Enam Securities is cautious on the auto sector: “Auto sales in March were subdued, as a steep rise in lending rates and increased pressure on cost of ownership indicated a moderation in volume growth.
In two wheelers segment volume has declined by 4% year on year (YoY) in March, indicating that historic growth rates may not be sustainable. Inventory build up and revision of growth estimates downwards by major players indicated moderation in growth for 2007-8. In commercial vehicles segment demand remained strong with 10% YoY growth in March. However, with rising interest rates, the payback period for a fleet operator has increased from an average 30 months to approximately 60 months. Increase in tenure of loans is expected to have an adverse impact on sales.
We expect growth will remain in line with volume growth due to flat realisations on account of aggressive pricing/discounts. However, there will be pressure on operating margins as companies struggle to cope with rising raw material costs along with higher advertising and marketing expenses for new product launches.
Maruti Udyog: Maruti’s volume growth in March was ahead of expectations, with buoyant demand in A2 segment. Overall growth stood at 6.5% for March-end and 21% cumulatively for 2006-7. We expect Maruti to do better in 2007-8.
Mahindra and Mahindra: Domestic demand for Scorpio continues to be robust with 17% growth for 2006-7. It has also launched the Renault Logan, making its debut as a sedan manufacturer. A slowdown however is visible in the farm equipment sector segment with growth of 11% for March as against 21% for 2006-7 on account of higher interest rates and NPAs in this segment.
Tata Motors: The company registered an 11% growth in volumes for March 2007, driven by strong sales in light commercial vehicles (LCVs) and utility vehicles (UVs). Overall volume growth for 2006-7 stood at approximately 28% largely driven by medium and heavy commercial vehicles (M&HCV) and LCV sales. The recently launched Indica Xeta has elicited good response from the market. We expect M&HCV volume growth to be approximately 4% and a realisation growth of 4% for 2007-8.
