Moneycontrol Bureau
Car maker Maruti Suzuki remains top pick and also likes Tata Motors in the largecap auto space, says brokerage UBS, after auto companies declared their sales data for June.
The brokerage believes Maruti is best placed to capture pent-up demand by a strong new model cycle.
It also believes risk-reward looks attractive for Tata Motors, as it expects Jaguar Land Rover (JLR) volumes growth to move back into double digits from Q3FY15 driven by the ramp-up of the Chery JV plant and new models – Jaguar XE, XF and Discovery Sport.
JLR US sales increased by 10.5 percent in June led by Land Rover sales that grew by 15 percent but Jaguar sales declined 3.6 percent year-on-year.
Overall auto sales in June were still mixed and only trucks segment was strong. There was a mixed trend in passenger vehicles (PV) sales, but UBS remains positive on PV players given stronger urban pent-up demand relative to two wheelers.
Maruti Suzuki's domestic volumes were up 2 percent year-on-year on a high base (primarily in the mini segment); while Hyundai's domestic volumes grew by 8 percent Y-o-Y during June 2015.
Tata Motors' domestic PV volumes rose by 30 percent Y-o-Y, driven by strong growth from new car launches, while utility vehicles continued to be weak. However, M&M's PV volumes declined 15 percent Y-o-Y.
As far as two-wheelers segment is concerned, the brokerage believes executive motorcycles are structurally challenged in urban markets due to substitution from scooters. It thinks mass-market motorcycles (entry + executive) look unlikely to grow faster than 5-6 percent Y-o-Y, even assuming strong rural demand. It expects competitive intensity in motorcycles segment to increase.
Hero Motocorp's volumes were flat on yearly basis, but as per the company, retails are currently better than dispatches. It sold 5.42 lakh units in June 2015 against 5.41 lakh units in the year-ago period.
Honda's domestic 2-wheeler sales volumes rose by 7 percent Y-o-Y due to strong growth in scooters sales that increased by 32 percent Y-o-Y, but motorcycles remained weak, down 21 percent Y-o-Y. TVS Motor's domestic 2-wheeler sales grew by 5 percent during the same period.
Bajaj Auto sold 3.3 lakh units in June, a growth of 8 percent compared to same month last year. Motorcycles sales grew by 10 percent and exports jumped 16 percent.
Eicher Motors' Royal Enfield volumes shot up 48 percent year-on-year.
Medium and heavy commercial vehicle (MHCV) sales remained strong in June but tractors were weak. Tata Motors' MHCV sales volumes were up 19 percent Y-o-Y while Ashok Leyland's MHCVs remained strong, showing 46 percent growth Y-o-Y.
Eicher Motors' CV volumes remained weak with only 3 percent growth in domestic volumes and a sharp decline in exports.
Light commercial vehicles (LCV) shipments continued to be weak for Tata Motors, down 18 percent and down 6 percent for M&M while Ashok Leyland's volumes were up 26 percent Y-o-Y. M&M's domestic tractor sales fell by 17 percent during the same period.
Posted by Sunil Shankar Matkar
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