It’s the same old story all over again. Auto sales numbers of two-wheeler and four-wheeler companies for November are in line with street expectations and offer no big surprise.
Insight
It’s the same old story all over again. Auto sales numbers of two-wheeler and four-wheeler companies for November are in line with street expectations and offer no big surprise.
The two-wheeler industry is clouded by concerns of higher raw material costs, higher interest rates and lack of new product excitement. Additionally, sales of entry level (100cc) motorcycles, which account for a little more than half of the entire two-wheeler sales, are declining.
The top three players in the two-wheeler space - Hero Honda, Bajaj Auto and TVS Motor, have launched or are planning to launch higher margin and premium vehicles (125cc plus). These three players account for 90% of the market, according to analysts. In the two-wheeler space, for November, Hero Honda performed better than its peers. Its overall sales increased by 2.8%, while Bajaj Auto’s total sales (excluding 3-wheelers) dropped by 7.26%. TVS Motor saw its scooter and motorcycles sales decline by 12%.
Hero Honda reported slightly better numbers, thanks to the launch of the 150cc Hunk, which performed well. However, analysts attribute Hero Honda’s performance partly to the lack of new launches by its peers. In other words, its market share should see a drop once the new launches of Bajaj and TVS hit the market.
Going forward, aggressive pricing is expected to dent Hero Honda’s margins considerably, followed by TVS.
On the exports front, Bajaj and TVS posted good growth of 28.3% and 37% to 46,295 and 10,408, respectively. According to analysts, exports to Sri Lanka and Indonesia brought in the numbers for Bajaj.
On the other hand, for Bajaj, plant closures during Diwali resulted in lower production and thus led to billing constraints. Bajaj’s capacity expansion of XCD 125 DTS-Si to 75,000 units is expected to be complete by December 2007. Since the share of higher margin and premium vehicles in the entire motorcycle space is likely to increase in future, Bajaj is expected to be a key beneficiary after its expansion, say analysts.
In four-wheelers, the sales of Maruti, the leader in passenger cars with a 54% market share, grew by 26.6% helped by good growth of 28.5% in the A2 segment (Alto, Wagon-R, Zen, Swift) to 47,641 units and an increase of 104.5% in the A3 segment (Esteem, SX4, Baleno) to 4,260 units.
Notably, this improved performance is on the back of low base of last year’s November sales. Last year, the bulk of festival buying was in October, whereas this year, it has been in November, helping the companies benefit from the lower base of last November. Auto sales generally show a downtrend after the festival season every year, say analysts.
Maruti’s exports grew robustly by 82.3% to 4,483 units. The company primarily exports Alto to Scandinavian and some European countries. It is planning to expand capacity at its Manesar plant, which currently produces 1 lakh units, to 3 lakh units by 2010. By December 2008, it will add 1 lakh more units.
Tata Motors, on the other hand, reported a decline of 4% in sales for November to 46,947 units. Passenger vehicle sales dipped 16% to 16,322 as sales of Indica dropped by 19.6% to 10,488 units and sales of Indigo declined by 29.5% to 2,014 units. This was due to the high base of November 2006, thanks to the restoration of the company’s paint shop, which was damaged in September 2006. Sumo and Safari posted a growth of 7% to 3,820 units and the new Safari Dicor grew by 55% to 1,775 units. Commercial vehicle sales showed an improvement of 4% to 26,895 units.
M&M’s numbers for November grew by 38.7%, thanks to an increase in sales of utility vehicles (excluding Scorpio sales) by 30% to 9,926. Intense competition led to a drop in Logan sales to 1,561 units from 2,214 units in October.
All said and done, the fundamentals of the industry have weakened in the past one year, led by higher raw material costs (steel, etc), continuous discounts offered during the year by some companies as against the earlier practice of discounts only during festival season, and shorter product life cycle leading to more new launches as compared with one or two a year earlier.
Analysts anticipate a drop in margins even if volumes rise in future. The industry is expected to be a laggard on the bourses for some more time. Little wonder the stocks have underperformed the broader BSE Sensex in the past one year. Analysts, though, see Maruti and M&M as good bets in the space.
Contributed by Pallavi Pengonda
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