Research report on Automobile sector

Automobile sales witnessed strong growth in September 2011, with dealers
stocking up inventories ahead of the festive season. Demand for two-wheelers
and tractors remained robust during the month, helping Hero MotoCorp (HMCL),
Bajaj Auto (BAL), TVS Motor (TVS) and Mahindra and Mahindra (M&M) report
their highest-ever monthly volumes. The light commercial vehicle (LCV) segment
also sustained its impressive growth performance. Passenger car (PC) volumes,
however, grew at a slightly lower pace as growth was restricted due to the strike at
Maruti’s Manesar facility. Growth in the PC segment continues to be driven by
new model launches and higher discounts. Going ahead, we expect the
two-wheeler segment to sustain its volume momentum; however, demand in the
passenger vehicle (PV) segment is likely to taper off post the festive season.
Tata Motors (TML) registered a better-than-expected 21.8% yoy (22.9% mom)
increase in its total volumes, primarily driven by strong 29.9% yoy (10.1% mom)
growth in the CV segment and positive surprise in the PV segment. CV sales
continued to be benefited by robust LCV demand, leading to impressive 48.3%
yoy (9.7% mom) growth in the LCV segment. The PV segment registered its best
performance YTD in FY2012, posting 9% yoy (58.1% mom) growth, driven by
64.3% yoy growth in Indica volumes and 56.1% yoy (56.2% mom) growth in UV
volumes. Nano and Indigo sales continued their poor run during the month.
Maruti Suzuki (Maruti) reported a 20.8% yoy (6.4% mom) decline in its sales
volume on account of a sharp 47.5% yoy (53% mom) dip in exports volume and a
17.2% yoy decline in domestic volumes due to disruption in production at the
Manesar facility. Labour issues at the Manesar plant are supposed to have led to
a production loss of 20,000–25,000 units during the month. Sequentially,
however, domestic volumes witnessed a slight uptick, led by improvement in sales
in the compact and super compact segments.
M&M maintained its strong growth momentum, reporting better-than-expected
30.7% yoy (28.2% mom) jump in total sales to 68,810 units. The performance
was driven by robust 25.5% (17.1% mom) and 41.1% yoy (54.2% mom) growth in
the automotive and tractor segments, respectively. The automotive segment’s
growth was led by 45% yoy (6.8% mom) growth in four-wheeler pick-up volumes
and 21.6% (14.2% mom) and 128.9% yoy (55.7% mom) growth in three-wheeler
and exports sales, respectively, while the tractor segment’s performance was
driven by impressive domestic growth of 44.2% yoy (56.1% mom).
Two-wheelers and three-wheelers: BAL reported a better-than-expected 18.4%
yoy (9.1% mom) increase in total volumes, led by record performance across all
product segments. HMCL continued its strong run and reported its highest-ever
monthly sales, registering growth of 26.7% yoy (9.1% mom). TVS reported a
strong 16.7% yoy (12.6% mom) jump in total volumes on account of sustained
growth in the scooters segment.