Even as JLR volumes rose 31per cent in August, analysts expect some moderation, going forward.
The changing sentiment on the prospects of the world economy is beginning to reflect in the sales of automobiles, both luxury and small cars. Tata Motors has seen vehicle sales coming under pressure in recent times. Not only is the monthly run-rate of Nano slipping, trends in the luxury segment suggest that Jaguar and Land Rover volumes could see some moderation, too. Kotak Institutional Equities believes 30 per cent year-on-year growth is not sustainable and expects 10 per cent volume growth in the second half of FY12, driven by the addition of Evoque volumes.
Sales of Mercedes, BMW and Audi give a fair indication of the demand scenario for luxury car makers in key markets. According to IDBI Capital, BMW sales grew 60 per cent in Germany, nine per cent in China and 14-20 per cent in Brazil and Russia. For Mercedes, while western Europe was up 14 per cent (Germany up 24 per cent) and Asia Pacific gained three per cent, the US was down two per cent. Audi sales grew 14 per cent in Europe (Germany up 20 per cent), and it outgrew its peers in China and US with 26 per cent and 11 per cent growth, respectively.
Data for August shows that Jaguar and Land Rover sales increased 31 per cent to 21,242 units, which is higher than rivals. This has come as a positive surprise for most auto analysts, as demand for luxury cars is seeing some slowdown. While Land Rover volumes grew 43 per cent year-on-year, those for Jaguar declined 10 per cent. According to analysts, thecompany believes the launch of XF and a marketing push could revive sales of Jaguar, too. Analysts expect JLR volumes to hold up even in the second half of FY12, as demand for Evoque would remain strong. However, this could imply a loss of 180 basis points on the margin front, as the latter is a low-margin product and push from inputs could continue.
Despite the positive trend in JLR, analysts remain cautious on the company’s stock, as demand could change if the economic scenario worsens globally. If this happens, it would be a big negative for Tata Motors as the demand situation in the domestic market is not looking too good. In the passenger car segment, sales of the Indica and Nano have seen a steady decline this year. According to an analyst report, its market share has reduced to 10-12 per cent from 16-17 per cent in the segment, where demand has been hit by the rising cost of ownership in recent times.
In the commercial vehicle space, light commercial vehicles are coming to the rescue, with Ace and its variants doing fine. While, so far, sales of heavy commercial vehicles have not plummeted despite rising rates, this could change. Also, the company faces the risk of increased competition from Bharat Benz in India, explain analysts. Given the pressures the company faces in India, JLR’s volumes are critical.
