Indian Auto Sector Review

Citigroup Research

Sector Review - India August Sales

Over August, two-wheeler growth slowed to 3.5% while passenger vehicle (cars and UVs) growth was higher at 13.5%. Both these categories, however, suffered due to a higher base effect (sales in August 2005 were strong as July 2005 was affected by floods). Notably, Hero Honda - the market leader in the two-wheeler segment - showed negative growth due to high inventory build-up at the dealer channel, which is presumably being corrected.

 
Driven by the Supreme Court order on overloading, commercial vehicle sales showed robust growth (+29%), even though the growth rate declined QoQ. The MHCV segment grew at close to 40%, while LCVs (ex-Ace) showed signs of slowing. Three-wheeler sales, buoyed by demand in the passenger segment, grew by 17%.

Medium & Heavy Commercial Vehicles - Solid Growth Continues

MHCV continued to grow strongly with sales up about 40% y-o-y. The goods segment, buoyed by strong industrial growth and the Supreme Court order ban on overloading, was up by 40% y-o-y. Bus sales were strong, even though growth has moderated.

 
August saw bus sales for Ashok Leyland decline by 11 % y-o-y. YTD sales for ALL are down 21%. Tata Motors, on the other hand, has seen bus sales more than double (though off a low base). We believe the new range of Starbus/Globus series is also making an impact, albeit gradually.

Light Commercial Vehicles - ACE Continues to Sizzle

LCV sales grew by 16% y-o-y - strong but somewhat lower than that in previous months. The growth–largely triggered by the success of the sub-ton ACE - has seen Tata Motors gain market share over the past year. However, with the base effect now coming into play, future growth rates might taper downward. Excluding the ACE, sales in the LCV segment have been flat y-o-y with the higher tonnage LCVs showing a decline. This reflects the advent of the hub-and-spoke model.

 
The effect of the ACE is clearly reflected in the steadily rising market share of Tata Motors, which now stands at 70% vs 64% in FY06.

Cars - Sales of Compact Cars Continue to Grow

Overall car sales rose about 14% y-o-y; while domestic sales were up 17%, export growth disappointed at 3%. Exports now form about 22% of total car sales - thus underlining their importance. The key compact car segment (B Segment) was up by 16% - despite the base effect of the Swift coming into play.

 
The small car segment - essentially the M-800 (from Maruti's stable) - continued its downward trend. The cut in excise duties does not seem to have benefited the segment as the shift toward the compact segment (notably the Alto) continues.

Utility Vehicles - M&M Whizzes Past Maruti

Overall UV sales rose 15% y-o-y. After a brief dip in June and July, M&M has gained 130bps market share (currently 31 %) as volumes of the Scorpio and Bolero increased. We believe this is a healthy trend, given that M&M’s soft tops are facing a secure decline as consumer preferences shift. Maruti is the other leading player (28% market share in August) in this segment. After a blip in January (labour strike impacted production), Toyota’s market share has also recovered.