Auto industry ending the year on a good note - LKP Research

The performance of the auto industry in March was satisfying albeit on a low base. Car makers such as Maruti grew on new launches. Exports remained weak particularly on the two wheelers side as unavailability of $ currency in most of the African countries persisted, where the two wheelers are strongly present. Companies such as Bajaj Auto faced the impact to a great extent due to this, whose domestic performance was strong at 34.5% yoy on strong Avenger launch and higher CT 100 sales, but exports grew by just 2.6%. Overall Bajaj Auto sales grew by 22%. Hero saw a strong growth of 14.1% as domestic sales strengthened. TVS grew by 10.2% yoy as exports fall of 26% reduced the upside coming from domestic sales. Within the PV segment, MSIL surpassed everyone's expectations as the sales zoomed by 16% on new launches such as S-Cross, Baleno and Vitara Brezza. M&M on the other hand showed a great traction in the domestic markets as sales grew by 17% yoy on the recent launches of TUV 3oo and KUV 1oo. Domestic FES business sold 34% higher on a yoy basis, and 9.7% mom. CV business for M&M has been performing well on the growing demand for the newly launched 'Jeeto'. CV cycle remained strong. Tata Motors saw a great surge in both MHCV and LCV sales. MHCV grew by 25% both qoq and yoy while LCV sales maintained its positivity for fourth consecutive month which shows LCV business is on a turnaround, growing 19.5% yoy. Though its car sales disappointed again, the company on the back of strong CV sales and exports continued to grow. Ashok Leyland has been in top gear for several of the past months. In March too, the company grew by 31%, out of which MHCV grew by 32%, while LCVs too gained momentum at 27%.

We are positive on Hero Motocorp. Hero being a rural player, an enhanced spending outlay to the rural markets in the recent budget by the government if coupled with normal rainfall will boost rural India thus driving the Hero stock (50% volumes from rural mkts). Bajaj is low on exports growth, but performing well in the domestic markets. Allotment of more 3W permits in Maharashtra may provide the much needed fillip to its 3W business. TVS may face competition with new rival launches and slow margin growth given weak exports henceforth. We like MSIL on its sheer market leadership strength, its image of a car made for India and its solid distribution network. Also on its new launches like Baleno, Vitara Brezza and Ignis hatchback (to be launched in H2 FY 17), we remain sanguine on MSIL. We like Ashok Leyland as it's a prime beneficiary of the CV cycle up move and strong surge in volumes every month. We do like Tata Motors on expectations of JLR strength in western markets, improvement in China and domestic CV resilience. M&M is one of the biggest victim of the higher cess implementation as well as continuation of ban in the Delhi NCR region on the >2000 cc diesel vehicles. Higher R&D costs and withdrawal of tax benefits from Haridwar plant may have an impact on margins as well. FES segment grew in March on low base. Good monsoon may revive FES sales.

Source : Equity Bulls

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