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Feb 06, 2013, 01.31 PM IST | Source: Moneycontrol.com

Automobile: Weak demand prevails, says Angel Broking

Angel Broking has come out with report on "automobile sector monthly update - January, 2013." The research firm, prefer stocks that have strong fundamentals, high exposure to rural and export markets and command superior pricing power. Angel remained positive on Ashok Leyland, Hero Motocorp, Mahindra and Mahindra and Tata Motors.

Angel Broking has come out with report on "automobile sector monthly update - January, 2013." The research firm, prefer stocks that have strong fundamentals, high exposure to rural and export markets and command superior pricing power. Angel remained positive on Ashok Leyland , Hero Motocorp , Mahindra and Mahindra and Tata Motors .

Automakers registered sluggish sales for January 2013 on continued weakness in domestic demand led by high interest rates, inflation and slowdown in economic activity. The medium and heavy commercial vehicle (MHCV) segment continues to remain the most impacted with sales witnessing a significant decline. However, utility vehicles (UV) and light commercial vehicles (LCV) defied the general slowdown and sustained their growth momentum. Among auto majors, while Hero MotoCorp (HMCL) and Maruti Suzuki (MSIL) posted better-than-expected volumes; Tata Motors (TTMT) registered a sharply lower-than-expected performance. Going ahead, we expect the demand scenario to remain challenging in 4QFY2013 as slowdown in economic growth coupled with higher interest rates and fuel expenses continue to dampen consumer sentiments.

Tata Motors  registered a substantial decline of 29.5% yoy (6% mom) in its total volumes led by continued weakness in the passenger vehicle (PV, down 55.6% yoy) and MHCV (down 53.6% yoy) segments. LCV sales however, continued with the growth momentum posting a strong growth of 14.7% yoy. Exports posted a dismal performance as export volumes were down 45.2% yoy (flat mom).

Ashok Leyland reported in-line monthly volumes (total sales up 2.5% yoy) as Dost sales recovered after an unexpected fall in December 2012. However, ex. Dost volumes declined in-line with expectations by 25.4% yoy as the MHCV segment continued to see significant decline in demand due to slowdown in industrial activity.

Maruti Suzuki reported better-than-expected volumes, primarily driven by a strong sequential growth in the Mini segment led by the new Alto. Total volumes registered a decline of 1.1% yoy; nevertheless they surged sharply by 20% on a sequential basis. Export sales however, posted a decline of 22.3% yoy (14.5% mom) during the month; thereby restricting the overall growth.

Mahindra and Mahindra reported a modest volume growth of 4.5% yoy (11.5% mom) on account of continued decline in farm equipment sales which declined 9.8% yoy led by weakness in the domestic markets (down 8.6% yoy). However, the automotive segment registered a healthy growth of 10.7% yoy (9.3% mom) driven by strong momentum in the passenger vehicle segment (robust growth of 32.9% yoy) on the back of the new launches XUV5OO, Quanto and Rexton.

Two-wheelers and three-wheelers: Bajaj Auto reported an in-line volume growth of 2.9% yoy (1.1% mom) driven by a healthy growth of 9.8% yoy (2% mom) in export sales. While motorcycle sales benefitted from the new launches; three-wheeler sales were driven by the issuance of fresh permits in Delhi, Karnataka, Hyderabad and Jaipur Hero MotoCorp registered better-than-expected performance with total sales posting a growth of 7.2% yoy (3% mom) driven by the new launches, Ignitor, Passion X-Pro and Maestro. TVS Motor Company posted better-than-expected volumes, registering a total volume growth of 1.4% yoy (12.6% mom). On a sequential basis, strong growth was witnessed across the two-wheeler product segments with scooters posting a 24.8% growth and motorcycle sales registering a growth of 7.2% led by Phoenix.

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, which should support a 8-10% CAGR in auto volumes over FY2012-14E. 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, MM and TTMT

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