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Automobiles: IIFL: Q3 FY11 Sector Preview
Automobile volume growth on yoy basis continued to remain strong in Q3 FY11, driven by improved
economic environment and better availability of finance. However, sequentially it was a mixed bag,
with Hero Honda and Maruti registering growth (capacity constraints getting eased), while Bajaj Auto,
M&M and Tata Motors registering declines.
Price hikes implemented during the previous quarter will result in higher realizations for all players on
yoy basis. Further improved product mix for players such as Tata Motors, Maruti, M&M and Bajaj Auto
will provide fillip to realizations.
Operating margins for most companies are expected to decline yoy on the back of higher commodity
prices. However, M&M is expected to report a yoy increase in OPM as on account of better product
mix.
Higher interest rates, increased product prices and high base effect might restrict the volume growth.
Pressure of higher commodity prices on margins may be arrested through price hikes by
manufacturers.
Our top picks in the sector include Bajaj Auto, M&M and Ashok Leyland
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