Feb Auto Sales - Key takeaways

Feb Auto Sales: Winners: MSIL, TTMT, AL. Losers: Bajaj Auto. Feb auto sales reflect strong continuation of M&HCV  segment recovery with both TTMT and AL reported volume growth of +34% and +48% YoY respectively. Strong M&HCV cycle recovery points to glimpse of turnaround in overall automotive cycle, as first segment to recover is M&HCV in any economic recovery followed by PV and 2W, based on historical trends. PV segment witnessed growth for OEMs with new launches and wider product portfolio like Maruti and Tata Motors while M&M faces short-term headwinds due to lack of products. With strong product momentum ahead for Maruti, M&M & Tata Motors (PV segment), we may see significant volume ramp up for all these players in FY16/FY17. Two wheeler players are facing tough environment due to weak rural economy as Motorcycle segment declined for all the three leading players (Hero, Bajaj and Honda) in the month of Feb, despite good growth in scooter segment for both Hero and Honda. Some inventory correction for Hero and Honda was also responsible for the volume decline in motorcycle segment.

Actionable Ideas: ++MSIL: Sweet Spot of Model launch Cycle, favourable fuel mix cycle (higher share of petrol models) with possibility of >200bp margin expansion. ++TTMT: Strong recovery in M&HCV volume, LCV pain near bottom and emerging ray of hope in the PV segment for the domestic business. JLR growth will also accelerate on product/engine/market production intervention in FY16/FY17.

++MM: Although current volume may suggest contrary to our positive view on the name, we see clear light at the end of the tunnel in terms of product interventions (Compact SUV and petrol engine launches) in FY16 and recovery in the tractor segment. –BJAUT: Domestic volume pain extended to exports market, which in turn may impact Bajaj’s profitability eventuality (so far shielded by exports market).