>Automobile Sector four wheeler (ENAM SECURITIES)

Earn to ground: Automobiles

CARS & TWO-WHEELERS: HOW SUSTAINABLE ARE CURRENT VOLUMES?
Volume for cars and 2w have shown a singnificant improvement from the troughs of Q3FY09 (cars up 45% and 2w up 37% in Feb v/s Dec'08). We analyze various factors affecting volumes, to check their sustainability.

Main reasons for for a strong rally in volumes in Q4:
· Cars: a) 6th Pay commision's 20% salary raise for 5.5 mn governemnt employees in Q3; b) Excise duty reduction of 4% in Dec'08, followed by aggressive discounts (3-5%) by all OEMs (ending March 31, 2009); c) Increased availability of finance (PSU banks) and lower lending rates (200 bps reduced); d0 Q4 seasonality: Depreciation benefits, marriage season etc; e) Pre-election season purchases.

· Two - Wheeler demand has mainly driven by high rural income on increased government spending government spending of Rs 800 bn or 3% of GDP (30% increase in MSP, NREGS, expansion, 6th pay comm and farm loan waiver etc.). While there has been a reduction in lending rates, availability of finance remains a key isssue

Structural changes in the long term, 2w better placed than cars....
· Increased participation of PSU banks will stabilize liquidity and increase geographical reach.

· Repossession norms to ease finance availability: Draft guidelines have been submitted by the MoF. These include changes in loan application procedure and a central monitoring cell for recovery agents. A decision on the same is expected on the same is expected in Q1FY10, subject to clearances from the Election Commission. 2w expected to benefit most as repossession norms ease.

· Nano Launch: expect the market size to expand as new customers come into the fold.

To see full report: AUTOMOBILE SECTOR