New models, inventory aided auto sales; buy Maruti: Experts

Commenting on better-than-expected sales number reported by some auto companies for the month of August, Vikram Kirloskar, the newly elected President of SIAM says, the growth in sales could have been due to low base effect and the new launches doing well.

He expects a further improvement in sales for the month of October, November due to festive season. Amit Kasat, auto analyst, Standard Chartered says last two months the passenger car segment has outperformed the utility vehicle segment. The better sales number on passenger car segment could have been because of new launches and dealers tending to increase their inventory ahead of festive season. Maruti Suzuki remains their top picks. Maruti because it always tends to increase their market share when the environment is tough, says Kasat. Below is verbatim transcript of their interview on CNBC-TV18 Q: What is your overall reading of the numbers, especially for the passenger cars and how would you be positioned on a stock like Maruti Suzuki? Kasat: The last two months has seen a bit of positive trend happening for passenger vehicle industry and that the passenger cars have started outperforming the utility vehicle segment. I still have Maruti Suzuki as a top pick because whenever the environment is tough Maruti tends to increase their market share as seen in the last two months and that will continue according to me. Couple of companies that have launched new product in the last six months have shown very good growth in the last few months. However, if one tries to analyse on a Year-on-Year (YoY) basis then their older portfolios for example of Honda or a Ford are still struggling and having a de-growth of anywhere between 8-10 percent whereas their new products like Amaze and Ecosport are doing extremely well for them. How long this is going to continue is anybody’s call but in another 3-4 one can see if these products were well accepted by the market or not. In contrast, if one looks at Maruti, which always tries to maintain the momentum of the older portfolio versus the new products in the portfolio. Therefore, it has a fairly balanced portfolio, fairly balanced company, and their market share is also on the improving trend. Everything is in perfect position for the company to deliver FY14 numbers. For Maruti, we expect 3.5 percent volume growth for FY14 and 15 percent growth FY15. So, in FY15 they will be very close to what they did in FY11. Therefore, on the volume front, revenue front and margins it is positive. I still maintain Maruti Suzuki as one of my top pick in the sector. Q: I want to start talking about the passenger car segment, we have seen quite a bit of growth but the pace was low and quite a bit of come from new launches and utility vehicles as well- what is your call? How is FY14 shaping up? Kirloskar: The new launches have certainly done well and shown a very good growth. But, if one looks at the overall numbers we are looking at a very low base of last year. Q: What is your call on a stock like Mahindra and Mahindra after the kind of numbers that we had and the kind of stock reaction that we had? Kasat: For the last two years, for Mahindra we maintained the call as in-line. We have gone wrong for last 12 months but the numbers are falling in place now. Mahindra has lost out little bit more on the utility vehicle segment where the competition has become very-very aggressive. There is little bit of fatigue seen in the utility vehicle portfolio.  However, the only silver lining for Mahindra is on the farm equipment side where the volumes are still very high. Although, how long this tractor volumes will continue is a call but I still continue to maintain in-line rating on the stock. We are not in a hurry to change the recommendation on that stock right now. Q: You were telling us about the industry as a whole what are you expecting in terms of specific categories as well as the industry to complete in FY14 passenger vehicles as well as commercial vehicles? Kirloskar: The passenger vehicles, the people with the new launches have done remarkably well and have been successful. The numbers their are strong.