>AUTOMOBILE SECTOR: Monthly Numbers update September 2011

September sales brought some cheer for the domestic automobile industry as the 4W players recorded positive growth (incl unlisted players) sequentially with start of festive season and the 2W players continued the robust growth. New launches in the PC segment, increasing discounts and attractive financing scheme supported sales with beginning of the festive season. Tata Motors recorded strong growth as PC sales grew for the first time in the year while M&M continued its strong traction (higher exposure to strong rural market). So while M&M, Tata Motors, Hero Motocorp, Bajaj Auto and TVS Motors clocked growth on y-o-y basis Maruti Suzuki reported a decline of 21% as labor related issues disrupted production.

Bajaj Auto: September sales came in at record 417,686 units representing a growth of 18% on a y-o-y basis and up 9% m-o-m. The company has recorded highest quarterly volumes and we expect company to report strong Q2 results (strong quarter for three wheelers).

TVS Motor: TVS reported total vehicle sales of 219,369 units up 17% y-o-y and up 13% m-o-m as motorcycle growth surprised us positively.

Hero MotoCorp: Hero MotoCorp recorded another month of sales more than 5lacs units with beginning of the festive season, we however expect competition to intensify in H2 FY12.

Mahindra and Mahindra: Mahindra & Mahindra continues to grow across segments, with total vehicle sales up 20% y-o-y to 82,656 units driven by higher tractor and automotive segment (especially LCV segment).

Tata Motors: Total vehicle sales grew 22% to 78,786 units as the strong PC sales supported growth in CV segment. Exports grew 23% y-o-y and 48% m-o-m to 6,220 units.

Maruti Suzuki: Subdued PC sales coupled with disruptions at Manesar plant resulted in total vehicle sales declining 13% y-o-y to 91,442 units. Exports surprised with sales up 18% y-o-y to 14,356 units. YTD FY12, total sales are down 8% to 448,268 units.

We list vehicle sales of other unlisted players to just give an idea of how competition is shaping up in the Indian automobile industry.

We remain positive on 2W industry on the back of rising rural demand, shift in consumer taste towards higher end bikes and expect Bajaj Auto and TVS Motors to be the primary beneficiary (see valuation snapshot in appendix). Tata Motors (not rated) trades at favorable valuations with JLR recording strong volumes and domestic sales pick up ahead of festive seasons. We remain cautious on passenger segment post festive season as macro uncertainties still persist. We do not expect interest rates to come down until end FY12 (though another hike remains a tail event) and expect it to negatively impact PC and M&HCV growth in current fiscal.

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