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Auto and auto ancillary
ƒ Demand sustenance leads to OEM topline growth
Q3FY11 has seen growth of ~27% YoY and ~5% QoQ on strong
volumes despite December being a traditionally weak month. This
has raised the expectations of a stronger Q4, which would confirm
the expected strength of demand based on the rising middle class
and increasing affordability of the same. PV segment has grown in
FY11 (~27% YTD) & ~26% YoY (ex-Hyundai). It has witnessed new
launches at attractive price points and discounts. CV segment has
continued to see healthy growth of ~22% YoY due to increasing
freight activity linked to manufacturing and infrastructure. However,
due to pre-buying in September 2010 with BS-III implementation in
October 2010, volumes declined ~1% QoQ. Two-wheeler segment
has seen strong rural and Tier-II, III cities led demand, which has
seen ~27% YoY growth. We expect our OEM universe to report
topline growth of 27.3% YoY & a sequential jump of 1.8%.
ƒ Ancillaries to post a mixed bag of results
Ancillaries have seen robust demand from both OEMs &
replacement market though results would not be completely
reflective of it. Tyre manufacturers have had to deal with lifetime
high rubber prices leading to significant erosion in profits. However,
companies with lesser degree of raw material (RM) headwinds and
higher supplier power like Bharat Forge, Exide would post strong
margins. We expect our ancillary universe to post revenue growth of
23.1% YoY & sequential jump of 15.9% in Q2FY11E.
ƒ Rising RM costs, forex volatility overhang on profitability, demand
We expect the industry to face margin pressure in the near term
with a persistent rise in commodity prices like steel (10% YoY),
aluminium (12% YoY) and rubber (50% YoY). It could also be
accentuated further by higher import costs with any untoward
currency movement. In response, the industry has undertaken
various costs rationalisation measures to improve operating
leverage but rise in prices across value chain would be essential. We
expect the I-direct coverage universe to reflect a decline in EBITDA
margin of 2.9% YoY and 0.6% QoQ.
Automotive Axle
Natural proxy to CV demand that has witnessed strong bounce back with stronger
IIP numbers in Q3. It is expected to post topline growth of 32.3% YoY and PAT
growth of 60.0% YoY. The higher input costs would curtail EBITDA margin increase.
We expect flattish margins QoQ and YoY
Bajaj Auto
Discover & Pulsar series have seen strong volume gains in H1FY11 but Q3 volumes
were ~5.5% down at 9.5 lakh. Topline and bottomline are expected to grow
handsomely at 26.5%, 27.7% YoY. EBITDA, PAT margins, however, are expected to
get pared down to sub 20%,15% levels on strong RM headwinds
Balkrishna Industries
Resurgence in farm-equipment, OTR segment with recovery in the US is expected to
lead a topline growth of 47.3% YoY. The efficient hedge of rubber at $3.5/kg (31.5%
less to market rate) for H2FY11along with niche segment pricing power would make
it the least affected tyre play with~10% PAT margins
Bharat Forge
Strong domestic M&HCV and LCV segment led automotive performance and rising
revenues of non-auto are expected to lever topline up ~ 54.5% YoY. It is expected to
maintain EBITDA, PAT margins at ~24%, 10% even in the wake of higher input costs
on superior product quality and higher supplier power
Escorts
The new quarter has seen strong 17,000 units tractor sales that has set the tone for
a robust SY11. Also, the company would charge director remuneration and royalty
fees equally over the quarters to avoid lumpiness. With a pick-up in infra activities,
ECEL's contribution to consolidated profits would increase.
Exide
Strong automotive growth of ~27% YoY is expected to boost the topline. With
operational constraints being sorted out, higher replacement sales could lead to
improved realisations QoQ. Revenues are expected to rise 27.2% YoY and 3.0% QoQ.
EBITDA margins would improve marginally QoQ by ~0.1% at 21.8%
JK Tyre
Domestic demand in both OEM and replacement market sales of the PV, T&B and
radial segment would lead to revenue increase of 32.9% YoY. Rubber prices have
increased unabated having crossed $4.6/kg leading to a steep decline in margins on
PAT and EBITDA front leading to ~sub 1% PAT margins
M&M
The continued dominance in the UV segment and increasing market share (~20%) in
the three-wheeler pick-up aided by robust rural tractor sales are expected to raise
the topline by 34.0% YoY and 10.9% QoQ. The margin is expected to decline ~1.8%
QoQ due to strong metal and rubber price increases
Maruti Suzuki
MSIL has maintained market share in PV segment with buoyant domestic sales
exceeding 1 lakh in Oct'10. Strong volume coupled with price hikes on BS-III
implementation would aid revenue growth of 29.3% YoY, 6.0% QoQ. However, steep
RM costs rise, yen volatility could push profits down 14.2% YoY
Motherson Sumi
Domestic revenue growth continues to be robust, riding on the auto demand wave.
Business outside India is showing improvement with increase in sales in the US &
China. EU, however, remains sluggish. We expect the consolidated topline to jump
23.2% YoY and 14.2% QoQ. A hike in RM prices could push margins downward
Subros
Market share of ~65% due to premier clients like Maruti and Tata Motors along with
growing business from newer entrants has improved business outlook. Revenue
growth is expected to be 30.3% YoY, 6.8% QoQ. With Maruti providing for forex
volatility of Q2, PAT and EBITDA margins could jump1.5%, 1.0%, respectively
Tata Motors
CV segment volumes grew a strong ~23% YoY. However, slower PV segment sales
were due to lacklustre Nano sales that were marginally up ~6% YoY. Topline growth
is expected at 22.6% YoY. Higher RM costs would have been set off with price hikes
(1-2%) leading to flat QoQ PAT and EBITDA margins at 3.8% and 9.9%
Apollo Tyres
Post the resolution of the Kerala facility, a gradual ramp up is in progress. We expect
a flattish topline growth of 0.5% YoY and 13.2% QoQ. EBITDA margins are expected
to decline 2.5% QoQ due to lifetime high rubber prices during the quarter. PAT
margins will decline 1.2% QoQ.
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