Automobile June Sales subdued, GST led price cuts to benefit the sector: Angel Broking

Vews of Mr. Shrikant Akolkar (Research Analyst- Auto & Auto Ancillary, Angel Broking):

Maruti Suzuki

Maruti Suzuki's June sales grew by 7.6% yoy to 1.06 lakh vehicles. The domestic PV sales grew by 1% yoy to 93,057 units. While the entry level segment saw a yoy decline of 8%, premium category sales grew by more than 40% each indicating that the company has kept trend of strong growth in the premium category vehicles i.e. Ciaz, Vitara Brezza, S-Cross, etc. Total exports grew by 96% yoy to 13,131 units in the month.

In June, due to the run up to the GST, the customers were seen deferring the vehicle purchases hence company had slowed down the vehicle dispatches to the dealers and had also announced some discounts. With the GST implemented, company has fully passed on the GST benefit to its customers by cutting the car prices by about 3% in most categories. However the vehicle prices in hybrid vehicle categories have seen mild increase. We have an accumulate rating on the stock with price target Rs 8,067.

Hero MotoCorp

Hero MotoCorp, reported a yoy growth of 13.6% to 624,185 two-wheelers in June 2017. Company reported a 13% growth in the motorcycles and 22% growth in the scooters. The volume growth was strong owing to a strong wedding season. With the GST coming in the picture, company has cut the prices Rs 400 to Rs 1800 on the mass selling brands while in the premium category it has cut the prices upto Rs 4000 per unit. We have a neutral rating on the stock.

Bajaj Auto

Bajaj Auto reported a poor set of numbers with 36% decline in the domestic two wheelers volumes and 8% decline in the export volumes. Bajaj's total two wheeler sales for June-2017 declined by 25%, CV volumes also declined by 8% which includes 25% decline in the domestic segment and 15% decline in the exports. Total vehicle sales declined by 23%. The company cut the vehicle prices by upto Rs 4,500 a fortnight before the GST implementation despite which the sales have remained weak. We have a neutral rating on the stock.

Ashok Leyland

Ashok Leyland reported total 11% growth in the June vehicle volumes. MHCV volumes grew by 6% while LCV volumes grew by 29%. The sales have shown a strong rebound compared to the May numbers when company had reported 8% decline in the total vehicle numbers despite 22% jump in the LCV sales as MHCV sales disappointed by 18% decline. Company has indicated of 10-15% growth in MHCV volumes in FY18 and expects LCV contribution to go up from current ~25% to ~50% in next few years with introduction of new products. We have a buy rating on the stock with a price target of Rs 116.

Source : Equity Bulls

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