Will Auto Sector rev up after the Budget?
By Geetanjali Kedia
All eyes are now eagerly set on the Budget, which is likely to be reform-oriented, with focus on increasing investment, so increase job opportunities, thus increasing income in the hands of the people, which will see larger savings, as also larger consumption, thus fuelling the economy.
In this background, it is essential to keep an eye on Realty, FMCG and Auto Sector, as all these three sectors will be seen beneficiaries of higher income, higher savings and higher spending. Expected interest rate cut will also help all these three sectors to grow further in the time to come.
In this cover story, we are featuring the auto sector and auto stocks, which are likely to remain in focus, as India is seen to be posting highest growth in the world, leaving China behind. Monthly sales for first 10 months of FY15, from April 14 to January 15, of listed auto makers, is given hereunder:
| Sales Data* (in units) | Jan'15 | Dec'14 | Nov'14 | Oct'14 | Sept'14 | Aug-14 | Jul-14 | Jun-14 | May-14 | Apr-14 |
| Maruti Suzuki | 1,16,606 | 1,09,791 | 1,10,147 | 1,03,973 | 1,09,742 | 1,10,776 | 1,01,380 | 1,12,773 | 1,00,925 | 86,196 |
| Tata Motors | 42,582 | 41,734 | 41,720 | 42,819 | 46,118 | 40,883 | 39,623 | 38,557 | 37,525 | 33,892 |
| Tata Motors Group Global | 80,499 | 85,742 | 83,906 | 82,026 | 80,104 | 73,524 | 80,151 | 75,623 | 77,575 | 75,026 |
| M&M (auto) | 39,930 | 36,328 | 34,292 | 42,776 | 44,911 | 35,175 | 35,567 | 38,471 | 37,869 | 36,274 |
| M&M (tractor) | 14,913 | 12,474 | 15,333 | 31,907 | 28,739 | 15,006 | 17,407 | 29,884 | 23,940 | 20,731 |
| Hero Moto | 5,58,982 | 5,26,097 | 5,47,413 | 10,00,000 | 6,09,000 | 5,58,609 | 5,29,862 | 5,41,594 | 6,02,481 | 5,71,054 |
| Bajaj Auto | 2,88,746 | 2,89,244 | 3,09,259 | 3,86,017 | 3,99,450 | 3,36,840 | 3,19,292 | 3,05,465 | 3,51,436 | 3,31,529 |
| TVS Motor | 1,88,598 | 1,91,880 | 2,20,046 | 2,41,044 | 2,50,835 | 2,27,482 | 2,03,092 | 2,02,177 | 2,10,293 | 1,90,683 |
| Ashok Leyland | 10,639 | 9,290 | 7,732 | 8,375 | 9,193 | 8,331 | 7,847 | 7,452 | 6,632 | 5,897 |
| Force Motors | 2,354 | 2,354 | 1,920 | 2,182 | 2,778 | 2,424 | 2,452 | 2,213 | 2,188 | 2,310 |
| Eicher Motors (motor cycles) | 28,927 | 28,634 | 27,542 | 26,039 | 28,020 | 26,643 | 27,314 | 25,303 | 25,011 | 23,818 |
| Eicher Motors (CVs) | 3,262 | 3,387 | 2,778 | 3,052 | 3,176 | 3,027 | 3,341 | 4,187 | 3,685 | 3,434 |
| Atul Auto | 3,636 | 3,708 | 3,807 | 4,302 | 4,149 | 3,402 | 3,537 | 3,222 | 2,808 | 2,403 |
| Escorts (tractor) | 3,369 | 3,021 | 4,306 | 8,554 | 7,072 | 3,624 | 4,317 | 6,689 | 5,794 | 5,366 |
| SML Isuzu | 771 | 1,073 | 533 | 554 | 926 | 642 | 940 | 1,433 | 1,285 | 911 |
*including exports
Two Wheelers
It is seen that Hero Moto has an edge over other 2 wheeler makers (Bajaj Auto and TVS Motors), although the stock is ruling weak today, as promoters are looking to sell their 3% stake in the company. But, this will only have a near term negative phenomenon. Bajaj Auto has seen a fall in its sales, largely due to fall seen in the exports, due to problems faced by the company in Nigeria. Company has not been able to increase its market share in India as well and hence seen to be de-growing in the near future. Similar is the case with TVS Motors, where sale run of over 2 lakh per month vehicles has fallen below the 2 lakh mark in the last two months.
Hence, in the current situation it is better to have positive view on Hero, neutral view on Bajaj and profit booking view on TVS Motors.
CV Segment (M&HCV)
Ashok Leyland and Tata Motors are the two key players in the Commercial Vehicle (CV) segment, with presence seen in MCV and LCV as well. However, Ashok Leyland has been smartly raising its monthly sales numbers every month, with guidance of a growth of over 20% for FY16. Conversely, Tata Motors has been finding it difficult to hold on to its CV market share, as its focus is now shifted more on its global operations. Also, domestic operations of Tata Motors are loss making, which is not persuading analysts to give a look to its standalone operations. Hence, Ashok Leyland has a clear edge over Tata Motors and would continue to remain a preferred choice of investors amongst CV space.
LCV and MCV
Two companies exist in this segment - Force Motors and SML Isuzu. It may be seen that SML Isuzu is losing its market share, as can be seen from monthly declining sales numbers. This is also reflected in its poor quarterly numbers of Q2 and Q3. If SML clocks monthly sales of over 1,200 vehicles, only then it posts robust quarterly numbers. Q1 FY15 numbers are proof of this. But Force Motors is having an edge over SML Isuzu, as company is a supplier of engines and other auto parts to Mercedes, BMW and other auto makers, coupled with strong presence in its core business, wherein new models are lined up for launch over the next 12 months. Hence, Force Motors is seen a growth oriented stock in this sector. Atul Auto, maker of 3 wheelers and LCV, is also stagnation in monthly sales numbers for last three months, while share has seen a good run up in last six months.
Tractors
M&M and Escorts are two players in this segment, but both are finding it difficult to post significant growth in the last three months. As such, tractor sales are always lower for period from November to March and picks-up from April onwards, ahead of the Kharif season and post harvest of rabi season. But both these stocks seem to have good growth potential going ahead.
Passenger Vehicles
Maruti is leader in this space and has been consistently maintaining a monthly run of over 1 lakh vehicles. Tata Motors is seen lagging behind, as stated earlier in CV section, due to overall lackluster domestic performance. M&M has good market share in UV because of new model introduction and pricing them at much lower cost as compared with global peers.
Hence, going forward, keep an eye on this sector and few of the recommended stocks, with a view of 12 months.