Auto companies hope for a better 2012: PINC Research

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Auto companies hope for a better 2012: PINC Research

PINC Research has come out with its report on automobile monthly sales update. The research firm is positive on the two wheeler industry and recommends to buy Bajaj Auto and accumulate Hero MotoCorp (HMCL), in its January 04, 2012 research report.

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PINC Research has come out with its report on automobile monthly sales update. The research firm is positive on the two wheeler industry and recommends to buy Bajaj Auto and accumulate Hero MotoCorp  (HMCL), in its January 04, 2012 research report.

The passenger vehicle industry put in a sedate performance in the month of December with a single digit growth. 2011 started on a promising note with 20% plus growth in the first three months, however, mid way through the year all momentum was lost as rising interest rates and fuel price increases marred sentiment. With an improved performance in Nov and Dec'11, the industry can now look forward to 2012 with anticipation. The new year kicks off with the highly awaited Auto Expo'12 accompanied by a slew of launches. We expect the industry to return to growth from April'12 onwards aided by a softening in interest rates and a depleted base. During the month, Maruti Suzuki (MSIL) dispatches outperformed estimates with a boost from exports. Mahindra & Mahindra (M&M) had a mixed month as disappointment in the tractor volumes was compensated by a 25% growth in the automotive division. Commercial vehicle dispatches led by market leader Tata Motors posted a healthy growth on back of sustained demand for small commercial vehicles (SCVs). In the two wheeler space, market leader Hero MotoCorp (HMCL) belied concerns on growth after Bajaj Auto (BJAUT) and TVS Motor posted disappointing volumes. HMCL posted its second highest ever monthly volume, thus beating our estimates by 6%.

Two-wheelers: HMCL dispatches defied gravity with a 0.7% MoM growth. Although BJAUT posted a YoY growth the management outlook on volumes was cautious. HMSI with increased capacity continued to pile pressure on TVS Motor in its bid to secure the number three spot.

Passenger Vehicles: MSIL beat our estimates with an aid from exports. The company undertook a planned maintenance shutdown which limited volumes. M&M continues to ride the wave of XUV500 while Tata Motors posted strong volumes both on Indica and Indigo.

Commercial Vehicles: MHCV makers posted mid single digit growth. LCV volumes continue to post strong growth on demand for the smaller variants.

We expect the passenger car industry to end FY12 with flattish to mildly negative growth in the last quarter. Double digit growth is expected to make a come back in FY13 as monetary policy eases and low base effect kicks in. Although we are positive on the two wheeler industry, the industry could move out of the limelight as focus shifts back to the larger vehicles. Post the sharp correction in stock prices we have upgraded BJAUT and HMCL a notch higher to 'BUY' and 'Accumulate' respectively.

On the domestic front, mini segment (Alto, WagonR, AStar) declined 15.6% to 38.6k units. With the sharp increase in cost of ownership, this segment has been most affected, declining 17.2% in 9MFY12. Compact segment (Swift, Ritz) dispatches were flat at 21k units while Dzire volumes rose 6.8% to 9k units. The company is expected to launch a less than 4 metre version of the Dzire later in the year to avail the lower excise duty benefit on small cars. The MPV (Omni, Eeco) segment volumes declined 41.6% to 7.9k units. MSIL is expected to launch the Multi Utility Vehicle 'Ertiga' at the upcoming Auto Expo. MSIL's domestic dispatches were down 13.4% to 77.5k units. This being the seventh consecutive month of decline in domestic volumes. The stock is currently trading at 11.9x FY13E earnings. We maintain an 'Accumulate' recommendation on the stock with a target price of Rs 1,077 discounting FY13E earnings 13.5x.

Mahindra & Mahindra (M&M) : Dispatches for the month of December'11 were a mixed bag as the automotive segment volumes beat our expectations while the tractor segment disappointed. The overall dispatches for the month were up 17% to 59k units, tad above our estimate of 57.5k units. The out-performance in automotive segment was led by Utility Vehicles (UVs) which maintained a high double digit growth of 23% to 18k units. Growth in UV segment was aided by incremental volumes from its recently launched XUV500. Company continues to receive positive response for XUV500 as it plans to increase the capacity from current 2k units/month to 3k units/ month. The company is expected to resume booking on XUV500 in January'12. Pickup and SCV segment continued its uptrend with a growth of 35% to 13.7k units. Three wheelers volumes declined by 3.1% to 5.7k units. Tractor segment continued to disappoint second month in a row as the dispatches remained flat at 16.3k units as against our expectation of 19k units. We maintain a 'BUY' recommendation on the stock with a SOTP based target price of Rs877.

Tata Motors (TTMT) : Dispatches for the month of December'11 were significantly ahead of our estimates both in commercial and passenger vehicle segments. Overall volumes were up 22% to 82k units as against our expectation of 71k units. MHCV domestic volumes grew 4.7% YoY to 18.2k units. In 9MFY12, the MHCV segment has grown at a healthy 9.4%. The LCV segment volumes were inline with estimates at 29.5k units i.e. a growth of 20.4%. The passenger segment outperformed our estimates with a wide margin. As against our expectation of a MoM decline in dispatches during the month of December, the segment volumes were up 4.3% MoM (46.7% YoY). Indica volumes jumped 57.1% YoY to 9.3k units while Indigo volumes grew 31.6% to 6.8k units. Nano volumes continue to expand growing 16.6% MoM to 7.5k units. Utility segment volumes were up an impressive 90% to 5.3k units. The company is expected to display the new generation Safari at the upcoming Auto Expo. Export declined marginally by 3.3% to 5.6k units. Currently, we do not have a rating on the stock.

Ashok Leyland (AL) : Dispatches for the month of Dec'11 were up 20.1% to 9.08k units as against our estimate of 8.2k units. Domestic segment reported growth of 25% to 8.04k units led by its recently launched LCV 'Dost' which recorded volume of 1,099 units. Excluding dispatches of Dost, domestic volumes were up 8% YoY. Exports volumes disappointed, declining 9.6% to 1,046 units as against our expectation of 1,300 units. The stock is currently trading at 7.6x its FY13E earnings. We maintain a 'BUY' recommendation on the stock with a target price of Rs38, discounting FY13E earnings 12.5x.

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To read the full report click on the attachment