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A decent quarter ahead!
We expect our auto universe* to register overall
revenue growth of 25% YoY (and 6% QoQ) in Q4FY11,
largely driven by the strong volume growth of 22% and
realization increase of 4%. Though, OEMs continue to
face input cost pressure, price hikes coupled with
strong volume growth ( and product-mix change in
some cases) should help OEMs to largely offset input
cost pressures. Resultant, though, we expect the
EBITDA margins to contract by 311bps YoY from its
peak margins in 4QFY10, we expect EBITDA margins to
remain flat on sequential basis.
We continue to remain positive on Bajaj Auto in the
two-wheeler space and on Maruti Suzuki and Mahindra
& Mahindra (M&M) in the passenger vehicle space. We
maintain SELL rating on Hero Honda.
Revenue growth to remain strong: We expect our
auto universe to register revenue growth of 25% on a
YoY basis, driven by 22% volume growth and 4%
realization growth. On a sequential basis, we expect
5.5% revenue growth, led by 2% volume growth and
3% rise in realizations.
EBITDA margins to contract YoY but remain flat
QoQ: We expect EBITDA margins to contract 311bps
YoY but remain almost flat QoQ (down 10bps). Price
hikes coupled with strong volume growth should help
OEMs to largely offset input cost pressures.
….and so will PAT margins: We expect PAT margin to
decline 188bp YoY but remain flat (up 21bp QoQ) to
9%. We expect PAT to grow 3% YoY and 8% QoQ.
Valuations and recommendations: We maintain our
BUY rating on Bajaj Auto and TVS Motors in the twowheeler
space and on Maruti Suzuki and M&M in the
passenger vehicle space. We maintain SELL rating on
Hero Honda.
Maruti Suzuki (BUY; Target Price: Rs1,590)
Revenue: We expect Maruti Suzuki (MSIL) to register revenue growth of 18% YoY to at Rs
99.7bn in Q4FY11 driven by 19% volume growth and a drop of 1% in average net realizations.
On a sequential basis, we expect 5% revenue growth, driven mainly by the 4% volume growth
and 1% growth in average net realizations (on account of improved product mix because of
higher contribution from Sedan segment and price hikes taken during the quarter). MSIL has
taken a price increase in the range of 0.5-1% during Jan 2011 (Alto- 0.7%, Ritz- 0.2%, Swift- 0.4%,
Dzire- 0.5% and Eeco- 1%).
Margin: We expect the company to register an EBITDA margin of 9.7%, down 349bps YoY but
up 20bps QoQ.
PAT: We estimate adjusted PAT at Rs 6.1bn, down 8% YoY but up 8% QoQ.
Mahindra & Mahindra (BUY; Target Price: Rs 819)
Revenue (standalone): On a YoY basis, we expect 26% revenue growth to Rs 66.8bn, driven by
22% volume growth and 3% rise in average realizations. On a sequential basis, we expect 9.1%
revenue growth, driven largely by 8.6% volume growth as average net realizations are likely to
increase by 0.5% QoQ. Gross realizations are expected to increase 1.1% QoQ majorly driven by
price hikes during the quarter and improved product-mix (with higher contribution from UVs
apart from Gio and Maxximo). M&M had taken a price increase on all its models by 0.5-2%
effective from 1st Jan 2011 in the Auto segment and in the tractor segment by 2-3% effective
from 1st of March 2011, as indicated in our note “M&M to hike tractor prices” dated 11th Feb
2011.
Margin (standalone): We expect the company to report standalone EBITDA margin of 14.7%,
down 120bps YoY and 35bps QoQ.
PAT: We estimate adjusted PAT at Rs 6.8bn, up 19% YoY and 10% QoQ.
Bajaj Auto (BUY; Target Price: Rs 1,740)
Revenue: We expect Bajaj Auto (BAL) to register 24% YoY revenue growth to Rs 42.1bn, driven
by 6% average net realization growth and 17% volume growth. On a sequential basis, we
expect revenue to improve by 1%, led by 1% growth in net realizations as volumes remained
flat (Though the price increase is in the range of 1-2% for all models, the impact is restricted
because of inferior product mix). BAL had increased prices for Platina 125cc by Rs1000 (2.1%),
Pulsar by Rs1,200 (1.6%) and Discover 150cc/100cc by Rs. 800-1,000 (1.6-1.8%) effective 1st Jan
2011.
Margin: We expect EBITDA margin at 19.5%, down 340bp YoY and 87bp QoQ. Raw material
pressure continued during the quarter and we expect RMC/unit to increase by about 2.6% QoQ.
PAT: We expect adjusted PAT of Rs.6.5bn, an increase 16% YoY (decline 3% QoQ).
Hero Honda (SELL; Target Price: Rs 1,392)
Revenue: On a YoY basis, we expect Hero Honda (HH) to register 33% YoY revenue growth to
Rs.54.9bn, driven by the 23% volume growth and 9% increase in average net realizations. On a
sequential basis, we expect 6% revenue growth, driven by the 2% volume growth and 4%
realization growth (as a result of the price hike in Jan 2011 and an improvement in the product
mix with increased contribution from Premium segment motorcycles). HH had increased prices
for CD Dawn/Deluxe by Rs800 (1.9%), Splendor by Rs.1,200 (2.4%), Passion Plus by Rs. 1,085
(2.1%) and Karizma by Rs1,800 (2%), effective 1st Jan 2011.
Margin: We expect the company to report an EBITDA margin of 11.9%, down 540bp YoY but up
15bps QoQ. We expect the input cost pressure to continue with RMC increasing QoQ by 3%,
though price hike and improved product mix should help on margin front. We expect higher
other expenditure on account ICC Cricket World Cup 2011 sponsorship to be charged during
the quarter.
PAT: We estimate adjusted PAT to increase 24% QoQ but come down 11% YoY to Rs 5.3bn.
TVS Motors (BUY; Target Price: Rs 69)
Revenue: On a YoY basis, we expect TVS Motors to register revenue growth of 42% to Rs17.3bn,
driven by average 8% realization growth and volume growth of 32%. On a QoQ basis, we expect
5% revenue growth, driven mainly by 3% realization growth (led by price hike of 1-3% during
the quarter and improved product mix with increased contribution from three wheelers) and
volumes growth of 2%. TVS Motors increased prices of Star by Rs1,228 (2.6%), Jive by Rs535
(1.0%) and Apache by Rs.1000 (1.4%), effective Jan 2011.
Margin: We expect EBITDA margin at 6.8%, up 71bps QoQ but down 27bps YoY.
PAT: We expect the company to report an adjusted PAT of Rs.602mn, up 9% YoY and 8% QoQ.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A decent quarter ahead!
We expect our auto universe* to register overall
revenue growth of 25% YoY (and 6% QoQ) in Q4FY11,
largely driven by the strong volume growth of 22% and
realization increase of 4%. Though, OEMs continue to
face input cost pressure, price hikes coupled with
strong volume growth ( and product-mix change in
some cases) should help OEMs to largely offset input
cost pressures. Resultant, though, we expect the
EBITDA margins to contract by 311bps YoY from its
peak margins in 4QFY10, we expect EBITDA margins to
remain flat on sequential basis.
We continue to remain positive on Bajaj Auto in the
two-wheeler space and on Maruti Suzuki and Mahindra
& Mahindra (M&M) in the passenger vehicle space. We
maintain SELL rating on Hero Honda.
Revenue growth to remain strong: We expect our
auto universe to register revenue growth of 25% on a
YoY basis, driven by 22% volume growth and 4%
realization growth. On a sequential basis, we expect
5.5% revenue growth, led by 2% volume growth and
3% rise in realizations.
EBITDA margins to contract YoY but remain flat
QoQ: We expect EBITDA margins to contract 311bps
YoY but remain almost flat QoQ (down 10bps). Price
hikes coupled with strong volume growth should help
OEMs to largely offset input cost pressures.
….and so will PAT margins: We expect PAT margin to
decline 188bp YoY but remain flat (up 21bp QoQ) to
9%. We expect PAT to grow 3% YoY and 8% QoQ.
Valuations and recommendations: We maintain our
BUY rating on Bajaj Auto and TVS Motors in the twowheeler
space and on Maruti Suzuki and M&M in the
passenger vehicle space. We maintain SELL rating on
Hero Honda.
Maruti Suzuki (BUY; Target Price: Rs1,590)
Revenue: We expect Maruti Suzuki (MSIL) to register revenue growth of 18% YoY to at Rs
99.7bn in Q4FY11 driven by 19% volume growth and a drop of 1% in average net realizations.
On a sequential basis, we expect 5% revenue growth, driven mainly by the 4% volume growth
and 1% growth in average net realizations (on account of improved product mix because of
higher contribution from Sedan segment and price hikes taken during the quarter). MSIL has
taken a price increase in the range of 0.5-1% during Jan 2011 (Alto- 0.7%, Ritz- 0.2%, Swift- 0.4%,
Dzire- 0.5% and Eeco- 1%).
Margin: We expect the company to register an EBITDA margin of 9.7%, down 349bps YoY but
up 20bps QoQ.
PAT: We estimate adjusted PAT at Rs 6.1bn, down 8% YoY but up 8% QoQ.
Mahindra & Mahindra (BUY; Target Price: Rs 819)
Revenue (standalone): On a YoY basis, we expect 26% revenue growth to Rs 66.8bn, driven by
22% volume growth and 3% rise in average realizations. On a sequential basis, we expect 9.1%
revenue growth, driven largely by 8.6% volume growth as average net realizations are likely to
increase by 0.5% QoQ. Gross realizations are expected to increase 1.1% QoQ majorly driven by
price hikes during the quarter and improved product-mix (with higher contribution from UVs
apart from Gio and Maxximo). M&M had taken a price increase on all its models by 0.5-2%
effective from 1st Jan 2011 in the Auto segment and in the tractor segment by 2-3% effective
from 1st of March 2011, as indicated in our note “M&M to hike tractor prices” dated 11th Feb
2011.
Margin (standalone): We expect the company to report standalone EBITDA margin of 14.7%,
down 120bps YoY and 35bps QoQ.
PAT: We estimate adjusted PAT at Rs 6.8bn, up 19% YoY and 10% QoQ.
Bajaj Auto (BUY; Target Price: Rs 1,740)
Revenue: We expect Bajaj Auto (BAL) to register 24% YoY revenue growth to Rs 42.1bn, driven
by 6% average net realization growth and 17% volume growth. On a sequential basis, we
expect revenue to improve by 1%, led by 1% growth in net realizations as volumes remained
flat (Though the price increase is in the range of 1-2% for all models, the impact is restricted
because of inferior product mix). BAL had increased prices for Platina 125cc by Rs1000 (2.1%),
Pulsar by Rs1,200 (1.6%) and Discover 150cc/100cc by Rs. 800-1,000 (1.6-1.8%) effective 1st Jan
2011.
Margin: We expect EBITDA margin at 19.5%, down 340bp YoY and 87bp QoQ. Raw material
pressure continued during the quarter and we expect RMC/unit to increase by about 2.6% QoQ.
PAT: We expect adjusted PAT of Rs.6.5bn, an increase 16% YoY (decline 3% QoQ).
Hero Honda (SELL; Target Price: Rs 1,392)
Revenue: On a YoY basis, we expect Hero Honda (HH) to register 33% YoY revenue growth to
Rs.54.9bn, driven by the 23% volume growth and 9% increase in average net realizations. On a
sequential basis, we expect 6% revenue growth, driven by the 2% volume growth and 4%
realization growth (as a result of the price hike in Jan 2011 and an improvement in the product
mix with increased contribution from Premium segment motorcycles). HH had increased prices
for CD Dawn/Deluxe by Rs800 (1.9%), Splendor by Rs.1,200 (2.4%), Passion Plus by Rs. 1,085
(2.1%) and Karizma by Rs1,800 (2%), effective 1st Jan 2011.
Margin: We expect the company to report an EBITDA margin of 11.9%, down 540bp YoY but up
15bps QoQ. We expect the input cost pressure to continue with RMC increasing QoQ by 3%,
though price hike and improved product mix should help on margin front. We expect higher
other expenditure on account ICC Cricket World Cup 2011 sponsorship to be charged during
the quarter.
PAT: We estimate adjusted PAT to increase 24% QoQ but come down 11% YoY to Rs 5.3bn.
TVS Motors (BUY; Target Price: Rs 69)
Revenue: On a YoY basis, we expect TVS Motors to register revenue growth of 42% to Rs17.3bn,
driven by average 8% realization growth and volume growth of 32%. On a QoQ basis, we expect
5% revenue growth, driven mainly by 3% realization growth (led by price hike of 1-3% during
the quarter and improved product mix with increased contribution from three wheelers) and
volumes growth of 2%. TVS Motors increased prices of Star by Rs1,228 (2.6%), Jive by Rs535
(1.0%) and Apache by Rs.1000 (1.4%), effective Jan 2011.
Margin: We expect EBITDA margin at 6.8%, up 71bps QoQ but down 27bps YoY.
PAT: We expect the company to report an adjusted PAT of Rs.602mn, up 9% YoY and 8% QoQ.
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