Edelweiss says car sales growth could slow to 10% in FY12
Moneycontrol Bureau
After a scorching 30% sales growth in 2010-11 (April-March) passenger car sales in India are likely to slow down to 10% in the current fiscal year, as consumers hit by increased loan rates and a sharp rise in petrol prices apply brakes on their buying plans, according to Edelweiss Securities.
Commercial vehicle sales are also likely to grow at a slow 8% in 2011-12, compared with 27% last fiscal year amid tightening liquidity, a likely slowdown in the economy and slackening road building and construction activity, the brokerage said Monday.
"Already, we have seen car interest rates rising by more than 250 basis points in the past one year to 11.5%. Our economy team believes that RBI may raise interest rates by another 50 bps, which will put further strain on auto interest rates thus adversely affecting the demand," Edelweiss said.
Auto sales in India have already lost speed, data for April and May shows. According to SIAM (Society of Indian Automobile Manufacturers) passenger vehicle sales rose 11.01% over the two-month period, while commercial vehicle sales were up 12.2%.
"Rising interest rates also affect demand for CVs due to an increase in the cost of truck financing. Rising interest rates also up the cost of capital directly affecting freight availability and in turn, the CV demand. We expect FY12 to witness full impact of this trend," it said.
Two-wheeler and tractor sales, meanwhile, are expected to report a relatively strong sales growth of 15% in the current fiscal year mainly on the back of robust demand from rural areas.
"Even if the overall economy slows down, rural income is expected to remain buoyant on steady farm income and the government thrust on rural development. Thus, we expect a soft landing for two wheelers and tractors," Edelweiss said.
Given the macro-headwinds, Edelweiss believes that automobile stocks will continue to underperform the broader market this fiscal. However, it still advises a "buy" for Bajaj Auto , Mahindra & Mahindra and Tata Motors .
Bajaj Auto with its motorcycles and M&M via its tractors has a strong exposure to rural markets. M&M’s utility vehicles too have limited competition. These factors will benefit the two companies, Edelweiss said.
There will be a weakness in Tata Motors' domestic business, but a strong global demand for sports utility vehicles and the new Range Rover Evoke have brightened business prospectus for its Jaguar Land Rover unit, it said. For Tata Motors, more than two-third contribution now comes from the UK-based luxury passenger vehicle division.
Edelweiss has a "hold" on Hero Honda and a "reduce" on Ashok Leyland and Maruti Suzuki . Slowing sales, a high base effect of last year and increased competition will "deflate" Maruti’s FY12 growth, and rising discounts and weakening pricing power will dent margins, it said.
Most auto shares ended down today amidst a weak broader market.
After a scorching 30% sales growth in 2010-11 (April-March) passenger car sales in India are likely to slow down to 10% in the current fiscal year, as consumers hit by increased loan rates and a sharp rise in petrol prices apply brakes on their buying plans, according to Edelweiss Securities.
Commercial vehicle sales are also likely to grow at a slow 8% in 2011-12, compared with 27% last fiscal year amid tightening liquidity, a likely slowdown in the economy and slackening road building and construction activity, the brokerage said Monday.
"Already, we have seen car interest rates rising by more than 250 basis points in the past one year to 11.5%. Our economy team believes that RBI may raise interest rates by another 50 bps, which will put further strain on auto interest rates thus adversely affecting the demand," Edelweiss said.
Auto sales in India have already lost speed, data for April and May shows. According to SIAM (Society of Indian Automobile Manufacturers) passenger vehicle sales rose 11.01% over the two-month period, while commercial vehicle sales were up 12.2%.
"Rising interest rates also affect demand for CVs due to an increase in the cost of truck financing. Rising interest rates also up the cost of capital directly affecting freight availability and in turn, the CV demand. We expect FY12 to witness full impact of this trend," it said.
Two-wheeler and tractor sales, meanwhile, are expected to report a relatively strong sales growth of 15% in the current fiscal year mainly on the back of robust demand from rural areas.
"Even if the overall economy slows down, rural income is expected to remain buoyant on steady farm income and the government thrust on rural development. Thus, we expect a soft landing for two wheelers and tractors," Edelweiss said.
Given the macro-headwinds, Edelweiss believes that automobile stocks will continue to underperform the broader market this fiscal. However, it still advises a "buy" for Bajaj Auto , Mahindra & Mahindra and Tata Motors .
Bajaj Auto with its motorcycles and M&M via its tractors has a strong exposure to rural markets. M&M’s utility vehicles too have limited competition. These factors will benefit the two companies, Edelweiss said.
There will be a weakness in Tata Motors' domestic business, but a strong global demand for sports utility vehicles and the new Range Rover Evoke have brightened business prospectus for its Jaguar Land Rover unit, it said. For Tata Motors, more than two-third contribution now comes from the UK-based luxury passenger vehicle division.
Edelweiss has a "hold" on Hero Honda and a "reduce" on Ashok Leyland and Maruti Suzuki . Slowing sales, a high base effect of last year and increased competition will "deflate" Maruti’s FY12 growth, and rising discounts and weakening pricing power will dent margins, it said.
Most auto shares ended down today amidst a weak broader market.
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