On a high base of CY10, Indian automobile industry commenced CY11 on a promising note despite headwinds like increase in interest rates, product prices and fuel cost. The growth rate for the industry on a high base is now reverting to sustainable range of 14-16%. While domestic demand remains strong, export of passenger cars continues to suffer with decline of 30%. In the passenger car segment, new launches/variants continue to excite customers and were the prime reason behind strong demand. 2-wheelers segment reported strong performance with dispatches growing by 20% during the month. In the commercial segment, MHCV growth rate due to base effect has declined to single digit, however industry has succeeded in maintaining its monthly run rate. Tractor sales remained strong with market leader M&M reporting over 20% growth.

.. Two-wheelers: Industry dispatches increased by 20% and continued to maintain their monthly run rate above 1.1mn. Domestic 2-wheeler dispatches are well set to breach 10mn mark during the current year. Barring Honda Motorcycle & Scooters India, all other players reported strong double digit growth.

.. Passenger Vehicles: Maruti Suzuki led passenger car segment with growth of 24% in domestic dispatches. New launches maintained their tempo with Ford, Volkswagen reporting strong volumes. However, exports were lower during the month with leading players Hyundai and Maruti reporting steep decline in volumes. Maruti is expected to retailed ~80k units during the month, thus partly refilling the inventory which got liquidated in December.

.. Commercial Vehicles: MHCV sales after rebouncing in December, maintained their monthly run rates during the current month. On a high base of last year, MHCV segment growth rate came down to single digit. However, LCvs continue to perform well with M&M reporting strong figures.

Our Viewpoint

We remain positive on the sector despite the near term concerns being faced by the industry. We expect that industry will be able to grow in double digits during FY12. Our top picks in the sector are Bajaj Auto, Mahindra & Mahindra, TVS Motor and Ashok Leyland.