The Hindu Business Line : How the players stack up

In these challenging times, how have the major auto companies fared? And, more importantly, if you are a shareholder in any of the listed companies in this space, what's in store on the business aspect for each of these players? Here's a bird's-eye view of the prospects for six players in this sector.

HERO HONDA

In testing times, the company has managed to close the year with a modest growth of 0.23 per cent in volume terms. In value terms, net sales grew by 13 per cent in 2007- 08. This growth was primarily driven by the performance of such new models as Splendor NXG, the CBZ Xtreme and the 150 cc Hunk.

Given the weakening consumer interest in the entry-level segment and the fact that margins in the entry segment are not attractive, Hero Honda's dominance in the executive segment is likely to be challenged by Bajaj and TVS over the next few years. As a consequence, higher marketing expenses to maintain market share and price reductions to boost volumes may impact margins. So will rising input costs.

BAJAJ HOLDINGS AND INVESTMENTS

With presence in the two- and three-wheeler segments, sales volumes in 2007-08 have fallen 20 per cent. But with the launch of the XCD, the company has gained the early-bird advantage in identifying the next trend in the entry segment - a 125ccc bike with features of a premium bike and performance of a 125cc engine - all at entry-level prices.

This change in product mix plus an increased focus on the executive segment will improve realisations and margins. The company also has a strong position in the premium segment with its Pulsar bikes.

To counter its sagging threewheeler sales, the company is planning a four-wheeled cargo carrier as an answer to Tata's Ace. A foray into the compact car segment is also on the cards.

TVS MOTORS

Beaten by slower offtake, delay in product launches and a patent tussle with Bajaj, the company's margins for the first nine months of 2008, stood at a wafer-thin 2.2 per cent. A 50 per cent growth in exports across all segments is the saving grace.

Though three-wheelers bring in higher margins, the company has forayed into this segment at a time when the industry is faced with a slowdown. Prospects rest on the success of the Flame (125cc) and other launches planned in the executive segment and on the demand for its premium bike, the Apache RTR and its upgrades.

TATA MOTORS

The portfolio is dominated by older models, especially in passenger cars. Sales volumes of Indica have fallen by 7 per cent over the previous year. So also with the sales of the Indigo and the Indigo Marina. New variants Indica Dicor and Indigo CS are expected to revive volumes.

While the company remains leader in the sub-3.5 tonne LCV segment, the sub-one tonne Ace could face stiff competition from Piaggio's Ape and a similar vehicle from Bajaj. But growth in the MHCV segment will largely depend on the availability of fi- nance.

Also, with the buyout of Jaguar and Land Rover, uncertainties exist as to mode of financing the acquisition, while concerns also exist on integration costs and profitability. Besides, rising cost of steel and other raw materials and thin initial margins on the Nano, may keep margins at muted levels for now.

ASHOK LEYLAND

A surge in bus sales as against the fall in sales of MHCVs has helped the company end the year with near flat sales volumes.

The joint venture with Nissan to manufacture LCVs bodes well for the company as LCVs are not subject to the cyclicality of the sister segment. Capex plans for this JV could dampen the bottomline in the next two-three years.

MARUTI SUZUKI

The company has shown lacklustre sales in the March quarter, indicating the stiff competition in its bread-andbutter compact segment. Increased ad expenses to retain market share and surging input costs could keep margins muted.

But sales of the SX4, Dzire, Splash and the A-Star have the potential to boost growth in the next one-two years. The change in sales mix in favour of mid-size cars will also improve realisations.

P. V. C

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