Commercial vehicle sales: Headed down?

Moneylife Digital Team 12 October 2012

If the economy does not improve and the present trend continues, then LCV volume growth in FY13F/FY14F could turn out to be 17%, while MHCV volume growth could be 15%, says Nomura Equity Research

SIAM (Society of Indian Automobile Manufacturers) has cut forecasts across segments and the downside risk to both MHCVs (medium and heavy commercial vehicles) and LCVs (light commercial vehicles) volume estimates is fairly high, based on September 2012 volume data from SIAM, says Nomura.

Nomura believes that the downside risk to both MHCVs and LCVs volume estimates are fairly high. If the economy does not improve and present trend continues, then LCV volume growth in FY13F/ FY14F could turn out to be 17%/flat (current forecasts 20%/15%) while MHCV volume growth could be -15%/ flat (current forecasts are -10%/+8%). Thus downside risks to Ashok Leyland estimates are increasing.

Domestic volume growth for all passenger vehicles was 4% y-o-y (year-on-year).Utility vehicles (UVs— including vans) led with 38% y-o-y growth while cars declined 5% y-o-y. Domestic MHCV volumes declined 15% y-o-y and those for LCVs increased 16% y-o-y leading to 4% volume growth for CVs. With these volume numbers SIAM also reduced FY13 volume growth forecasts to 1%-3% for cars (from 9%-11%), 3%-5% for CVs (from 6%-8%) and to 5%-7% for two wheelers (from 11%-13%).

Nomura expects the downside risks in CVs and two-wheelers; negative for Ashok Leyland and Hero MotoCorp.

For two wheelers, based on current trend, Nomura sees flat volumes in FY13 compared to the estimate of 5% growth. The brokerage notes that Bajaj Auto has improved its motorcycle market share to 27.5% in September 2012 from 25% in FY12, while that for Hero MotoCorp has dropped to 45.7% from 56% in FY12.

Nomura maintains the view that ramp up of Honda will hurt Hero MotoCorp but will have limited impact on Bajaj Auto. Downside risks for Hero MotoCorp estimates are very high, in Nomura’s view. It expects volume growth momentum in UVs to continue; positive for M&M (Mahindra & Mahindra).

UVs (including vans) have reported 30% y-o-y volume growth FYTD (Apr-Sept 12) and the trend remains strong to beat is forecasts of 25% volume growth for FY13F. The brokerage firm thinks that M&M should continue to benefit from this trend.

Nomura believes that SAAR (seasonally adjusted annual rate of sales) for cars will improve with MSIL (Maruti Suzuki India) ramping up production, but car volume growth could turn out to be 2%-4% compared to its estimate of 5% currently. However, Nomura still doesn't see downside risks to volume growth estimate of 10% for MSIL in FY13F, given the low base, new Alto launch, and production ramp up at Manesar.

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