Auto sector shows revved up sales for Dec 2011

On Jan 2, 2012, major auto companies posted their unit sales for the month of Dec 2011. The numbers showed a good growth despite the higher interest rate, which usually affects the demand for vehicles. Auto companies somehow showed strength, and are managing to sail through this uncertain period. Except for Maruti and TVS Motors, all the other other companies posted decent double digit growth.

Ford had seen the highest growth among its peers. On a YoY basis, its sales jumped 39% to 5979 units in Dec 2011.

Bajaj Auto had a decent growth of 10% to 305690 units. However, the stock slumped 7.40% on the bourses on the back of slow growth, which was against market expectations. We had expected the company to post a growth of around 20%.

Mahindra & Mahindra also posted 25% growth in selling of vehicles in Dec 2011. Its domestic sales saw a growth of 23%, while the company's exports grew by 89% to 2870 units. It will also re-open booking of XUV-500 this month, which will further benefit the company.

Maruti Suzuki witnessed de-growth of 7% to 92161 units in the period. The company is yet to come to its full potential, as the earlier labour strike has affected productivity. Also it has to fight back against the slowing of demand in the domestic market and regain its confidence and market share from local competitors like Mahindra & Mahindra and Tata Motors.

Tata Motors saw a growth of 22% to 82278 units for Dec 2011. It commercial vehicles saw a growth of 14%, of which the major growth came in from Light Commercial Vehicles (LCVs), which grew by 20%. Despite the rising interest rate, domestic consumers had a huge demand for Tata products or vehicles. This is evident from the fact that there was a strong demand for its Passenger vehicles, which grew by 47% in Dec 2011. Vehicles like Sumo, Safari, Aria etc. saw a growth of 90% to 5255 units. Indica and Indigo also saw a growth of 57% and 32% respectively. On the export front though, company's sales lowered by 3% to 5615 units.

TVS Motors, one of the major 2-wheeler manufacturers, saw its growth remaining subdued for Dec 2011. The domestic 2-wheeler segment sales saw a marginal fall, while exports grew by 5%. Its 3-wheeler segment saw a huge fall, as its sales declined by 26% to 2523 units in Dec 2011.

Overall, the 2-wheeler stocks slumped, as the segment had previously posted a strong growth (sales units) of approximately 20% and above. Stocks like Bajaj Auto and TVS Motors tanked 7.40% and 7.32% respectively. With a sudden slowdown, there has been a question on the growth front for the companies in this segment. Hero MotoCorp is going to post its Dec 2011 sales numbers in the evening, but the stock was nervous today and closed down 3.50% to Rs 1838.55. On the other hand, the shares of Tata Motors and Maruti Suzuki closed higher by 3.03% and 1.82%.

We believe a combination of the festive season and the discounts and offers given by the companies have lead to higher sales for Dec 2011. With interest rates at their peak, the auto stocks would be further benefited going ahead. However, we believe that auto companies are facing headwinds on the rising input prices, and the companies will pass on this rise to the customers partially. One should wait for the Q3 FY12 results of the auto companies before investing in them.