iCharts Discussions

[SPRIYA]

Indian auto sector continues to face headwinds in the form of high interest rates, worsening credit availability and slowing industrial growth. Despite the aforesaid concerns, two wheeler sales growth has surprisingly witnessed a recovery in H1 FY09 albeit on a low base of last year. However, passenger cars’ volume growth continues to disappoint as only Maruti reported a growth in volumes whereas Tata Motors and Mahindra & Mahindra reported declines in September 2008. LCV volumes presented a mixed bag with the industry leader Tata Motors reporting a growth of 23.4% as compared to a decline of 21% for M&M .Two wheelers: Hero Honda and TVS report strong growth, Bajaj Auto disappoints

Two wheeler companies registered a strong growth in sales volumes in the month of September 2008. Hero Honda and TVS Motors registered 22.5% yoy and 19.2% yoy growth respectively. However, volumes for Bajaj Auto rose only by 5.5%. TVS sprung a surprise with 31.9% yoy jump in motorcycle sales. For H1 FY09, Hero Honda clocked 19.7% yoy growth in volumes in comparison to 6.3% for Bajaj Auto and 7.3% for TVS Motors. For Bajaj Auto, three-wheeler volumes grew by a mere 2.3%, whereas in H1 FY09, volumes were down 9% yoy.

Maruti: Highest yoy growth in four months
Maruti reported a 5.3% yoy growth in September 2008 driven by 16.8%, 51.8% and 44.8% yoy growth in sales of C - category (Omni, Versa), A3 (Sx4, Esteem and DZire) and exports respectively. MUVs also reported a sharp jump of 84.8%. Sales of Maruti – 800 continue to plunge as the car reported its highest yoy fall in 18 months. Total passenger car volumes growth was at 2%. During H1 FY09, total sales increased by 5.8% yoy driven by 38.2% yoy growth in the A3 category. For the same period, total passenger car sales growth was at 3.9% yoy.

Mahindra & Mahindra: strong growth in UVs and three-wheelers
Mahindra & Mahindra reported 27.9% yoy growth in total sales excluding tractors in September 2008. The growth was on account of 31.1% yoy and 85.2% yoy surge in volumes of utility vehicles and three-wheelers. Exports were down 27.3% yoy. Tractor volumes were disappointing with 6.8% yoy decline as inauspicious period of ‘Shradh Paksh’ impacted sales from rural areas of northern and western India. During FY08, the ‘inauspicious period’ was in the month of October. For H1 FY09, M&M reported 16% yoy growth in total sales excluding tractors. During the same period, tractor volumes rose by 13.8% yoy.

Tata Motors: disappointing show
Tata Motors reported total volume growth of 2.7% yoy in September 2008. The growth was only on account of 23.4% yoy jump in LCV sales. M&HCV sales were down 10% yoy and passenger car sales were lower by 3.2% yoy whereas volumes for utility vehicles remained flat. Export growth was muted at 2.5% yoy. During H1 FY09, rise in total volumes for the company was disappointing at 1% yoy. Volumes would have declined had it not been for 20% yoy jump in LCVs and 10.1% yoy rise in utility vehicle sales.

Outlook: Two-wheelers – robust growth on low base, four wheelers - poor show to continue
Two-wheelers have registered strong growth in volumes (led by Hero Honda) since the beginning of FY09, after recording decline in volumes for FY08. Pricing power too, seems to have returned with the players. Government initiatives of farm loan waiver and revision of pay scales in Sixth Pay Commission seems to have given fillip to rural demand. However, outlook for four-wheelers continues to remain bleak with high interest rate scenario continuing till mid 2009. With inflation taking its toll on the urban consumers , postponement of demand is a fair assumption.
Company valuations
CMP EPS (Rs) P/E (x)
(RS) FY09E FY10E FY09E FY10E
Hero Honda 875 62.6 70.2 14.0 12.5
Bajaj Auto 597 53.2 59.8 11.2 10.0
Maruti 698 58.5 66.8 11.9 10.4
M&M 506 35.6 38.2 14.2 13.2
Tata Motors 339 33.5 43.2 10.1 7.8

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India Steel Sector

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Relative Strength Comparision of IT Sector