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Bumpy ride

Enam Securities is not enthused about the auto sector because of rising interest rates.

Print Edition: September 6, 2007

Volumes offtake in the auto sector continued to be muted as there appears no possibility of correction in interest rates in the short term. This is evident from the recent hike in the cash reserve ratio (CRR) by the Reserve Bank of India.

In the two-wheeler segment there is an annual volume decline of 11.5%. Demand is expected to remain weak in twowheelers and the medium and heavy commercial vehicles segment whereas LCV segment continues to show healthy growth.Automobiles: report card

In the passenger cars segment, recent product launches continue to show good volumes at the cost of older models. The revenue growth for our auto universe was largely in line with expectations but margins for most companies have been lower than expected in the first quarter of 2007-8.

Tata Motors: Tata Motors witnessed growth in the LCV segment, barring which there was a decline in volumes on an annual basis for all other product segments. The company’s newly launched passenger LCVs (Magic and Winger) are expected to be rolled out nationwide by the end of 2007-8.

Maruti Udyog: Maruti continues to buck industry trends by registering a 24% annual growth in volumes. The A2 segment continues to do well, boosted by sales of the Swift. Also, the SX4 volumes continue to be healthy. Maruti’s operating results in the first quarter of 2007-8 were ahead of our expectations on the back of increased contribution from high realisation products such as the Swift and the SX4.

Ashok Leyland: The company has clocked a considerable growth in volumes mainly driven by the bus segment, while the goods segment has registered a decline.

Mahindra and Mahindra: Domestic tractor volumes declined by 9%, while utility vehicles (UVs) volumes registered a robust 30% annual growth. Response to the Logan remains healthy with 2,890 units sold in July. The company is expected to increase its product portfolio by launching new UV and LCV models in the coming months.

Bajaj Auto: Even with a decline of 6.6%, Bajaj Auto showed the least decline as compared to other twowheeler companies. As a result, the company’s market share has increased from 34.9% in June to 39.4% in July.

Hero Honda: Hero Honda’s volumes declined by 15% annually. The volume of 201,191 in July 2007 was the lowest in the past 34 months. Hero Honda’s market share declined from 55% in June to 50% in July.

TVS Motors: TVS Motors continues to be the hardest hit of all two-wheeler manufacturers, with negative growth in volumes. Volumes showed a decline of 35%. In July TVS Motors’ Indonesian venture, with an initial capacity of 3,00,000 Bebeks (Indonesian version of mopeds) per annum, began production. Its market share stood at 10.9% for July against 10.2% in June.

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