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Published on 4/12/2018 4:18:23 PM | Source: LKP Securities Ltd

Auto Sector - November 2018 - LKP Securities Ltd

Posted in Broking Firm Views - Sector Report| #Auto Sector #LKP Securities Ltd #Sector Report

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A month of subdued performance from most of the OEMs

November 2018 witnessed softness in most of the auto counters.  In line with this, PVs and CVS posted serious moderation in growth. November 2018 was also plagued by high fuel prices and growing interest rates. This has actually hurt consumer sentiments as the festive season ended on a low note. Liquidity crunch was felt at the financers’ ends. Coming to the 2Ws, Hero posted flattish sales reflecting the retail demand and sentiments. On the other hand, Bajaj Auto grew on domestic MC demand and exports outperformance. Entry level MCs were driven by higher Platina sales on price cuts taken by the company. Several new launches by the company in Q4 of last year have led the motorcycle growth in the domestic markets. Exports were also drivers as most of the foreign countries are attracting good demand. Serious recovery in Nigeria, in both 2W and 3W businesses is one of the main reasons for its exports recovery. 3Ws were impacted by lack of permits and high base of last years when a whole host of permits were issued. TVS reported stellar set of numbers as all its segments outperformed the industry. MSIL reported a flattish growth in-line with the growth in past few months, due to the reasons stated above. M&M reported a flattish growth in the UV business, while the CV business reported robust numbers on LCV success. FES segment witnessed a de-growth as sales tapered off considering high base and liquidity crunch. ALL and TaMo both reported weak MHCV growth on lackluster festive season and overall weak sentiments.  

Going forward, we expect PV demand to remain muted, while 2Ws to witness a slight slowdown from December onwards on high base, however 2W growth will be better than PVs, particularly Bajaj and TVS. In this scenario, we would like to stay with fundamentally strong names where demand is strong despite domestic headwinds. Within 2Ws, we like Bajaj Auto and Hero Motocorp as the former is posting strong growth and the latter will benefit from rural strength. In short term, CVs may feel some pressure, however 2019 being an election year, GOI’s emphasis on pushing the infra plans in the country may sustain CV demand. BS VI pre-buying shall initiate in Q1 of FY 20, which will further elongate the CV cycle. Possible implementation of scrappage policy may further escalate CV demand in long run.


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