INSIDER – AUTO SECTOR

Automobile Sector Outlook

 

September brought some respite to automobile sales numbers. Looking at the festival season ahead. Higher off takes by dealer led to higher sales. Automobile sales growth took a beating as financing costs increased, fuel prices soured up and increments in raw material costs were partially passed on by manufacturers. Thus September sales figures have been welcome.

 

Maruti reported a 5.2 percent year-on-year increase in total number vehicle sold in September 08. The total off-take stood at 71000 vehicles was boosted by newly launched Swift DZIRE and SX4, Esteem segment while Exports and C-segment (Omni,Versa) also grew well.

 

Mahindra and Mahindra reported a 31 percent year-on-year increase in domestic sales for September 08. Domestic sales volumes of 24481 vehicles contributed major to overall sales volumes of 25427 vehicles. However tractors and export sales disappointed.

 

Tata motors reported sales of 49647 vehicles for September 08 growing 3 percent year-on-year. A domestic sale of commercial vehicles at 28648 was an increase of 6 percent y-o-y. However passenger car sales at 16586 units declined 24 percent.

 

Amongst the two wheelers TVS motors also derived benefits, recording a 19 percent growth with sales figures of 1,37,246 units. Bajaj Auto total two wheeler sales at 218 494 was a six percent growth. Riding on 125 cc segment its Motorcycle sales at 217365 grew in line at six percent.

 

It was Hero Honda however, which out performed all others recording 22 percent growth. Total number of vehicles sold in September stood at 3,85,262. Hero Honda will be interesting to watch as it plans selling 4 lakh units in festive month of October and 5 lakh units in the following months looking at festive season in south. Achievement of planned sales will have a bearing on both topline and bottomline numbers for coming quarter.

 

Going ahead deceleration in demand is expected to continue till interest rates come down. Medium and heavy commercial vehicles (MHCV) and Light commercial vehicles will further see falling demands in backdrop of industrial slowdown. Fears of reduction in freight volumes also leading to freight rate reduction will have a serious bearing.

 

Domestic car segment after registering a 16 percent growth in first quarter now stands at moderate growth of 6 percent and this growth of 6-7 percent is likely to continue in current fiscal year. Maruti however is still trying to gather large market shares with its new models. A-star to be launched soon will be ahead of peers like Toyota and Honda launching their small cars next year.

 

While upside to demand will remain to be constrained till high interest rates, low credit availability and slowdown in industrial growth persist. Stocks like Maruti and Hero Honda still have ability to outperform peers.