ay2Wealth has come out with its report on auto sector. According to the research firm, Bajaj Auto
's motorcycle sales are at its lowest ever levels this FY, which has come as a negative surprise. The sales of new Pulsar 200 NS saw a 29% jump MoM at 7200 units and Discover 125ST saw a significant jump of 74% MoM at 25k units.
The change in macro economic variables (Inflation, Interest Rate, GDP, IIP, Household savings) over the past year has altered the dynamics of the automobile industry with the broader segments growing at a slower pace and selective segments showing higher growth. FY09 was a year, which impacted the automobile industry. The Commercial Vehicle Industry was impacted to a far greater extent as compared to the Passenger Car or Two wheeler industry. In order to boost consumption ‘then’, the Government had given stimulus in the form of lower excise duties and wage increases through MGNREGA scheme, which propelled demand.
The current cycle is different from 2009 as it’s associated to sticky inflation, lower household savings, high interest rates and thus slowing growth. This is apparent from lower GDP & IIP numbers, which are a proxy for Commercial Vehicle growth. The current slowdown started with passive passenger car offtake, which then led to lacklustre performance of the CV segment and now is also being reflected among the two wheeler industry. 2W Industry is taken to be a barometer for rural demand, therefore the plunge in the same reflects signs of lower GDP growth spreading to rural consumption. Tractor sales have also been on a declining trend and deficient rainfall among the highest selling states-Punjab, Andhra Pradesh & Haryana accentuated the same.
In our view the rapid growth of 2010 and 2011 has overstated a portion of future consumption.
We would need a series of rate cuts to propel long-term demand, but that also would show the poor state of the economy. As of now, SBI has cut lending rate despite the fact that RBI has not cut repo rate. We can see many such events happening in the future.
CV- Lower availability of cargo from SME’s, lower arrival of fruits and vegetables from Agricultural Produce Market Committee has resulted in truckers reporting 10% - 15% drop in trips on major truck routes in Q1FY13. Simultaneously truck rentals fell by 8%-11% in Q1FY13 as compared to a 35% jump during October 2009 March 2012. Rising costs and drooping freight rates have taken a toll on fleet operator’s profitability. As trucks operate on diesel, a hike in diesel prices would further squeeze their margins. In our view, in order to see rapid expansion of CV’s we would have to see rapid expansion in freight availability, else tonnage growth of the last few years would imply surplus capacity in the system.
2W Rural spending was higher than urban consumption in the 2 years upto 2012, which led to high 2w growth. But this was devoid of reforms on the fiscal front, which is hitting future rural income growth.
Cars - This segment has been a clear victim of higher fuel prices and higher interest rates as 70% of car population runs on petrol and is financed. Selective pockets have seen growth on account of new launches and price divergence between petrol and diesel prices. In our view, future growth would be a function of rise in per capita income and better fuel economy.
The most sustainable way to solve these problems should come from industry upgrades, company cost rationalization, technological development, innovation and associated government regulations and policies.
Bajaj Auto Numbers are weak reflecting signs of poor demand, Inventory levels are up at 4-5 weeks from normal levels of 3 week-
Hero MotoCorp : Lower wholesale billings on account of high inventory in system.
- Motorcycle sales are at its lowest ever levels this FY, which has come as a negative surprise. The sales of new Pulsar 200 NS saw a 29% jump MoM at 7200 units and Discover 125ST saw a significant jump of 74% MoM at 25k units. Its leading brands Discover and Pulsar volumes were at 125k units and 70k units resp, while Boxer volumes were at 65k units.
- However the cumulative growth for the company turns negative.
- 3W numbers have improved this month with numbers above its YTD average runrate. Infact numbers for August are at its highest ever levels considering FY.
- Export offtake are above its YTD average runrate , but cumulative sales show a degrowth of 5% , which remains constant. Total 3W exports were at 22300 units (down 17% YoY, Up 30% MoM) indicating signs of normalcy at Sri Lanka and Egyptian markets.
TVS Motor :
- Hero MotoCorp continues to outperform with a YTD (FY) growth of 1.8% as against a degrowth visible among its peers.
- However High base effect and high inventory buildup starts resulting into lower wholesale billings.
- This can accentuate going forward as high base effect kicks in and as inventory levels are at 6 weeks as against the normal levels of 3-4 weeks.
- Also, prefestive numbers are weak and even below its 3 month trailing runrate as festive season started in August last year as compared to September this year.
Disappointing Numbers, YoY is impacted on a high base and MoM reflects inventory buildup.
Maruti Suzuki India: Hit by Worker Agitation, Numbers are even below its October 2011 levels-
- TVS Motors Motorcycle wholesale numbers have been on a persistent decline since Feb 2012. Cumulative growth shows a decline of 20%, which is the highest among its peers.
- Also, since Q3FY12, its quarterly numbers have fallen below its 8 quarter average levels, showing signs of inherent weakness.
- Scooter portfolio for the company has also started seeing slowdown and has been loosing market share to HMSI.
- Moped sales which is direct co-relation to rural demand are at it lowest ever levels this FY.
- Exports for the company are at its lowest ever levels this FY.
- 3W’s have shown signs of improvement this month with the offtake above its YTD average runrate, however cumulative growth remains weak (on a high base)
- Needless to say the numbers from MSIL have been extremely poor due to plant lockout leading to a loss of >50k units.
- Lower end Petrol Version like its M800 & Alto continued to feel lack of demand. Monthly volumes for Alto which contributes 64% to the mini car segment has declined from 24.6k units to 20k units.
- Higher end compact models have been hit the most on account the 1 month long strike. Cumulative growth looks good as last year the production of old Swift was stopped , so numbers are on a low base.
- Manesar operations have resumed but the ramp up in capacity would be slow & steady, resulting in lower utilization levels. Levels of production to touch pre strike levels only by the end of Q3FY12.
- UV sales are impressive primarily on success of its Ertiga model , which has a 30k unit orderbook.
- Domestic sales in cumulative terms turn negative.
- Exports has been greatly impacted this month as the production of its best export model A-star was hampered during the month. A monthly volume for Astar has plunged from 1388 units to 960 units in Q1FY13.
- Whole sale billings are lower, but retail demand seems to be better with sales of July & August together observing a growth of 7%
- Waiting periods have increased for Diesel models like Swift & Dzire.
Mahindra & Mahindra Numbers below its FY average runrate, but has been the most consistent player
Tata Motors : Decent numbers, improved car sales
- Its Passenger UV segment observes growth on a low base as last year the company faced engine capacity constraints. But the segment has shown a very impressive performance with cumulative growth held up on account of new launches.
- 3W offtake seems improved demand. Infact numbers for August comes at its highest ever levels this FY.
- Verito numbers in terms of % growth look inflated on account of low base, but the absolute numbers are below its 8 month average run rate _ Domestic growth for the company though moderating at a slower pace , is the best in the industry at a high double digit figure of 20% , on account of its diversified portfolio.
- Exports for its UV’s and 3W’s see a significant decline on a MoM basis.
- Proxy to rural demand , tractors continues its declining trend into the month of August. Infact a decline of 17% has come as a negative surprise.
- Mahindra’s smallest SUV launch of sub 4 meter length known as Quanto is expected in the second half of September 2012. This model is based on the Ingenio platform as is known to be as the Mini Xylo. The model would benefit from lower excise on account of its lower length, which may attract consumer interest. But whether it would be a success like XUV 5OO is yet to be seen.
- Tata Motors M&HCV numbers have come at its highest ever levels this year. Cumulative numbers contract at a slower pace.
- There was a production shutdown in the month of June at its Jamshedpur facility, in order to align production to the weakened demand. No production cut has been taken in the month of August.
- LCV numbers are at its highest ever levels this FY. Cumulative growth holds up well.
- The UV division shows a set of steady numbers.
- Car division manages to show an improvement, mainly on account of its Nano model. Nano numbers come on a low base.
- Nano continues to be loss making with break even at 10kunits/month.
- The company’s exports continue to underperform with cumulative offtake showing a degrowth of 10%.
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