Bikes to zoom in 2nd-half; no let up in auto slump: Kotak

Though the two-wheeler segment will grow as demand picks up in the second-half of the year thanks to the festival season, four-wheelers will continue to be under pressure due to market volatility and dull economic growth, says Hitesh Goel, Kotak Institutional Equities.

Also Read: Bajaj to go solo on quadricycle project
In an interview to CNBC-TV18, Goel adds that despite the entry of non-listed auto giants such as Honda and Nissan, Maruti has managed to retain its marketshare. However, overall new model launches have reduced as compared to last year on poor industry growth. Below is the edited transcript of the interview on CNBC-TV18 Q: Will the suspension in production and layoffs in the auto sector continue in August?
A: Currently, demand is very weak and as compared to the same period last year, when growth was strong and the base effect was also higher. So, the trend of decline will continue for sometime. We hope the monsoons are normal as that will ensure a pickup in two-wheeler sales.
The tractor business has been good and there are some signs in that sector where growth has started to pick up. But across the board, demand in the auto sector will remain soft during the year. Q: Quite a few auto companies have called in cuts in production. Do you think production levels will continue to fall and affect earnings?
A: Most auto companies have been correcting levels of dealer inventories which went up quite high in Q4. However, inventories are not at alarming levels and are little cause for worry even if demand holds off at current levels.
There will be some uptick in the second half of the year thanks to festive demand which will cause inventories to return to normal levels. The pressure in the commercial-vehicle segment is set to continue this year also. The cuts in production should reduce as the festival season nears. Q: The downturn in the economy also coincides with the  fairly aggressive entry of non-listed foreign companies such as Honda and Nissan. What is your view on the listed players in the four wheeler space?
A: On Maruti Suzuki, we have a negative call largely due to our negative view on industry growth. Though we don’t see growth in the auto industry picking up anytime soon, Maruti has done a fabulous job in terms of maintaining market share. There has been a 30-percent reduction in new model launches this year versus last year due to the slowdown. Volatility in fuel prices and the market has also started to impact business sentiment. Q: What is your call on the two-wheeler segment?
A: We have a favourable view on Bajaj and HeroMoto Corp. Bajaj is growing strong on exports and the depreciation in the rupee should be a big boost. The company has significant benefits over its Chinese rivals in the African market. In terms of stability in pricing, very few discounts have been announced in the industry.
Most two-wheeler companies are holding on to prices and that is very positive. The depreciation in the yen is another benefit that should help HeroMoto Corp. So, two-wheeler margins will start to expand. Honda will lead in market share with a two-to-three percent increase in market share increase every year.
The second-half of the year will be much better for two-wheelers with a low base and good monsoon. The growth in demand should pick up. Q: But you are not so confident on four-wheelers?
A: Our top picks are Tata Motors and Mahindra and Mahindra (M&M). The stock on which we have a 'Sell' view is Maruti Suzuki due to negative industry growth.