TVS Motor (TVSL) two-wheeler dispatches for the month of Dec'10 rose by 40.6% YoY to 168k units as against our estimate of 163k units. However, the product mix was poorer as the moped segment outperformed while motorcycle dispatches were weaker. Motorcycle volumes were up 23.9% to 61.5k units against our estimate of 69k units. Scooter volumes almost doubled to 42k units driven by the success of the Wego. Moped segment sales raced to all time high of 65k units, growth of 34.1%. Exports were up 10.3% to 18k units.

Three Wheeler dispatches were at 3,431 units. From the month of January we expect the monthly run rate moving up in the range of 185k - 190k units.

Considering the strong growth, we have upward revised our volume and earnings estimates for the company.

Over the last month, the stock has witnessed a steep correction and is currently trading at 12.2x its FY12E earnings. At these valuations we are positive on the stock and upgrade it to a `BUY' with a target price of Rs94 (16x FY12E).

Maruti (MSIL) dispatches for the month of December'10 were ahead of estimates with the company reporting 99k dispatches against our estimate of 94k units. Considering the planned maintenance shutdown undertaken during the last week of the month, MSIL did well to reach within striking distance of the 100k mark. The A2 segment volumes were up 23.5% YoY to 64.5k units. YTD FY11 A2 segment volumes have grown at an impressive 27.4% aided by the success of the Alto K-10 and new WagonR. A3 segment (SX4, Dzire) volumes were up 19.4% to 9k units. The MPV segment continued their impressive run with a growth of 67.5% to 13.5k units. YTDFY11, MPV volumes have grown by 72.4% buoyed by the launch of Eeco. Retail sales at 138K units in the domestic market were ahead of dispatches of 89k units and reflects strong demand for the passenger cars in the market.

This is in line with the experience of other manufacturers like Hyundai which also reported significantly higher retail sales as compared to dispatches. Exports continue to remain under pressure due to slowdown in demand in European markets leading to decline of 29% in exports to 9.8k units.

We maintain a `HOLD' rating on the stock with a price target of Rs1,586 discounting FY12E earnings 16x.