>AUTOMOBILE SECTOR: Mixed trend (EDELWEISS)

■ Hero Honda: Positive run-rate continues
Hero Honda (HH) continued treading the growth trajectory and registered volumes of 426,454 units in June (up 17% Y-o-Y; flat M-o-M). This is the second straight month of over 425,000 unit volumes, pointing to a strong growth trend. Pleasure (scooter segment) has started clocking monthly volumes of over 25,000 units.

■ Maruti Suzuki: Tepid volumes
Maruti Suzuki (MSIL) reported total volumes of 88,091 units - up 17% Y-o-Y but down 14% M-o-M. While a sequential volume decline was expected due to a plant shutdown (maintenance) and seasonal factors, its extent is slightly disappointing (domestic volumes were down 20% M-o-M; run-rate the lowest in six months). Export volumes, generally lumpy in nature, surprised on the positive side with 26% M-o-M growth.

■ Tata Motors: Positive volumes; Nano’s Sanand plant comes on stream
Tata Motors (TTMT) posted strong numbers; total volumes were up 49% Y-o-Y. While M&HCVs continued to be robust (up 52% Y-o-Y; 9% M-o-M), the passenger car (ex Nano up 20% Y-o-Y; 10% M-o-M) and UV (up 9% Y-o-Y; 33% M-o-M) segments surprised positively. This may be partially attributable to the new variant of Indigo launched in May 2010.

■ Mahindra & Mahindra: Tractor sales disappoint
Mahindra & Mahindra’s (M&M) total vehicle volume of 44,034 units (up 7% Y-o-Y, down 3% M-o-M) disappointed. While the lower sequential UV volumes (down 10% M-o-M) can be attributed to seasonal factors and a scheduled plant shutdown, the Y-o-Y decline is due to high base. M&M had a strike at its Nashik facility in May 2009, which led to volume resurgence in June FY09. While the LCV/three wheeler space continued to post strong volumes on the newly launched products (Gio and Maxximo), tractor volumes (down 4% M-o-M and 9% Y-o-Y) disappointed. The management attributed poor tractor volumes to component shortages, particularly for casting products.

■ Outlook: Upward trend continues
Notwithstanding disappointment in MSIL’s car volumes and M&M’s tractor sales in June, we believe automobile demand remains strong backed by sturdy economic growth. Yearly growth rates could, however, taper to mid teens for passenger vehicle and two-wheeler segments on higher base. CV may continue to post strong Y-o-Y growth. A normal monsoon would cement the upward trajectory.

To read the full report: AUTOMOBILE SECTOR