India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
AUTOMOBILE
Volumes remain healthy during the quarter
Retail demand remained strong during the festive season and that helped the
OEM's post record monthly volumes during October 2010. Volumes slowed down
post festive season in November 2010 which is a usual phenomenon. But in December,
which again is generally a lean period, dispatches improved significantly
thereby indicating continuation of momentum into 4QFY11.
Demand during the quarter was strong both in the 2W and passenger car space.
2W space in particular has done quite well led by significant improvement for the
gearless scooters. Moped demand too remained strong signifying robust rural
economy. In the motorcycle space, Hero Honda scored over Bajaj Auto and TVS
Motors in 3QFY11. On a sequential basis, Bajaj Auto and TVS Motors had an ordinary
quarter on the volumes front. In the car segment, Maruti continued to lead
the pack and was able to increase sales sequentially (despite losing 5 days of production
on account of annual plant shutdown) through de-bottle necking process.
CV volumes which were impacted during the early part of 3QFY11 due to preponement
of buying recovered well in December 2010. Tractor sales for the quarter
are expected to have been strong given the good monsoons in 2010. Overall
the OEM's reported strong YoY growth in 3QFY11; however QoQ the trend was
mixed.
Given the excellent volume growth YoY, revenue growth is expected to be significant.
Further various price hikes taken in the past 12 months will culminate into
higher realization for the automobile companies. However, sequential revenue
growth would fluctuate tracking the volumes posted by different players. From our
coverage universe, we expect TVS Motors to report 48% YoY jump in revenues
while on QoQ basis Hero Honda's revenues are expected to improve by 12%.
Rise in commodity prices to keep margins under pressure
Operating margins for the automobile manufacturers are expected to remain under
pressure during 3QFY11. Operating margins for all the companies are expected to
be lower over 3QFY10 due to the steep increase in the commodity prices. Commodity
prices in the spot market for steel and aluminum have risen by 38% and
17% respectively. Another raw material, rubber, has seen sharp spike in the prices
due to production shortages. Rubber prices in the past one year have increased by
a sharp 64%. Even though the auto companies have taken various rounds of price
increases on their products, the quantum of such price increases have been lower
than the increase in input cost. Sequentially too we expect the margins to move
down by an average 50-70bps. However for players who reported QoQ volume
growth, the drop in margins would be relatively lower.
Profitability trend to be mixed for different players
Given the significant volume growth (YoY) and relatively smaller decline in margins
(YoY), players like Bajaj Auto and TVS Motors are expected to report considerable
YoY growth in their profitability. On the other hand players like Maruti Suzuki and
Hero Honda are expected to show QoQ improvement in profitability due to better
3QFY11 volumes. We expect the companies under coverage to report a mere 9%
YoY improvement in profits on 30% revenue growth.
Key points to watch out for...
n Bajaj Auto - Volumes during the quarter have remained below expectations.
However we expect the company's margins to remain robust vis-a-vis competitors.
n Hero Honda - Improvement in volumes during the quarter is expected to negate
the impact of higher input cost to a certain extent.
n Maruti Suzuki - Even though volumes were strong during the quarter, forex
exposure will continue to remain the major concern for the company's earnings.
n TVS Motors - Volumes remained flat sequentially and there was not much improvement
in the product mix either. Both these factors will work negatively for
the profits in the scenario of rising input cost.
n Escorts - Tractor volumes are expected to be strong YoY given good monsoons.
However recovery in the railway equipment division will be the key to the
company's margins.
No comments:
Post a Comment