Published on 9/07/2019 1:12:08 PM | Source: Emkay Global Financial Services Ltd

Automobiles Sector - Jun’19 volume review: Still in reverse gear By Emkay Global

Posted in Broking Firm Views - Sector Report| #Auto Ancillaries Sector #Emkay Global Financial Services Ltd. #Sector Report

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Jun’19 volume review: Still in reverse gear

Weak performance across segments due to the high-base effect, increasing cost of vehicle ownership and financing issues

* Domestic 2Ws witness a steep decline: Volumes have been weak with declines for EIM - RE (-24% yoy), HMCL (-12%), TVSL (-8%) and BJAUT (-1%). Consumer sentiment remains weak, mainly due to the rising cost of vehicle ownership.

* Domestic CV numbers remain weak: Volume declines seen for EIM – VECV (-25% yoy), AL (-14% yoy) and TTMT (-7%). Volumes stay lower yoy due to surplus capacity available with fleet operators.

* Domestic PVs a mixed bag: Volume declines were seen for TTMT (-27%) and MSIL (-16%), while MM has seen growth (+4%). After the completion of the general elections, there are early signs of a revival, with positive growth in a few states such as Uttar Pradesh, Bihar and West Bengal, as per our channel checks.  

* Tractor volumes declined 19% for MM and 11% for ESC in the domestic market, mainly due to the high-base effect and weak consumer sentiment.

* PV remains the preferred space: Within the auto sector, we prefer PV companies that are relatively less affected by the upcoming BS6 transition. In contrast, we are negative on the MHCV and 2W segments due to the high-base effect and rising cost of ownership.

* Our top picks in the sector include Mahindra & Mahindra (TP: Rs790), Exide Industries (TP: Rs267) and Motherson Sumi (TP: Rs144). In sector EAP, our strong OW positions remain on Mahindra & Mahindra and Maruti Suzuki.  

* Our top Sell-rated names with strong UW stance in sector EAP are Eicher Motors (TP: Rs17,200), Bajaj Auto (TP: Rs2,500) and Ashok Leyland (TP: Rs71).


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