Cut forecasts, tweak PO
Cut PO by 2% to Rs.1,988 solely driven by downward revision in EPS forecasts
by 6%-3.5% over FY11-12E. This mainly reflects lowering margin estimates by
55bps-35bps. Also, volume assumptions have been lowered by 2%, but only for
FY11, even as we retain sales estimates for FY12. Maintain Neutral rating.
Margin decline likely to be worse
Cut margins to 14.8%-14.7% over FY11-12E from 15.4%-15.0% earlier, due to
inability to raise ASPs and recoup impact of higher input and emission costs. The
company raised prices in June and Aug (both 1-1.5%), but the highest selling
models Splendor plus and Passion pro (~70% of sales), are still lagging behind
one round of price hike due to competition. We expect this delay to drag margins.
Volumes lowered only for this year
Revised sales assumption of 5.2mn units implies lowered growth of 14%, from
earlier 16% in FY11E, due to impact of component shortages and logistics,
i.e. floods in Uttaranchal. We expect traction to improve in H2, thanks also to new
launches, and therefore retain our FY12 assumption of 6mn units (+14% yoy).
Maintain Neutral
The stock has underperformed 7% YTD, due to uncertainty over Honda
partnership as well as weak Q1. We expect results disappointment to extend to
Q2, and may miss our expectation of EBITDA margin of 15.5%, profit Rs 5.5bn
(down 7%). While valuation post earnings revision does not seem stretched, it
offers limited upside potential, in our view.
No comments:
Post a Comment