Angel Broking positive on Ashok Leyland, Tata Motors
Angel Broking has come out with its report on automobile sector. According to the research firm, the long-term structural growth drivers of the Indian automobile industry such as GDP growth, favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact.
Angel Broking has come out with its report on automobile sector. According to the research firm, the long-term structural growth drivers of the Indian automobile industry such as GDP growth, favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact, which should support a 10-12% CAGR in auto volumes over FY2012-14E.
For November 2012, automakers reported a muted performance despite the festival season on account of weak demand across the product segments. However, utility vehicles (UV) and light commercial vehicles (LCV) continue to defy the slowdown by posting strong growth. The medium and heavy commercial vehicle (MHCV) segment remains the most impacted as weak demand environment persisted during the month. Among auto majors, while Mahindra and Mahindra (MM) maintained its strong growth trajectory and outperformed its peers; Hero MotoCorp (HMCL), Tata Motors (TTMT), Maruti Suzuki (MSIL) and Ashok Leyland (AL) registered a lower-than-expected performance. Going ahead, we expect the demand scenario to remain challenging as slowdown in economic growth coupled with higher interest rates and fuel expenses continue to dampen consumer sentiments.
Tata Motors (TTMT) reported extremely weak volumes as total sales registered a decline of 13.4% yoy (7.3% mom) primarily due to a sharp fall of 13.8% yoy (8.5% mom) in domestic sales. The weak performance can be attributed to weakness in the passenger car and MHCV segments which posted a sharp decline of 41.8% (16.5% mom) and 39.1% yoy (18.6% mom) respectively. The LCV sales on the other hand, sustained the strong momentum posting a better-than-expected growth of 18.8% yoy (flat mom).
Ashok Leyland (AL) posted lower-than-expected sales, with total volumes recording a decline of 6.4% yoy (7.8% mom) led by continued weakness in the MHCV segment. Hence, the CV volumes (ex Dost) registered a steep decline of 36.5% yoy (9.6% mom). MSIL reported slightly lower-than-expected sales (flat mom) primarily due to a volume decline of 13.2% mom (5.8% yoy) in the Mini segment. The Mini segment sales were down on account of continued weakness in petrol cars. This is despite the strong bookings for the new Alto (around 40,000 bookings since launch). On a yoy basis though, total sales jumped 12.5% driven by strong growth in the compact, super compact, utility vehicles and exports segments.
Mahindra and Mahindra (MM) sustained its strong volume performance, posting a better-than-expected growth of 18.2% yoy (down 9.9% mom) in its automotive segment. Tractor sales too witnessed a growth of 16.8% yoy (down 17.3% mom) leading to a strong growth of 17.8% yoy (down 17.3% mom) in total volumes. The automotive segment witnessed a strong performance across the product portfolio (ex MNAL); however, the PV segment was the primary driver as sales grew by a strong 38.1% yoy (down 8.6% mom) driven by the new launches XUV5OO, Quanto and Rexton.
Two-wheelers and three-wheelers: Bajaj Auto (BJAUT) reported in-line volumes (flat yoy and down 9.5% mom) as motorcycle sales continue to remain sluggish. Nonetheless, the performance benefitted from the new launches – Pulsar 200NS and Discover 125ST and gradual revival in exports. HMCL registered sluggish volumes during the month with total sales posting a decline of 6.4% yoy (5.1% mom). TVS Motor (TVSL) posted in-line volumes with total volumes registering a decline of 2.1% yoy (9.6% mom) primarily due to 15.4% yoy (14.8% mom) decline in scooter sales. The three-wheeler sales recorded a better-than-expected growth (86.8% yoy) led by an impressive exports growth of 81.4% yoy.
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 10-12% 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 and TTMT.
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To read the full report click on the attachment