03
Jul
11

Trouble for Automakers..

Car sales growth slows to two years low was the major headline across business papers yesterday. Combination of higher interest rates and fuel prices is hurting automakers’ sales. In Q4 FY10, companies were struggling with higher commodity prices and its impact on bottom-line. Although commodity prices have come down from their highs, now automakers are fighting with slow sales growth. Companies are bringing down their sales forecast with market leader Maruti slashing it from 13% to 8% this year.

Among the listed players, Maruti and Tata Motors are particularly struggling. Maruti had lower domestic sales at 70,020 units (declined 3.8% from 72,812 last year) in June mainly on account of annual maintenance shutdown at Gurgaon and Manesar plants. Maruti also suffered on account of 13 day strike at its Manesar plant in June.  The market leader is facing stiff competition from Toyota, Ford, Nissan’s recent launches. In one of my earlier post (https://writingoptions.wordpress.com/2011/06/15/maruti-follow-up/), I had mentioned about selling Maruti 1300 call in June series. In July series also I am looking to sell few OTM calls in Maruti, since I don’t expect Maruti share price to move substantially higher in this series. Maruti may not go down further from these levels, so it doesn’t make sense to go short at these levels.

Tata Motors is another listed player which is struggling with falling commercial vehicles (CV) and passenger car sales, particularly in domestic market. June domestic sales fell by 21% to 21,993 units from 27,811 units last year. JLR is silver lining with strong showing in China and other emerging countries. Tata Motors share price has come down sharply from 1150 odd levels since its Q4 results. I won’t short Tata Motors but will sell OTM calls. Just like Maruti, I don’t expect Tata Motors’ share price to rise much higher in July series.

M&M is different ballgame all together. June domestic sales for M&M grew by 21% to 16,053 units. One can say M&M has advantage of lower base, but still company tractor sales are growing rapidly. In Q4 results, M&M said they were struggling with margins on account of higher commodity prices. M&M should benefit this quarter since commodity prices have come down from its peak. M&M also fell after its Q4 quarter results, but recovered most of its lost ground. I won’t be comfortable writing M&M calls at this point of time.

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