Auto sales continued their robust momentum in February and touched record highs on the back of positive consumer sentiment and partially due to early buying at the dealers desk in anticipation of rollback of excise duty in the Union Budget.

Volumes of most companies showed no signs of tapering off and recorded healthy growth for the month. The commercial vehicle (CV) segment dominated growth in February led by the medium and heavy commercial vehicle (M&HCV) segment as domestic recovery was affirmed by the overall pick-up in economic and industrial activities.

The passenger vehicle (PV) segment also continued on growth path, following new launches and a consumer confidence in the market. The two-wheeler segment, too, maintained its growth momentum. We expect the demand to be strong, albeit more normal across segments, considering demand may have peaked in the past few months prior to the expected price hikes in view of excise duty hike and spurt in raw material prices.

MarutiSuzuki India Ltd recorded a robust 22% year-on-year (y-o-y) growth, registering highest-ever monthly volumes at 96,650 units. The companys exports consolidated at an expected run rate of 11,800 units reflecting the effect of the discontinuation of scrappage norms in Europe. The management is positive about Eeco, which gave a boost to its C segment, resulting in 39.6% y-o-y growth. The PV segment grew 20.5% y-o-y. However, the multi-utility vehicle segment declined 46.7% y-o-y.

Also, to circumvent the capacity constraints faced by the company in the past months, the board of directors have approved capacity expansion at Manesar, which will entail capital expenditure of around Rs1,700 crore, leading to additional capacity of 250,000 cars per annum in addition to the current one million-car capacity. The additional capacity will begin commercial production by April 2012.

Mahindra and Mahindra Ltd (M&M) reported healthy volumes at 41,814 units (29,017) led by growth in the tractor segment at 52.6% y-o-y supplemented by the 40.2% y-o-y growth registered by the automotive division. Growth of the automotive segment was led by utility vehicles, light commercial vehicles (LCV) and three-wheeler segments at 24.2%, 89.8% and 102.3% y-o-y, respectively. The company performed exceptionally well on the exports front, growing at around 284.9% y-o-y. The management is extremely confident of the continuation of the growth in demand as the Budget increased allocation to rural development programmes, in turn, particularly benefiting the farm equipment segment of M&M.

Tata Motors Ltd reported a robust 57.8% y-o-y growth in total volumes with the M&HCV segment leading the growth at 91.3% y-o-y, followed by the LCV segment growing at 55.5% y-o-y. Indica sales were at 11,502 units, the highest this fiscal; Indigo recorded sales of 7,373 units, the highest since its launch in 2002 and y-o-y growth of 75.2%. The Sumo/Safari/Xenon XT range accounted for stellar sales of 4,005 units, a growth of 14% y-o-y.

Exports also boosted the companys performance as it reported 124.5% y-o-y growth, partially on account of a low base resulting from the downturn in FY09. Passenger cars also showed healthy growth of 49.5% y-o-y on the back of new launches such as the Manza clocking volumes.

Hero Honda Motors Ltd reported strong growth registering 16.1% y-o-y growth for the month and 4.2 million units year-to-date, thereby exceeding the managements expectations of ending FY10 with estimated sales of four million units. Bajaj Auto Ltd led the pack with a striking 74.7% y-o-y growth with its key brands, Pulsar and Discover, performing well during the month. TVS Motor Co. Ltd clocked 31.0% y-o-y growth with its scooter and moped segments registering decent growth for the month.

We remain positive on the Indian auto sector.