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Ajay Shethiya of Centrum Broking estimates, on CNBC-TV18, that growth in auto volumes will moderate on continued weakness across the sector.
We are cautious on Mahindra & Mahindra and estimate that the high growth rate is unlikely to continue
Ajay Shethiya of Centrum Broking estimates growth in auto volumes to moderate on continued weakness across the sector. However, this time around sales in February were slightly higher as compared to previous years according to adjusted figures over the last five years, he told CNBC-TV18. In the passenger-vehicle segment, Maruti and Tata remain the analyst’s favourites.
Below is an edited transcript of the analysis on CNBC-TV18
Q: Most of the auto sales for February look fairly weak- would you recommend a 'buy' on any of these auto stocks?
A: The general weakness in the overall demand environment continues and most of the segments have registered a drop both on a year-on-year (Y-o-Y) basis and on a month-on-month basis. Within the passenger-vehicle group, Maruti and Tata Motors continue to be favourites. Maruti largely because it has taken a beating and the stock price has corrected by almost 14-15 percent over the last few trading sessions.
Plus, the Budget has not resulted in a negative impact on Maruti since it does not change the tax incidence on the royalty payments and as none of the portfolio would come into higher excise tax bracket. So we continue to remain positive on Maruti.
Tata Motors remains a favourite because of Jaguar Land Rover (JLR) as even the US sales for JLR has been pretty strong in February. Tata Motors remains a favourite purely on JLR and not on the domestic front.
Within the two-wheeler segment, Bajaj Auto remains a favourite and we maintain a neutral view on Hero MotoCorp.
Q: Haven’t the February sales been a negative surprise?
A: Historically, the sales in February should be lower compared to sales recorded in January due to the anticipation of possible hike in the excise duty, there is a preponement in the month of January.
On a month-on-month basis, we expected weakness in the sales for February. Observing the adjusted figures over the last five years, sales in February are lower on a Y-o-Y basis. This time around sales in February are slightly on the higher side as compared to previous years. Though I am not very disappointed, the weakness definitely continues.
Q: What is your view on Mahindra & Mahindra after the increase in the excise duty on sports utility vehicles (SUV) in particular and the imminent increase in diesel prices if the government sticks to its plan?
A: We have been slightly cautious on Mahindra & Mahindra over the last few months largely on account of two-to-three factors. We estimate that the rate of 30-35 percent growth is unlikely to continue. Growth will stabilise at 12 to 14 percent on indications of the Scorpio being under pressure and sales of the XUV 500 having stagnated.
Add to this, the intensity of the competitive has increased with the Renault Duster performing extremely well and Ford set to launch the Ecosport. There are also indications that the discounts on the tractor segment continue to remain elevated and the weakness is likely to remain over the next few months.
Q: With the weakness in sales, would you change your volume estimates for any of the auto companies for FY14 considering that the trend might continue to persist on the downside?
A: Overall, our outlook has been slightly conservative on FY14 and we expect growth of 7-8 percent in the two-wheeler industry. Historically, the two-wheeler industry has been growing at 10-12 percent. Recent trends also indicate moderation in the high-growth scooter segment.
On the medium and heavy commercial vehicle (M&HCV) segment, we expect gradual recovery but given the low base of FY13, we expect growth in volumes at 10-12 percent.
Dealers also indicate pullback in the petrol segment and slight moderation in the diesel portfolio. We estimate a continued growth of 10-11 percent in the passenger-vehicle segment.
Maruti Suzuki stock price
On April 17, 2014, Maruti Suzuki India closed at Rs 1946.30, up Rs 11.40, or 0.59 percent. The 52-week high of the share was Rs 1979.55 and the 52-week low was Rs 1217.00.
The company's trailing 12-month (TTM) EPS was at Rs 106.68 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 18.24. The latest book value of the company is Rs 615.03 per share. At current value, the price-to-book value of the company is 3.16.
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