>Automobile Sector (UBS)

2 wheeler dealer survey....

■ Bajaj Auto – model worries, still high dependence on financing
Our dealer survey key findings support our negative view on Bajaj: 1) Close to 50% of Bajaj sales are still on financing. Tighter lending standards have been one of the key reasons for sharp drop in Bajaj Auto sales in Tier 2 cities. 2) Bajaj’s new launches like the Xced 125 and Platina 125 have not been able to deliver on customer expectations and core mktg. proposition. 3) Only 30% of Bajaj dealers surveyed expect volume increase vs more than 80% for HH.

■ Hero Honda - dealers confident of 100cc growth
Our survey indicates customers buying on cash prefer HH for higher reliability and lower maintenance expense. Only about 30% of HH sales are from financing. HH dealers don’t see an evident shift in customer preference towards 125cc bikes. HH dealers attributed the market share increase in the ‘under 125cc’ segment to new launches by the company and expect continuing growth in this segment due to fuel efficiency remaining the key buying criteria for the 2-wheeler buyer.

■ Scooter growth outlook remains strong, HMSI doing well
Dealers felt confident of scooter segment growth going forward driven by demand from women and elderly people. This is positive for HMSI which continues to dominate the scooters market. HMSI’s new bike launches like CBF Stunner continues to gain sales traction. Around 40% of HMSI sales are on financed basis.

■ We reiterate our view on the two wheeler market
We maintain our rating and estimates for Bajaj Auto (Sell) and Hero Honda (Neutral).

To see full report: AUTOMOBILE SECTOR