Auto: Demand to remain weak in 4QFY2013, says Angel
Angel Broking has come out with its report on automobile sector. The research firm expects, the demand environment to remain weak in 4QFY2013 as slowdown in economic growth coupled with higher interest rates and fuel expenses continue to dampen consumer sentiments.
March 06, 2013 / 13:43 IST
Angel Broking has come out with its report on automobile sector. The research firm expects, the demand environment to remain weak in 4QFY2013 as slowdown in economic growth coupled with higher interest rates and fuel expenses continue to dampen consumer sentiments.
For February 2013, auto sales remained weak across most of the segments, led by continued weakness in domestic demand on account of high interest rates, inflation and slowdown in economic activity. Further, high base effect due to pre-budget buying in February 2012 also impacted the growth. While weakness persisted across most segments, it was more prominent in the medium and heavy commercial vehicle (MHCV), tractor, passenger car, and two-wheeler segments. The utility vehicles (UV) segment, which had so far remained insulated from the slowdown, also witnessed initial signs of weakness in our view. Going ahead, we expect the demand environment to remain weak in 4QFY2013 as slowdown in economic growth coupled with higher interest rates and fuel expenses continue to dampen consumer sentiments.Tata Motors (TTMT) reported in-line volumes for the month, with total sales posting a substantial decline of 32.7% yoy (flat mom), led by 33.1% and 26.2% yoy decline in domestic and export volumes respectively. The domestic performance was severely impacted on account of deteriorating MHCV and passenger vehicle sales which witnessed a significant decline of 45% and 69.5% yoy respectively. LCV sales however sustained growth momentum, posting a growth of 13% yoy (8.6% mom).Ashok Leyland (AL) reported slightly lower-than-expected volumes led by continued weakness in the MHCV segment, which declined by 26% yoy (up 2.6% mom). Consequently, total volumes declined 9.5% yoy (4.9% mom). Dost’s volumes, however, maintained steady performance and recorded sales of 3,001 units.Maruti Suzuki (MSIL) reported in-line volumes (down 7.9% yoy, 4.1% mom), largely due to slowdown in demand for entry level cars and vans. As a result, the Mini and Vans segments witnessed a steep decline of 15.9% yoy (11.1% mom) and 38.9% yoy (2.9% mom) respectively. However, the Super Compact (up 21.6% yoy and 7.4% mom) and Utility Vehicle segments registered a strong growth led by Dzire and Ertiga respectively.Mahindra and Mahindra (MM) registered an in-line volume growth of 7.3% yoy (down 6.4% mom) driven by a healthy volume growth of 11% yoy (down 3.4% mom) in the automotive segment. Tractor volumes however continued with the downward trend, posting a decline of 3% yoy (14.9% mom). According to the Management, high interest rates and fuel prices continue to impact the consumer sentiments which are affecting overall demand.Two-wheelers and three-wheelers: Two-wheeler manufacturers in our coverage universe reported a lower-than-expected performance, due to sluggish demand on the back of weak consumer sentiments. Bajaj Auto (BJAUT) registered a 3.3% yoy (4.4% mom) decline in total volumes, primarily on account of a 10.8% yoy (10% mom) decline in domestic volumes. Hero MotoCorp (HMCL) too registered a decline of 4.2% yoy (10.1% mom), due to slowdown in the domestic motorcycle industry. TVS Motor Company (TVSL) reported lower-than-expected volumes, with total volumes posting a decline of 3.7% yoy (5.8% mom) on account of slowdown in the two-wheeler segment (down 4.8% yoy).Outlook: We believe the long-term structural growth drivers of the Indian automobile industry such as GDP growth (leading to increasing affluence of rural and urban consumers), favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact. As such, we prefer stocks that have strong fundamentals, high exposure to rural and export markets and command superior pricing power. We remain positive on AL, HMCL, MSIL, MM and TTMT.Non-Institutions holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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