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Auto Volumes: Back on track! - Views on News from Equitymaster

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Auto Volumes: Back on track!

Sep 27, 2005

The month of August'05 had been good for the automobile industry, which registered all-round growth in the domestic market. It should be noted that during the first four months of the current fiscal, though industry witnessed a 10% YoY volume growth, the performance of various segments had been mixed. While two-wheeler continued to grow at steady rate, passenger cars registered a mere 3% YoY increase. In this article, we shall see how the market leaders have performed in the month of August'05.

Sectoral picture...

Domestic Sales Aug-04 Aug-05 YoY change
Passenger vehicles 81,327 92,632 13.9%
Commercial vehicles 23,268 27,503 18.2%
Two/Three wheelers 216,372 258,079 19.3%
Total 320,967 378,214 17.8%
We would start our analysis by saying that auto demand has certain degree seasonality and therefore, month-on-month and quarter-on-quarter volume comparisons do not make much sense. Though the passenger vehicle segment has under-performed the industry growth, the rate of growth is much higher than that in the first four months (April'05 to July'05). The performance of the commercial vehicles (CVs) has been largely aided by 32% YoY growth in the light commercial vehicles (LCVs), while the medium and heavy commercial vehicles (M&HCV) grew by 9%. The demand for two/ three wheelers continued to be buoyant, led by motorcycles.

How the leaders have performed...

Domestic Sales Aug-04 Aug-05 YoY change
Passenger vehicles
Maruti 37,660 41,717 10.8%
Tata Motors 11,611 13,879 19.5%
M&M 11,484 11,623 1.2%
In the passenger car segment, Maruti continued its subdued performance primarily due to falling demand for its cash cow 'Maruti 800', which registered a negative growth of 18% YoY. However a 27% YoY growth in the B segment (Alto, Zen, Wagon R, Swift) enabled the company to restrict the fall in the demand of 'Maruti 800'. Tata Motors continued to outperform due to unavailability of an alternative option to its diesel based 'Indica'. For M&M, excluding 'Scorpio', the performance is rather muted (volumes down 28% YoY, excluding 'Scorpio').

Domestic Sales Aug-04 Aug-05 YoY change
Commercial Vehicles
Tata Motors 13,682 17,070 24.8%
Ashok Leyland 3,440 4,406 28.1%
In the commercial vehicle segment, though Tata Motors volumes grew by 25% YoY, it has been largely led by a 70% YoY growth in LCVs. Its M&HCV volumes growth at 5% YoY, continued to be subdued when compared to that of the industry and peers. On the other hand, Ashok Leyland continued its robust growth in the month of August 2005. It should be noted that the demand for company's M&HCV has grown by around 20% during April'05 to August'05.

Domestic Sales Aug-04 Aug-05 YoY change
Two/Three Wheelers
Bajaj Auto 126,420 163,388 29.2%
Hero Honda 187,267 238,104 27.1%
TVS Motor 85,046 96,633 13.6%
In the two-wheeler segment, Bajaj Auto leads the pack. During the period April'05 to August'05, while the domestic demand registered a 13% YoY increase, Bajaj Auto managed to achieve a 31% YoY growth. This has been the outcome of a number of new launches during last 15 months. Hero Honda, after registering a 10% growth in volumes till July'05, bounced backed with a strong 27% growth. This is partly also due to law base effect in July'04. Against monthly average volumes of 215,000 units in FY05, in July'04, the company managed to sold only 187,000 units. For TVS Motor, falling demand for mopeds (accounting 20% of the total sales) continued to suppress its overall performance. However, in the motorcycle segment, company registered a 23% YoY growth.

To conclude...
We feel that the performance of the industry in the first four months were an aberration. Our observation is based on the premise that incidents that affected the automobile industry during this period were largely non-recurring in nature. To give a perspective, FY06 began with confusion over emission norms (for CVs) and VAT related issues. Similarly, the demand in the month of July was depressed due to flood like situation in Gujarat and Maharashtra, two of the largest markets for manufacturers. With fundamentals of the economy intact and industrial activity expected to be buoyant, we do not foresee any significant change in the demand pattern across the various segments.


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