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Auto: The month that was... - Views on News from Equitymaster
 
 
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  • Dec 7, 2006

    Auto: The month that was...

    November auto sales numbers are out and riding on the back of continued strength in the economy, robust growth has again been witnessed practically across all the segments. Let us see how the major companies have performed in the domestic market during the month. We have considered three major segments; two-wheelers, passenger vehicles and commercial vehicles.

      Nov-06 Nov-05 % change Apr-Nov 2006 Apr-Nov 2005 % change
    Two- wheelers            
    Hero Honda 273,058 244,895 11.5% 2,156,134 1,917,667 12.4%
    Bajaj Auto 214,329 167,188 28.2% 1,669,060 1,326,236 25.8%
    TVS Motor 110,657 107,163 3.3% 983,775 828,873 18.7%
    Passenger vehicles (cars + UVs)            
    Maruti 52,574 43,568 20.7% 395,090 337,512 17.1%
    M&M 10,250 8,929 14.8% 76,704 72,626 5.6%
    Tata Motors 19,475 13,126 48.4% 140,495 114,473 22.7%
    Commercial vehicles            
    Ashok Leyland 6,420 4,033 59.2% 47,278 33,887 39.5%
    M&M 684 502 36.3% 5,362 4,769 12.4%
    Tata Motors 25,793 17,694 45.8% 183,519 124,739 47.1%

    Two-wheelers: Bajaj Auto, the second largest manufacturer in the country has once again led the growth in the segment. A YoY growth of 28% in its two-wheeler portfolio is way ahead of its closest rival Hero Honda, where volumes growth stood at 12%. TVS Motor, the third largest player could manage a modest growth of just 3.3% during the same period. As far as sales of motorcycles is concerned, Bajaj Auto's performance has been even more impressive as sales grew by 36% YoY. TVS Motor's performance on the other hand loses further sheen if one considers just motorcycles, where growth has been a marginal 1%.

    While market leader Hero Honda continues to dominate the executive segment with its immensely successful Splendor, it is the entry level segment and the premium segment where it is facing the pressure from Bajaj Auto. The latter's 'Platina' in the entry level and 'Pulsar' in the premium segment have once again notched up impressive sales numbers and were instrumental in the industry outperformance of the company. In order to wean away some market share from 'Pulsar', Hero Honda recently launched a new bike in the premium segment, whose performance has been impressive but it would be too early to comment whether it will make successful inroads into 'Pulsar's' market share.

    Passenger vehicles: November has been another good month for the passenger vehicle industry. Led by 32% growth in the compact car (A2) segment and a 36% growth in the C segment, market leader Maruti sold 21% more vehicles in November than it managed same period last year. While Maruti's performance was impressive, the show stealer for the month however was Tata Motors, the home grown auto major, where volumes spurted 48% YoY. Registering the highest ever sale in a month, the flagship car 'Indica' sold 58% more units and along with its utility vehicles (UVs), 'Sumo' and 'Safari', where volumes climbed 46% YoY, remained instrumental in the stellar performance of the segment. On the other hand, lack of passenger cars in its portfolio seemed to have hurt M&M, India's largest UV producer, as a 15% volume growth although impressive, was the slowest among the three players.

    Going forward, new launches are going to be the order of the day as these companies brace themselves for increasing competition from both existing players as well as new entrants. Cash resources are hence likely to be strained.

    Commercial vehicles: The uptrend in sales in this segment has continued for the fifth year in a row and the month of November was no exception. Leading the list was Ashok Leyland, India's second largest CV manufacturer, whose sales were a huge 59% higher over November 2005. For the company, while the growth in the passenger segment continued to decline (21% fall), sales in the goods segment more than doubled. The industry is going through a structural shift where high tonnage vehicles are increasingly in demand owing to their better economies of scale and certain regulatory compulsions. This segment is Ashok Leyland's forte and quite rightly, it has been able to seize the initiative here. With growth of 45%, market leader Tata Motor's CV sales have also been impressive. However, unlike Ashok Leyland, the growth has been led by LCVs, where volumes remained higher by 69%. Tata Motors too is benefiting from a structural shift, but the one that is taking place in the LCV segment. The need for last mile connectivity has seen a spurt in demand for small tonnage vehicles (< 4 tonnes). Tata Motors has a model called 'Ace' targeted at this segment, which has been immensely successful and has been a key force behind the company's new found success in LCVs.

    As far as future is concerned, we believe such a magnitude of growth is unsustainable in the long-run and soon the industry should return to a more normal 7%-8% growth rate. Further, entry of new players should result in market share pressure for Tata Motors and Ashok Leyland.

    On the YTD performance front, another strong month has meant that the industry has inched closer to capping off what could be another memorable year. However, when one considers value instead of volumes, not every company is likely to be the beneficiary. As mentioned in previous write-ups, in these trying conditions, the company (be it in the two-wheeler or four-wheeler segment), which is able to sweat its assets more and hence generate more cash from operations, will be able to weather the storm better. Higher amount of cash will ensure that the company's balance sheet is strong enough to fund new models, a key to survival in a competitive environment. Therefore keep an eye on the cash that the company generates internally and base your investment decisions accordingly.

     

     

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