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Revving Up!

Signs of improvement in sales in the automobiles sector give hope. The battle for two-wheelers rages as Honda gives headaches to competitors

To get a correct picture of where auto sales are headed, it is best to look at the latest monthly sales numbers released by auto manufacturers. Typically, September and October are the best months for car manufacturers as buyers line up to buy new cars in the festive season. This year, however, car sales didn't pick up in these two months. November, however, has seen a marked improvement in passenger vehicle sales. Maruti Suzuki, Tata Motors, Honda and Hyundai all reported higher numbers.

Maruti Suzuki, the country's largest car manufacturer saw higher sales after a flat October. New launches, Ciaz and Alto K10, boosted sales growth to 17 per cent (y-o-y). Tata Motors' passenger vehicles saw a growth of 30 per cent (y-o-y) led by the Nano and the Zest. SUV sales continued to languish. M&M, the leader in this category, reported a decline of 18 per cent.

Within the two-wheeler segment, Honda consolidated its market share from 21 per cent to 23 per cent with number of units sold jumping 17 per cent over the previous year. This seems to have come at the cost of Bajaj Auto that saw sales units decline six per cent while Hero MotoCorp saw a 3 per cent jump in the number of units sold.

The medium and heavy commercial vehicle segment too is looking up. Ashok Leyland nearly doubled the units sold in November 2014 compared to the same period of previous year. Tata Motors saw its M&HCV segment grow 39 per cent growth over the previous year.

Outlook
To understand the state of the auto sector, look at the discounts offered. After a prolonged period of remaining high, discounts are coming down on key models, with some models even taking a price hike. Falling global crude prices are an added sentiment booster. However, expectations of a revival in demand have already resulted in a run-up in valuations. The sector on aggregate trades at 27 times earnings. Though sales have shown improvement, for the most part, it appears that the auto sector has run ahead on expectations. Stay away.

Star performer of the sector
Maruti Suzuki India
The country's largest passenger vehicle manufacturer with a 44 per cent market share is likely to be one of the primary gainers in a turnaround. The company's entry-level models are already doing good business and new models in the utility vehicle segment are likely to keep Maruti ahead. The company's cost cutting has seen margins expand in each of the last three years. Maruti has nearly doubled in the last one year. That has taken valuations to 32x. That's again expensive.

Early signs of a pick-up in November sales perks up auto manufacturers

Company NameSales Growth YOY PAT Growth YoYTTM EPS (G) YoYTTM Ebitda margin (%)D/EROCE (%)
Tata Motors0.23740.62310.623516.10 (13.85)0.9221.7
Maruti Suzuki India0.02910.02080.020812.56 (12.36)0.0917.77
Mahindra & Mahindra0.02620.00180.001312.44 (13.02)1.5216.38
Bajaj Auto0.0494-0.0506-0.050621.88 (21.70)0.0150.59
Hero MotoCorp0.12960.14970.149715.35 (15.68)0.0548.49