Auto-Monthly - December 2011 - Wheels on Road - On course! - Centrum

Auto stocks under our coverage universe (except for Maruti Suzuki India Limited) had strong double-digit volume growth for the month of November 2011 YoY. The 2W segment continued to maintain its strong volume traction with top three players registering YoY volume growth in the range of 23-25%. YTDFY12 volume growth of these players also remained strong at 17-18%. Within the PV space, except for Maruti Suzuki ( Management attributed the volume decline to gradual ramp-up of Manesar-B plant and supply of diesel engines being still capped at 20,000 per month), Tata Motors ( positive surprise – YoY growth of 81% ) and M&M had decent volume growth YoY. Within the commercial vehicle (CV) space, Tata Motors registered 9% YoY growth in the domestic M&HCV segment and 41% YoY growth in the LCV segment. YTDFY12 trend in volume growth for M&HCV segment was in-line with our estimate of 8-9%. Though we were more optimistic on LCV growth at 18-19% it was much higher than our expectations at 26-27%.

Mahindra and Mahindra (M&M): For November 2011, M&M registered overall sales of 58,249 units (up 30% YoY and down 21% MoM). While the Automotive segment at 40,722 units registered a healthy YoY growth of 53% (UV break-up : Bolero – 8,004 units, Scorpio – 4,646,XUV and Xylo 1,637 units each), it saw a marginal drop of 1.2% on MoM basis. Tractor sales at 17,527 units registered a YoY drop of 2.6% and MoM drop of 44.9%. Tractor volumes declined as the base reflected festive season of 2010 falling in November, as against October this year.

Maruti Suzuki (MSIL): MSIL's Nov-11 volumes at 91,772 units registered a drop of 18.5% YoY, however, it recovered sharply MoM registering a growth of 65%. While domestic volumes de-grew by 19.2% YoY (up 61% MoM), exports de-grew 11% YoY (up 115% MoM). As indicated by the management, domestic volumes during the month of Oct 2011 were impacted by ~40,000 units due to labor unrest at its Manesar plant and Suzuki Powertrain plant (impacting Gurgaon plant as well) from 7 Oct 2011- 21 Oct 2011.

Tata Motors (TAMO): TAMO registered a volume of 76,645 units for November '11, up 40% YoY and 13% MoM. On the domestic front, M&HCV segment grew 9% YoY (-4.5% MoM). The domestic LCV segment registered growth of 41% YoY (up 31% MoM) as the LCV production for the month of October 2011 was impacted due to production loss at its Pantnagar plant due to civil unrest in Uttarakhand. Overall, the domestic CV segment grew 28% YoY and 16% MoM. Sharp recovery in the domestic Passenger Car sales (highest YTDFY12) came as a positive surprise with overall volumes of 23,540 (up 92% YoY and 12% MoM). UV portfolio also recovered registering YoY/MoM growth of 35% and 0.5%.

Two-wheelers: Bajaj Auto registered overall sales of 374,477 units in November '11, up 25% YoY but down 5.3% MoM. Motorcycle sales grew 25.3% YoY (-5.4% MoM) to 331,967 units. Hero MotoCorp (HMCL) notched up overall sales of 536,772 units for November '11 (up 27% YoY and 6.6% MoM). However, TVS Motors registered a drop of 0.6% for Motorcycle segment (TVS mgmt expects moderation in 2W growth over the next 3-6 months, but remains confident of achieving 15% YoY growth for FY12E. YTDFY12 growth stands at 12%).

Recommendations & Valuations: We continue to prefer Bajaj Auto in the two-wheeler space and M&M and Tata Motors in the four-wheeler space. We continue to maintain our Hold rating on Hero Honda and Sell on Ashok Leyland.

Source : Equity Bulls

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