growth as implementation of BSIV norms in October led to this.

Going forward, we expect November also to post sales in a similar range on a lower base of last year. Post that, the growth will normalize and come down but full year numbers will be strong in the range of 10-15% for cars, while for 2W we may see lower single digit growth especially for Hero and Bajaj in the domestic markets. MHCV sales will be in the higher 20% range, while LCV may see some recovery in the rest of the year, but will still end up in the red.

Going to the stocks, we need to watch whether the trend seen in Hero's numbers continue hereon and what impact does the upcoming permit opening has on Bajaj's numbers. We like MSIL on its sheer market leadership strength, its image of a car made for India and its solid distribution network. We like Ashok Leyland as it's a prime beneficiary of the CV cycle up move and Tata Motors on expectations of JLR strength in non Chinese markets and domestic CV resilience. M&M saw a robust sales growth in October on the back of newly launched TUV3oo and strong CV sales. On the FES side, the pain continues on weak monsoon and no significant triggers in the rural markets.

Source : Equity Bulls

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