Automobile sales volumes were subdued in February 2013, reflecting weak customer sentiment due to increased cost of ownership and macro headwinds. Two-wheeler and passenger-car volumes declined and MHCVs were under pressure. We expect sales volumes to improve in FY2014 due to a low base, pent-up demand and a better macroeconomic situation. We are Cautious on the sector and prefer Tata Motors to other companies due to JLR’s strong volume growth.
Domestic two-wheeler sales volumes subdued amid weak consumer sentiment
Hero Motocorp reported a four per cent yoy decline sales volumes to 501,271 units in February 2013 and TVS Motors reported a volume decline of seven per cent yoy in domestic motorcycle volumes. Hero Motocorp attributed the weak sales to high inflation and interest rates. Increased cost of ownership is hurting retail demand, in our view, and more petrol price hikes can weaken demand further. Dealer inventories are stable at 30-35 days but this can deteriorate if retail demand remains weak.
Passenger-car sales weak amid high cost of ownership, interest rates
Most passenger car manufacturers reported subdued domestic sales volumes in February 2013: Hyundai and Ford posted eight per cent and 44 per cent yoy declines respectively in domestic volumes and GM India sales declined 20 per cent yoy. Maruti Suzuki reported a nine per cent yoy decline in domestic volumes to 97,955 units, driven by a decline in volumes across all segments, except Dzire. We believe recent increases in fuel prices and high interest costs contributed to high cost of ownership high, leading to the subdued demand. Our dealer checks indicate weak retail demand as average discounts on petrol car models remain high and waiting periods have come off for diesel cars.
M&M posts weaker-than-expected growth in passenger UVs; tractor volumes weak
M&M reported 14 per cent yoy growth in passenger utility-vehicle volumes to 23,421 units, ~two per cent lower than our estimate of 24,000. Media reports indicate M&M increased the prices of its UVs (ex-Quanto) to offset a three per cent hike in excise duty announced in the Union Budget. We believe this might have a moderate impact on UV volume growth in FY2014. Tractor volumes remain weak with a three per cent yoy decline to 14,861 units. We note that M&M tractor sales volumes declined by five per cent yoy in YTD FY2013, driven by a slowdown in construction activity and poor winter monsoons. However, we expect M&M to gain from a greater thrust on rural development programs in the recent Union Budget, driven by revival of rural demand due to increased incomes.
Tata Motors, Ashok Leyland sales volumes under pressure due to weak CV cycle
Tata Motors reported a steep decline in volumes with ~44 per cent yoy fall in the MHCV segment and ~69 per cent yoy decline in the passenger-car segment. The decline in volumes was partially offset by the LCV segment, which grew 10 per cent yoy. Ashok Leyand reported a 26 per cent yoy decline in MHCV volumes. We believe commercial-vehicle volumes will stay weak in the near term due to the absence of immediate positive triggers and we expect revival of the cycle in 2HCY13, when the replacement cycle kicks in and interest rates moderate.
We remain Cautious and selective; prefer Tata Motors
We remain Cautious on the sector and prefer Tata Motors due to its inexpensive valuations and JLR’s strong volume growth potential, driven by the success of new model launches.