Most of the trends seen in May
are very much similar to the trends seen in previous few months. The car sales
continued again to be robust . MHCV industry has been outperforming since the
start of FY 15 and continued its trend in May as well. While scooters segment
remained strong in the 2W segment, we are seeing an evident slowdown in
motorcycle segment given weakness in the rural economy. On the PV side, the
likes of Maruti Suzuki seems to be getting all things right with whopping sales
growth in the first two months of FY 16, while Tata Motors triumphed on new
launches Nano Gen X, Zest and Bolt. On the two wheeler side, Hero saw a
slowdown with growth rate declining second time in a row. TVS which had been
one of the outperformers of the year so far, continued to grow but at a lower
rate than before. 2W segment has been affected due to weakness in the rural
economy on the back of weak agricultural output and unseasonal rains. Bajaj
Auto which had seen a growth in April again posted a de-growth albeit a
slight one. This was because strong 3W sales offset the weakness in motorcycles.
Export performance too was muted. On the MHCV side Ashok Leyland has been a
resilient performer with MHCV sales putting up a very strong show thus
indicating revival in MHCV industry. May witnessed a resilient performance o
the LCV side of Leyland too. We need to see its consistency. Even Tata Motors
posted strong MHCV sales performance in April growing at 17%. With
new launches coming from most of the auto companies in FY 16 and with new
government expected to come up with reforms and an expected interest rate cut
may trigger a strong movement in auto sales in FY 16. Monsoon remains the key
monitorable and H1 may remain muted, while second half may witness strength on
low base. We like Tata Motors on the JLR story and ongoing turnaround in the MHCV
industry, Maruti on the boom in the PV segment and new vehicle launches Ashok
Leyland on robust MHCV story. The current government’s emphasis on the ‘Make In
India’ theme will yield rich dividends to the CV players in terms of
profitability as the GOI has increased the customs duty to 40% from 10% on CVs
which would curb imports and foster local procurement of raw materials. For
M&M, though the company is coming up with 9 new launches in the compact SUV
segment, we remained worried about the competition and aggressive pricing which
may hurt the profitability of the company. Also tractor business revival
remains key to the further growth of the company. We are concerned about
the prospects for the entire 2W industry and M&M on structural issues like
rural weakness and monsoon uncertainty.
Ashok Leyland – (BUY, TP – Rs
78) – Strength continues
MHCV sales grew by 41.1% yoy and 5.2%% mom to
6,892 units. We are seeing a strong turnaround in the MHCV industry. Also the
GOI is planning to focus on new projects along with increased concentration on
stuck up projects, which may see a continued strong growth in MHCV sales in FY
LCV sales too grew by 37.3% yoy to 2,402 units
as things start to look up in the LCV segment too.
We expect FY 16 to be very strong on the back of
revival in infrastructure activities and overall demand scenario. LCV segment
will follow suit but with a lag. LCVs are already showing reduction in drop in
Bajaj Auto – (NEUTRAL, TP – Rs
2,566) – Motorcycle de-growth offset by 3W growth
Bajaj Auto’s total sales in May by declined by
2% yoy and grew by 2.7% mom to 3.45 lakh units. Motorcycle sales in the month
fell by 4% yoy at 3.01 lakh units on domestic muteness and weakness in rural
markets. Bajaj’s two wheeler segment has been a laggard since last couple of
years and continued to do so even in April. It has always been a victim of
cannibalization of its own brands Pulsar and Discover. However, the recent
launches of Platina CT 100 and a Pulsar refresh has led to a sequential rise in
motorcycle as well as overall sales. We hope this trend to continue.
3W was the savior again in May as sales
increased by 13% yoy to 43,576 units, but it was a 15% fall mom on the back of
absence of new permits opening.
Exports sales continued to remain muted as the
sales have gone up by just 2% yoy at 1.58 lakh units as markets like Nigeria
though have started recovering are still not yet fully recovered. But Egypt,
and other African countries have order backlog which shows the potential for
sales to grow.
Hero MotoCorp – (NEUTRAL, TP –
Rs2,693) – Subdued performance in line with the weak rural economy
Hero’s sales declined by 5.4% yoy while
increasing mom at 569,876 units below our expectations. This was however in
line with the weakness seen in the 2W industry on the back of unseasonal rains
in February, March and April.
Going forward, we think there will be some
pressure on Hero’s sales as well in the rural markets as 50% of its sales come
from there. But, strong market leadership position, well spread network and
popularity of famous low ticket size models may act as a cushion in difficult
times. Also we think that if monsoon is better this year then we may see a
healthy revival in the second half of the year. In short to medium term the
stock will see some pressure.
Mahindra and Mahindra –
(NEUTRAL, TP – 1,310) – Tractors sink, autos improve
M&M sold 36,706 units in the auto segment, a
de-growth of 3% and remained flattish sequentially. Passenger UV+ Verito
sales in the month de-grew by 7% yoy to 18,135 units. This flattishness
was due to the structural issue related with the absence of M&M in the
compact SUV segment. In the Q1 segment, M&M has lost market share of
>600-700 bps in FY 15 to the likes of Duster, Ecosport, Ertiga and Mobilio.
The company is planning to launch 9 new products in FY16 to cater to this
segment. We believe this slight de-growth is still an improvement on the heavy
declines seen earlier in FY 15. We believe this was on low base of last year
and need to wait and watch whether there is any meaningful recovery in the
4W pick-up segment which includes Gio, Genio and
Maxximo along with other pickups like Bolero Max, fell by 7% to 11,407 units,
which was a 2% decline mom.
3Ws grew by 3% yoy to 3,827 units during the
month which was again a volatile show.
Exports grew by 41% yoy in May. This was due to
some traction gained in Africa.
FES segment posted a drop of 19.6% yoy to
19,257 units due to delayed rains and sowing, delayed paddy crop, low yield and
low prices of sugarcane, cotton and paddy, weak rabi crop and unseasonal rains
in the last couple of months in vital states like Rajasthan, Maharashtra, UP
and MP. After posting a stupendous growth of 21-22% in FY 14, the tractor
industry has witnessed a lull in FY 15. April however witnessed a sequential
growth at 6.9% which was a positive surprise to us considering the overall
scenario. Performance in FY 16 depends upon factors such as rainfall, MSP
growth, infrastructure development in rural areas and overall uptick in the
Maruti Suzuki – (BUY, TP – Rs
4,130) – Sizzling numbers in May!!
May witnessed solid numbers on account of
sustained demand for passenger vehicles as the total sales grew by 13.8% yoy
and 2.8% mom.
The small car petrol segment comprising Alto and
Wagon R grew by 20.6% to 35,062 units. This was due to petrol prices still
remaining stable and the gap between diesel and petrol narrowing.
Compact vehicle segment sold 41,926 units, a
de-growth of 5.7% yoy. This came on the back of diesel : petrol cost benefit
dynamics turning unfavorable.
The new launch of Ciaz sold 5,012 units, which
was a stable performance and an incremental movement northwards.
Domestic sales grew by 13% yoy, while exports
grew by 20.3%, on the back of increased traction coming from African markets.
Ertiga’s UV segment in the month grew by 6% yoy
to 5,567 units, while the vans segment has been showing growth of 7.7% to
11,602 units continuing its good run in FY 16.
TVS Motor – (NEUTRAL, TP- Rs
217) – Growth slows down a bit
TVS sold 220,079 units in May which was a growth
of 6.4% yoy and 12.3% mom.
Motorcycles sales grew by 8% yoy at 84,660
units, while scooters sales grew by 7% yoy at 54,426 units on the back of
strong sales of Jupiter and existing Scooty Zest and Wego models.
3 Wheelers sales was stunted in May as the
company sold 9,236 units, a decline of 1.4% yoy and 7% mom. This was the first
time since the three wheeler business was launches that the company has posted
a de-growth. This is in line with the absence of new permits getting opened up
and 3W industry’s tapering growth
Exports sales grew by 22% to 43,595 units.
In FY 16, we expect the slowdown in 2W sales to
impact TVS as well. The new 100 cc motorcycle launch will face tough
competition from the market leader Hero in that segment. There will be a
tapering down of 2W sales on the back of high base of FY 15, thus bringing down
the overall volume growth rate. Absence of opening of any significant permits
on the 3W side may impact TVS’ 3W sales. Exports and scooters remain the
strengths of TVS in FY 16 as well.
Tata Motors – (BUY, TP – Rs
578) – Strong growth in cars and MHCV lift up the show
Tata Motors sold 39,496 vehicles in May, a yoy
growth of 5% on strong MHCV and car sales
Commercial vehicles sales for the month declined
by 6% yoy which is still a small number considering the high base of last year.
LCV sales declined by just 19% yoy while MHCV sales reported a strong growth of
17% which is a great sign pointing towards strong revival.
Recovery in MHCV sales can be derived from some pick up in industrial and
infrastructure activities in the country.
vehicle sales impressed and surprised one and all by growing 21% yoy. Car sales
grew by 32% yoy and UV sales dropped by 15% yoy. The success of the new GenX
Nano, Zest and Bolt has resulted into such strong car sales, while UV
sales have underperformed due to competition in the compact SUV segment and
Tata’s absence in this high demand segment.