A shower of good news for auto stocks

A revival in monsoon has brought the automobile industry back in the limelight, with scrips of most of the auto majors seeing good buying support in the last few sessions in the stock exchanges.

On Tuesday, shares of Maruti Udyog Ltd, the biggest car maker in the country, gained 2.6 per cent to Rs 413.65. No 2 motorcycle maker, Bajaj Auto Ltd scrip added 2.5 per cent to close at Rs 891 and Tata Motors was up 1.83 per cent to Rs 433.95 at close.

They were among the top five gainers in the BSE Sensex basket on Tuesday. Mahindra and Mahindra scrip also went up 3.01 per cent to close at Rs 459.60.

But the Hero Honda Motors scrip fell by a marginal 0.23 per cent to Rs 464.50. Ashok Leyland was down 4.64 per cent to Rs 20.55 after the company cut the industry volume growth forecast by 5 percentage points to 10-15 per cent for current fiscal year.

Analysts said that though there seems to be no correlation between the monsoon and passenger car and commercial vehicle volumes, the delayed monsoon will have an impact on the tractor and two-wheeler sales.

They added that the strong performance in the first quarter is expected to cushion any possible fall in volumes for auto companies due to the delayed monsoon.

Moreover, there are other concerns such as a possible increase in consumer finance rates. If this happens it will have a significant impact on all auto sales as a low interest rate was one of the major drivers of the 14.36 per cent growth in auto sales last year. Vehicles bought on finance schemes account for almost 80-85 per cent of the total vehicles purchased.

In fact, after having notched up a phenomenal growth in sales last year due to a number of factors such as the good monsoon, low interest rates and easy availability of finance, and major infrastructure projects like the golden quadrilateral, auto companies were hoping to repeat the same success this year.

"The upside we would have enjoyed because of two consecutive good monsoons is gone. We will be impacted to that degree," said a Hero Honda spokesperson.

Post-Budget, tractor companies had implemented a cut in their prices due to the excise dusty exemption, while other auto companies have passed on the impact of the 2 per cent cess on taxes by hiking prices by 0.4-2 per cent.

Though the Tractor Manufacturers Association has expressed concerns over the delayed monsoon, industry leader Mahindra and Mahindra seems to be confident about 2004-05.

"Unlike the monsoon failure in 2002, this year many parts of the country have received good rainfall. The delayed monsoon will have a lag effect on tractor sales, so we don't expect to be hit this year," said an M&M official.

The year started off on a good note with most companies registering a good growth in the first quarter. In the passenger car segment Maruti posted a 19 per cent growth, while Tata Motors showed a 39 per cent increase over the first quarter of financial year 2004.

In the two-wheeler segment, industry leader Hero Honda's volumes grew 33 per cent, Bajaj's sales were up 17 per cent, while TVS sales showed a 23 per cent increase.

In the commercial vehicles segment, both Tata Motors and Ashok Leyland have posted significant growth of 53 per cent and 33 per cent respectively.