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Cashed in on the festive rush

Monday, November 08, 2010

Almost all auto makers except CV manufacturers reported the highest ever sales in month of October’10, supported by the underlying momentum and a push from the ensuing festive season. It is important to note that this is a seasonal trend, and around this time of the year, manufacturers usually clear their channel inventories to meet the strong demand emanating from festivals like Dushera, Id and Dhanteras. And in the same context, Hero Honda is the only company which surprised us on the upside. Maruti Suzuki’s sales were marginally better whereas sales of Bajaj Auto and Tata Motors were broadly in- line. Nano sales of Tata Motors were the only disappointment in the October’10 sales board, says a report by Elara Capital. A Review…
Tata Motors 
Tata Motors (TTMT) October’10 M&HCV sales at 13.6 thousand units (down 18% sequentially) were marginally better than our expectations as we had anticipated a 20-25% fall on a sequential basis due to the impact of emission norm changes.
We believe that the company would have sold off most or all its inventory of Bharat II vehicles and should start dispatching Bharat III vehicles from November’10 onwards. We expect sales to be subdued for the next couple of months.
Passenger cars and UV sales (ex-Nano) were in-line with expectations with Indigo range making up for subdued sales from Indica range and UVs. The newly launched Aria’s contribution to the end sales was negligible.
Nano is currently facing supply as well as demand challenges. The supply issues are largely from vendors whereas the demand has not lived up to the expectations after the initial hype. We expect the sales to improve after the pan-India launch. 
Maruti Suzuki 
Maruti Suzuki October’10 sales of 118 thousand units were marginally better that our expectations of 114-115 thousand.
The company’s is currently operating at its peak production rate and as per the management, the peak production rate with the existing capacity is close to 110K units and it cannot be ramped up further unless the new capacities come on stream in the Q2FY12.
Given the demand of the festive season, auto companies usually clear channel inventories to meet the end demand hence the dispatches could be higher than the production rate.
We had anticipated higher dispatches in the month of October’10 (around 4-5 thousand higher than the production rate), however, the company has delivered marginally better sales.
Hero Honda 
Hero Honda reported better-than-expected sales for the months of October’10 at 505 thousand units.
While the dispatches were expected to be higher in this month due to festive sales, the company surprised by touching 500 thousand plus sales, first time in its history.
It will be critical to see if the company can maintain the healthy run-rate going forward in the light of ever increasing competition from Bajaj Auto, TVS Motors and now, Honda Motorcycles and Scooters India (HMSI) besides Mahindra and Mahindra.
Though the current momentum is strong as far as two wheeler sales are concerned, from a medium to long term, we maintain our view that two wheelers
growth will lag passenger car growth and the industry may not be win-win for all players involved in terms of volume growth. We expect to see fight for market share gain once the industry growth normalizes to 10-12%. 
Bajaj Auto 
Bajaj Auto’s (BAL) October’10 motorcycle sales at ~ 330 thousand units, up 5% on a sequential basis were in-line with our expectations
Adjusted for exports, domestic motorcycle sales touched a high of 240 thousand units. The Pulsar brand reported highest ever sales of ~ 95 thousand units.
Three-wheeler sales continue to be robust and posted record sales of 41 thousand units.
The current month’s sales run-rate of 370 thousand units may not be sustained post the festive season. However, with this performance, the company appears set to meet its guidance of 2 million plus units of sales for H2FY11.
Ashok Leyland 
Ashok Leyland’s (ALL) October’10 sales at ~ 5.7 thousand units, down 44% sequentially, were below our expectations as the fall in volumes is much steeper than what company had guided for (the company had guided for 7-8 thousand units a month for Q3FY11).
The domestic sales at 4.6 thousand units were down 51% sequentially. This is much worse than 18% drop in Tata Motors’ domestic M&HCV sales, indicating obvious loss of market share. The company had guided for a stable to increasing market share in H2FY11.
The sales performance justifies our stance that the guided volumes of 50 thousand units (with a positive bias of another 5 thousand units of sales) for the H2FY11 are difficult to meet.

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