Auto- CV recovery advances; 2W, tractors remain weak: Angel

Angel Broking's report on automobile sector

Commercial vehicle (CV) volumes continued to recover, reporting a 6% yoy growth in the month of February 2015 (marking the fourth consecutive month of growth). The medium & heavy commercial vehicle (MHCV) segment extended its double digit growth momentum (reporting 37% growth) given the improved economic scenario and improved profitability of fleet operators. The light commercial vehicle (LCV) segment’s decline moderated as well. However, poor sentiments in rural areas due to reduced crop output and lower crop prices impacted sales of two-wheelers (2W; about 40% of 2W volumes are accounted by rural areas) and tractors (entirely rural driven). Two-wheeler sales declined marginally by 1%, while tractor volumes posted a double-digit decline.

The CV segment improved, witnessing a mid single digit growth. The MHCV segment maintained its double-digit growth momentum (grew 37%), given the improved freight availability and firming up of freight rates. The LCV segment’s decline moderated (9% yoy decline) as against a 15-20% drop in the previous months. Ashok Leyland and Tata Motors outperformed, reporting a double-digit growth. Mahindra & Mahindra (M&M) underperformed as it was the only player reporting a decline.

The two-wheeler segment’s growth momentum halted, with the segment reporting its first month of volume decline (volumes declined 1%) in the fiscal. Lower farm incomes due to reduced crop output and decline in crop prices severely impacted rural demand for two-wheelers; rural areas account for about 40% of the total two-wheeler volumes. Market leader Hero MotoCorp and Bajaj Auto reported a decline of 4% and 21% respectively for the month, while Honda Motorcycle and Scooter India (HMSI) and TVS Motor (TVSM) reported a double-digit growth during the month.

During the month, the tractor segment reported its steepest fall in the fiscal (declining by 33%) on back of reduced farm incomes. Three-wheeler (3W) segment volumes were also under pressure (declining by 22%) due to sluggish demand domestically and policy issues in key export markets.

"The passenger vehicle (PV) industry maintained its healthy growth trend during the month. The PV segment (comprising of six large players) grew 8% yoy during the month. Tata Motors and Honda continued to gain market share, reporting double-digit growth. Maruti Suzuki India (MSIL) and Hyundai India grew in line with the industry", says Angel Broking research report.

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