Edelweiss - Auto Sales Update

Two wheelers: Flat

Two-wheeler sales for March were flat Y-o-Y, lowering the annual growth to 11.9% for FY07. Motorcycle sales growth was negative for the first time in three years. Higher interest rates have increased cost of ownership, discouraging buyers. Dealers had indicated an inventory build up last month. However, we believe that the sharp fall is mainly due to the fact that buyers had advanced their purchases during the festive months in the third quarter. Bajaj Auto has scaled down industry growth estimates for the next year to 5-6%. We have scaled down our volume growth estimates as well, following the recent trend. Total motorcycle sales stood at 565,283 units and 7,099,551 units for March 2007 and FY07, respectively. Scooters and mopeds sales for March stood at 89,625 units and 37,393 units, up 4.8% and 7.6% Y-o-Y, respectively. Bajaj Auto remains our top pick in the sector given its strong export focus and robust product line up.



* Commercial vehicles: Weak

Commercial vehicle sales growth was weak at 14.6%, albeit on a higher base. Both Tata Motors and Ashok Leyland sales showed similar M&HCV sales growth M-o-M of around 8.2-8.4%. LCV's sales were stronger at 19.9%. CV sales have been hit by rising interest rates and growth is expected to moderate to about 10-15% as the base effect kicks in. We have a positive outlook on both Tata Motors and Ashok Leyland. Tata Motors is our top pick in the automobile space, following expected growth in commercial vehicle sales due to continued robust industrial activity.



* Passenger vehicles: Muted

Passenger vehicles recorded muted sales in March with passenger cars growing at an dismal 6.1% Y-o-Y to 1,31,845 units. A spike in interest rates and expected launch of several new models in April 2007 has taken its toll on volumes. The executive segment recorded a healthy growth of 70.8%, primarily driven by the Honda Civic. A slew of new launches including Mahindra Logan, Chevrolet Spark, Fiat Palio and the new Hyundai Getz are expected to drive industry sales growth by increasing consumer choice.

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