Two wheeler sales surges ahead in Mar'14

A mixed end to the year. Automobile sales volumes in March 2014 showed mixed trends—two-wheeler sales volumes grew at a handsome pace, commercial vehicle sales remained sluggish while passenger car sales volumes continued to be driven by new model launches. Key negative surprise was flattish growth in tractor sales volumes. We believe cost of ownership will decline from the current high levels going forward, which will likely aid volume growth during the next year. We expect a high single-digit growth rate for both motorcycles and passenger vehicle segments in FY2015E led by pent-up and replacement demand. Bajaj Auto and Mahindra & Mahindra remain our preferred picks in the large-cap space.

Two-wheeler players ended FY2014 on a strong note with each major manufacturer reporting strong yoy growth in sales. Hero Motocorp reported 11.9% yoy increase in sales volumes to 524,028 units in March 2014. TVS Motors reported a sharp 17.5% yoy increase in total sales led by a sharp 63% yoy growth in scooter sales and ~16% yoy growth in motorcycle exports. Honda Motorcycle reported 57% and 53% yoy increase in total motorcycle and scooter sales respectively.

Maruti Suzuki reported a 5.2% yoy decline in domestic sales volumes led by 11% yoy decline in Alto segment and 14.1% yoy decline in Dzire segment, which was partially offset by 9.3% yoy increase in Swift segment. We highlight that retail volumes increased sharply during the month (+15% yoy) driven by the success of new model Celerio, which has helped in correcting the dealer inventory levels to four weeks now.

We note that passenger car sales in the domestic market (for other car manufacturers as well) continued to be driven by new model launches. Ford India reported 21% yoy increase in domestic sales while Honda reported a sharp 83% yoy increase in its domestic sales during March 2014 led by the success of its new models, while Hyundai Motors reported 3.4% yoy increase in sales.

M&M passenger UV volumes surprised positively by reporting yoy stable sales in March 2014 versus double-digit decline for the past few months, led by pick up in XUV 500 and Bolero sales. Ssangyong Motors reported a sharp 23% yoy increase in sales volumes during March 2014 led by 19% yoy increase in domestic sales and 27% yoy increase in exports. However, tractor volumes remained subdued and grew by a modest 2% yoy due to unseasonal rains in several regions of the country. We believe the subdued growth was a temporary pattern and expect volumes to remain strong over the next two years driven by increasing agriculture labor costs.

Tata Motors reported another month of sharp decline (~36% yoy) in CV sales volumes in March 2014, while passenger car volumes increased by ~8% yoy. The company is launching petrol engine in its new models (Zest and Bolt) in 2QFY15, which will increase the company’s presence in the petrol segment (which is gaining back share form the diesel segment in the recent months). This will likely help the company prevent further market share loss in the passenger vehicle segment, in our view.