A lackluster year for auto makers in 2012

It was a forgettable year for car makers as high petrol prices and expensive loans hurt demand.  The issue was further aggravated by the riot in India's top passenger car maker Maruti Suzuki 's plant at Manesar, which hurt production of the Swift hatchback, among the top selling cars in the industry.

Utility vehicles, however, saw good sales growth, with several companies like Mahindra & Mahindra , Maruti Suzuki and Renault launching compact UVs.

Two-wheeler sales too hit the slow lane, especially in the second half of the year, with Hero MotoCorp and TVS Motor in particular underperforming in the domestic market.

On the commercial vehicle side, while small trucks like Tata Ace and Ashok Leyland Dost continued to fly off the showroom, medium and heavy trucks saw few takers as fleet operators postponed new purchases amid the overall slow economy.

Despite the sluggish growth, stocks of some auto companies were in much demand. Tata Motors, boosted by strong growth at its British Jaguar Land Rover unit, saw its stock appreciate 70 percent. Maruti Suzuki too jumped 65 percent in 2012 and India's top utility vehicle maker M&M gained 40 percent. 

In the two-wheeler space, while Bajaj Auto gained 30 percent, sluggish sales and heightened competition weighed on rival Hero MotoCorp and TVS Motor.

How's the road ahead looking? The sales slowdown is expected to persist for at least a few more months. Industry body Society of Indian Auto Manufacturers has lowered its passenger car sales growth forecast for the current financial year to just 1-3 percent and has said it will review its expectations for two-wheelers and commercial vehicles in Jan, given their slow growth.

Analysts advise investors should be selective while choosing auto stocks. Edelweiss Securities says M&M is its top pick in the sector, followed by Maruti Suzuki. It expects a sharp improvement in Maruti's margins on higher volumes.  Brics Securities says Tata Motors and TVS are its preferred bets.

Analysts say, Tata Motors will continue to be driven by Jaguar Land Rover unit, which accounts for as much as 90 percent of its profits, and continued demand for utility vehicles and pickup in tractor sales will help M&M. However, they warn that competition in the UV space is increasing and so this space will be watched very closely.

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