Weak Re to Force Price Rise to Protect Margins

Investors appear bullish on the two-wheeler sector and the stocks of the two leading players,Hero MotoCorp and Bajaj Auto,ended Wednesdays trade,not too far away from their respective recent 52-week highs.And thats largely attributed to domestic two-wheeler sales in units that have grown 16.1% YoY during April-November of FY12,according to data from industry body SIAM,at a time when auto finance rates that have not yet shown any signs of easing.Analysts point out that these leading two-wheeler players have benefited from their rural marketing expansion strategy and introduction of new models and variants,over the past several quarters.

Bajaj Auto however,enjoys superior operating profit margins vis-vis its nearest rivals in the twowheeler segment Bajaj Auto ended Wednesdays trade 0.75% lower at.1,648,and it had reached its 52-week high in late October.Also,Hero MotoCorp ended the days trade at.1,966.6.In contrast,domestic passenger car sales in units during April- November of FY12 declined 0.5% YoY,according to industry data.And that was partly due to the earlier strike at Maruti Suzukis facilities,which curtailed output at this leading player in the fourwheeler sector.Analysts highlight that consumers have also shown signs of delaying their four-wheeler purchase and its impact on sales volume of this segment of the auto segment.The Maruti Suzuki stock ended Wednesday trade at.947,and not far from its recent 52-week low.However,a concern for the broader auto sector is the near 21% depreciation of the rupee over the past few months,at a time when global commodity input prices have shown some signs of easing.It is understood that several players in the auto sector are looking to raise their product prices in the new calendar year,to protect their operating margins.

Besides,media reports indicate that a Planning Commission working group has suggested a green surcharge on petrol,and an urban transport tax on purchase of new cars and two-wheelers.And with little clarity on implementation,analysts are still waiting to assess the potential impact of these measures on the broader auto sector.Bajaj Auto trades at a P/E of 13.6 times on a trailing fourquarter basis while Hero MotoCorp trades at a P/E of 18.8 times.