 "Four-wheelers to gain most from govt pay rise")
Led by Maruti Suzuki, automobile stocks made gains of two per cent given the likely positive impact on consumption following the 23.6 per cent hike for Central government employees and pensioners. The recommendation is lower than the sixth pay commission’s 35 per cent, which apart from a pay hike also saw significant arrears being paid.
According to analysts, the biggest beneficiaries of government pay hike would be four-wheeler stocks. In the listed space, the three stocks in play are Maruti Suzuki, Mahindra & Mahindra (M&M) and Tata Motors. While the first two ended the day two per cent higher, Tata Motors ended lower (the higher share of JLR in the financials partly explains the decline).
Given the increased penetration of two-wheelers, analysts at Nomura estimate a two or three per cent incremental volume compounded annual growth rate for two-wheelers over the FY17-18 period. However, for passenger vehicles, they estimate sales to see an incremental increase of five to seven per cent owing to the pay hike, while another 6.7 per cent is likely from replacement demand from government employees.
If the past pay commission impact is any indication, Maruti could end up being the biggest beneficiary given the focus on government sales. The company’s sales to government employees rose from four per cent in 2007-2008 to 14 per cent in 2010-11. The other trigger for the stock’s run-up over the past couple of days has been the strong volumes in the recent festive season. Passenger vehicle sales in October were up 22 per cent year-on-year (y-o-y) on the back of new launches and on a high base. Not surprisingly, Maruti remains the top pick of most brokerages.
Among other segments, motorcycles, too, ended in the positive growth (up six per cent) territory after a gap of a year. Utility vehicle sales touched their two-year highs with monthly sales at 58,000 units, up 21 per cent y-o-y. Growth was led by M&M, which posted a 19 per cent improvement y-o-y and accounted for 40 per cent of utility vehicle sales. While Hero MotoCorp sold about a million units in the festival period of 35 days (11 per cent higher y-o-y), Bajaj Auto’s sale was up 11-15 per cent. The listed entities have also been resilient with aggregate net profit for larger companies coming higher by 17 per cent y-o-y on the back of raw material-led margin gains in the September quarter.
According to analysts, the biggest beneficiaries of government pay hike would be four-wheeler stocks. In the listed space, the three stocks in play are Maruti Suzuki, Mahindra & Mahindra (M&M) and Tata Motors. While the first two ended the day two per cent higher, Tata Motors ended lower (the higher share of JLR in the financials partly explains the decline).
Given the increased penetration of two-wheelers, analysts at Nomura estimate a two or three per cent incremental volume compounded annual growth rate for two-wheelers over the FY17-18 period. However, for passenger vehicles, they estimate sales to see an incremental increase of five to seven per cent owing to the pay hike, while another 6.7 per cent is likely from replacement demand from government employees.
If the past pay commission impact is any indication, Maruti could end up being the biggest beneficiary given the focus on government sales. The company’s sales to government employees rose from four per cent in 2007-2008 to 14 per cent in 2010-11. The other trigger for the stock’s run-up over the past couple of days has been the strong volumes in the recent festive season. Passenger vehicle sales in October were up 22 per cent year-on-year (y-o-y) on the back of new launches and on a high base. Not surprisingly, Maruti remains the top pick of most brokerages.
Among other segments, motorcycles, too, ended in the positive growth (up six per cent) territory after a gap of a year. Utility vehicle sales touched their two-year highs with monthly sales at 58,000 units, up 21 per cent y-o-y. Growth was led by M&M, which posted a 19 per cent improvement y-o-y and accounted for 40 per cent of utility vehicle sales. While Hero MotoCorp sold about a million units in the festival period of 35 days (11 per cent higher y-o-y), Bajaj Auto’s sale was up 11-15 per cent. The listed entities have also been resilient with aggregate net profit for larger companies coming higher by 17 per cent y-o-y on the back of raw material-led margin gains in the September quarter.