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Auto: What happened in March?

What started off with a gallop has sadly ended with a whimper. We are referring to the auto numbers for the key segments in the month of March. As evident from the table below, most of the major companies across key segments have grown their volumes at a lower rate than what was achieved in the entire fiscal. Let us have a look at the performance of each company and the likely reasons behind the same.

	Mar-07	Mar-06	% change	FY07	FY06	% change
Motorcycles
Hero Honda (HROH.BO, news)	273,452	257,904	6.0%	3,157,429	2,893,070	9.1%
Bajaj Auto (BJAT.BO, news)	139,460	161,610	-13.7%	2,078,860	1,747,806	18.9%
TVS Motor	66,454	80,238	-17.2%	844,174	752,576	12.2%
Passenger vehicles (cars + UVs)
Maruti	64,556	61,141	5.6%	635,629	527,038	20.6%
M&M	11,287	12,307	-8.3%	89,734	84,026	6.8%
Tata Motors	25,760	22,609	13.9%	226,893	188,856	20.1%
Commercial vehicles
Ashok Leyland (ASOK.BO, news)	7,936	8,087	-1.9%	77,076	56,776	35.8%
M&M	4,934	3,280	50.4%	46,841	37,447	25.1%
Tata Motors	30,720	27,289	12.6%	299,173	214,950	39.2%

Motorcycles: After lagging behind Bajaj Auto for most part of the year, Hero Honda, India's largest two-wheeler manufacturer has been able to recover some lost ground in the past few months. Infact, it is the only company that has managed to show a positive YoY growth in March. The fact that the former is facing some capacity constraints is also not helping matters. TVS Motor, the third largest player has been worst hit and has recorded a 17% drop in sales. The ugly price war between the two major players is having an adverse impact on its sales, especially given the fact that it has consciously chosen to stay out of it. With all the players planning to launch new models, it will be interesting to see who comes out on top in FY08.

Passenger vehicles: This segment has grown by 5.3% in March on a YoY basis and both the major players viz. Maruti and Tata Motors have been able to outperform the segment. Tata Motors however, has registered the highest growth rate of 14% YoY. This could be attributed to robust performance of both its UV as well as passenger car division. On the other hand, while Maruti's UV sales have taken a hit, M&M has suffered on account of a lack of passenger car offering in its portfolio. However, going forward both the companies are looking to correct this anomaly. Infact, by launching a new passenger car 'Logan', in tie up with Nissan, M&M has already fired the first salvo. Going forward, this segment is going to witness the most intense competition and hence, the incumbents will really have to pull up their sleeves, if they are to emerge as long-term winners.

Commercial vehicles: M&M has outperformed its more fancied peers in this segment for the month of March. However, this should be viewed in the context of a much smaller base for M&M as compared to the other two players. Total CV sales have grown by 13% YoY in the last month of the current fiscal, thanks mainly to a 24% YoY growth in LCVs. Tata Motors, the largest player in the segment, has managed to grow in line with industry as its volumes have also improved by close to 13%. Absence of successful LCVs in its portfolio has really affected Ashok Leyland's performance. Infact, M&HCVs, the company's area of expertise, has also failed to prop up its sales, as it has underperformed even in that category. While CV sales have been stupendous in FY07, it will be foolhardy to assume such growth rates to continue year on year, as CV is a cyclical industry. Going forward, growth should settle down to a more reasonable 8% to 10% rate.

FY08 is upon us now and hence, we will have to once again start with a clean slate. While it will be difficult if not impossible for us to predict how the sales figure will look like in April, based on history however, we can predict one thing with reasonable accuracy. Growth of the magnitude witnessed in FY07, especially in passenger and commercial vehicle segments is unlikely to sustain itself in the current fiscal. Add to this the specter of rising interest rates and inflationary pressures on margins. No wonder, auto stocks are not the blue eyed boys of Dalal Street currently.

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