Strong growth in scooters driving recovery by By Jinesh Gandhi, Motilal Oswal Financial Services
considering the slowdown in economic activity and consequent weakness in consumer and business sentiment, the underlying demand environment remains challenging in the automobile sector. While better farm income and strong growth in scooters is driving recovery in two-wheelers, growth in tractor segment has moderated. Freight rates have moved up sharply in Q4FY14, indicating bottoming-out of the commercial vehicle (CV) cycle. Decline in medium and heavy commercial vehicles (MHCV) demand has moderated compared with the past few months.
Competitive intensity is expected to remain high across segments, especially in personal vehicles (PVs) and CVs, with several launches from challengers and incumbents. While volume recovery would be witnessed across segments, benefit of the same would differ from player to player depending on their product lifecycle and competitive intensity. Product lifecycle of incumbents like Hero MotoCorp (2-3 new product launches) and Maruti Suzuki (three new product launches) is favourable, whereas Mahindra & Mahindra doesn't have any major launch lined up for FY15. In CVs, we expect continued rollout of new trucks from Eicher and Daimler, along with ramp-up in their distribution network, keeping incumbents on their toes.
Expected improvement in economic activity, post election is the key catalyst for demand recovery. Economic activity is expected to improve on the back of gathering pace in project clearance and clarity on the political front, attracting investment activity from the fence-sitters. Improved economic outlook and consequent improvement in business and consumer sentiments would be the key catalyst for demand recovery and in turn for re-rating.
Valuation and view: Demand environment and changing competitive landscape in the auto sector would be the key determinants of stock performance. Prefer Maruti Suzuki and Hero MotoCorp in large caps and TVS Motor and Eicher Motors in midcaps.
This Article taken from my digitalfc : http://www.mydigitalfc.com/news/strong-growth-scooters-driving-recovery-170
considering the slowdown in economic activity and consequent weakness in consumer and business sentiment, the underlying demand environment remains challenging in the automobile sector. While better farm income and strong growth in scooters is driving recovery in two-wheelers, growth in tractor segment has moderated. Freight rates have moved up sharply in Q4FY14, indicating bottoming-out of the commercial vehicle (CV) cycle. Decline in medium and heavy commercial vehicles (MHCV) demand has moderated compared with the past few months.
Competitive intensity is expected to remain high across segments, especially in personal vehicles (PVs) and CVs, with several launches from challengers and incumbents. While volume recovery would be witnessed across segments, benefit of the same would differ from player to player depending on their product lifecycle and competitive intensity. Product lifecycle of incumbents like Hero MotoCorp (2-3 new product launches) and Maruti Suzuki (three new product launches) is favourable, whereas Mahindra & Mahindra doesn't have any major launch lined up for FY15. In CVs, we expect continued rollout of new trucks from Eicher and Daimler, along with ramp-up in their distribution network, keeping incumbents on their toes.
Expected improvement in economic activity, post election is the key catalyst for demand recovery. Economic activity is expected to improve on the back of gathering pace in project clearance and clarity on the political front, attracting investment activity from the fence-sitters. Improved economic outlook and consequent improvement in business and consumer sentiments would be the key catalyst for demand recovery and in turn for re-rating.
Valuation and view: Demand environment and changing competitive landscape in the auto sector would be the key determinants of stock performance. Prefer Maruti Suzuki and Hero MotoCorp in large caps and TVS Motor and Eicher Motors in midcaps.
This Article taken from my digitalfc : http://www.mydigitalfc.com/news/strong-growth-scooters-driving-recovery-170