According to Nomura, negative factors like weak retail demand, high base of last year and loss of production due to the two-day nationwide strike would affect auto sales in February 2013
During February 2013, sales volumes in the auto industry are likely to decline due to some negative factors, mainly on weak retail demand, says Nomura Research in a note. “We expect the car industry volumes to decline by 20% year-on-year (y-o-y), medium and heavy commercial vehicles (MHCV) volumes to decline by 30%-32% and two-wheeler volumes to remain flattish y-o-y in February,” the brokerage said.
According to Nomura, while retail demand has been weak, the y-o-y growth in February could also be impacted. “Growth could be impacted by the high base of last year due to pre-buying ahead of an increase in the excise duty and loss of production and sales in many parts of the country due to the two-day nationwide strike. Thus we think there could be negative surprises against our estimates,” the report said.
Expect Maruti Suzuki to gain market share in the car industry
“For Maruti Suzuki India (MSIL), we expect around an 11% decline in car volumes compared to an expected 20% decline for industry volumes as the company benefits from a strong order book for its Swift and D’zire models. As per our estimates, MSIL could have around 50% market share in the domestic car market in February 2013 against about 44% in FY13 so far,” Nomura said.
Two-wheeler industry volumes expected to remain flat
Nomura said, “In the 2-wheeler segment, we expect flat volumes y-o-y in February. Volume growth at Honda Motorcycles (about 10%) will likely be offset by a decline in Bajaj Auto's (NE: -7%) and Hero MotoCorp’s (NE: -2%) volumes, in our view.”
No signs of revival in MHCVs yet; negative for Ashok Leyland
“Industry volumes in the MHCV segment will likely remain weak; we expect a 30%-32% decline y-o-y in February. We expect Tata Motors and Ashok Leyland volumes to decline by 43% and 21%, respectively, while, Eicher will likely see lower decline of around 4%,” Nomura said.
Reiterate our preference for 4-wheelers; M&M and MSIL remain our top picks
Nomura said, “We reiterate our preference for companies where there is strong visibility of earnings growth and valuations are reasonable relative to historical averages. MSIL and Mahindra & Mahindra (M&M) remain our top picks in the sector. For M&M, we expect 16% volume growth in the utility vehicles (UV) segment led by the Quanto model. We believe that recovery in the tractor industry might take some more time and expect about 2% volume decline for M&M in this segment in February.”
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