Autos in rough weather; 2-wheelers thrive: PINC Research

PINC Research has come out with its report Automobile Sector and has given positive view on Ashok Leyland (AL), Bajaj Auto (BJAUT), Hero Honda (HH, Maruti Suzuki (MSIL), Mahindra & Mahindra (M&M) and TVS Motor (TVSL) in its July 5, 2011 research report.

After impressive volume growth in FY11, the Indian automobile sector witnessed a change in fortune. Series of petrol price hikes and increase in interest rates led to sharp increase in cost of ownership. However, the two wheeler industry was largely unaffected due to dual benefits of low dependence on finance and lower operational cost. This fact is reflected in record quarterly volumes for Hero Honda, Bajaj and TVS Motor and they are expected to maintain profitability sequentially. Maruti Suzuki in addition to problems enlisted above suffered from labour strike at Manesar facility leading to a decline in volumes after nine quarters of double digit growth. Although volumes were not an issue for Mahindra & Mahindra, reported profitability to be depressed due to increased purchase from wholly owned subsidiary MVML. However, consolidating MVML margins are expected to remain stable. Ashok Leyland had a difficult quarter in terms of volume underperforming the industry. The adverse impact of operating leverage is reflected in a 550bps QoQ contraction in margins.

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