Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AUTOMOBILE
Volumes remain buoyant despite headwinds
OEM's enjoyed yet another quarter of robust volumes despite various headwinds.
Retail sales remained healthy for major part of Jan-Mar quarter. Status-quo on excise
duty in the budget came as a major relief for the automobile manufacturers. Volumes
were strong across all the segments; be it the two wheelers, passenger cars or
the commercial vehicles. Rural demand contributed towards the excellent performance
of the two wheeler segment. General increase in living standard and improving
aspirational values continued to drive the demand for passenger cars. Despite
various macro headwinds commercial vehicles demand remained impressive. Going
into FY12, despite increased base, volume growth is expected to remain reasonably
strong especially in the two wheeler and passenger car segment. Rising interest cost,
increase in vehicle prices, increasing fuel prices and slowdown in the economy will
remain the key risk to the volume growth in FY12.
Surging raw material cost to keep margins under check
Increasing raw material prices have been a concern for the automakers over the
past few quarters and the same continued into 4QFY11. Prices of key metals like
steel and aluminum continued their upward journey. During 4QFY11, spot steel price
are up by 22% YoY and 9.4% QoQ. Spot aluminum prices have jumped by 16%
YoY and 6.7% QoQ. Rubber prices too saw a sharp spike in the prices in 4QFY11
even though there was some correction in March 2011. Spot rubber prices in
4QFY11 were up by 68% YoY and 22% QoQ. Companies have been announcing
price hikes virtually every quarter (and sometimes more than one time in the quarter).
Through price hikes the companies have been able to pass on only a proportion
of cost increases and have been absorbing the balance.
Accordingly, despite volume growth and various rounds of price increases we expect
margins to be lower YoY. Sequentially too due to cost pressure we expect margins
to remain under pressure. However HH, MSIL and Escorts have shown sharp decline
in margins over the past few quarters for various reasons. 3QFY11 margins for these
companies were also impacted due to one-off items. We believe that their margins
have more or less bottomed and therefore anticipate sequential margin improvement
but will still remain way below 4QFY10 margins.
Profitability trend will continue to remain mixed
BAL is expected to report YoY jump in profits on account of healthy volume growth
and strong margins versus its peers. TVSM 4QFY10 profit was impacted by an extraordinary
loss to the tune of Rs455mn and there was tax write back of Rs138mn.
For MSIL, HH and Escorts, YoY growth in earnings are expected to remain flat/negative
due to sharp contraction in EBITDA margins
Key points to watch out for...
n Bajaj Auto - Management has been focusing on the 20% EBITDA margin and is
even willing to sacrifice on volumes in order to maintain healthy margins.
n Hero Honda - Volumes for the company remained flat sequentially. We believe
that the margins for the company have more or loss bottomed out and therefore
anticipate some recovery there.
n Maruti Suzuki - Volumes for the company remained strong for the quarter.
Given stable forex movement, we expect some improvement in margins over
3QFY11.
n TVS Motors - No major change in product mix will lead to slight decline in margins.
n Escorts - Price hikes coupled with healthy tractor sales should help the company
improve margins over 1QFY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AUTOMOBILE
Volumes remain buoyant despite headwinds
OEM's enjoyed yet another quarter of robust volumes despite various headwinds.
Retail sales remained healthy for major part of Jan-Mar quarter. Status-quo on excise
duty in the budget came as a major relief for the automobile manufacturers. Volumes
were strong across all the segments; be it the two wheelers, passenger cars or
the commercial vehicles. Rural demand contributed towards the excellent performance
of the two wheeler segment. General increase in living standard and improving
aspirational values continued to drive the demand for passenger cars. Despite
various macro headwinds commercial vehicles demand remained impressive. Going
into FY12, despite increased base, volume growth is expected to remain reasonably
strong especially in the two wheeler and passenger car segment. Rising interest cost,
increase in vehicle prices, increasing fuel prices and slowdown in the economy will
remain the key risk to the volume growth in FY12.
Surging raw material cost to keep margins under check
Increasing raw material prices have been a concern for the automakers over the
past few quarters and the same continued into 4QFY11. Prices of key metals like
steel and aluminum continued their upward journey. During 4QFY11, spot steel price
are up by 22% YoY and 9.4% QoQ. Spot aluminum prices have jumped by 16%
YoY and 6.7% QoQ. Rubber prices too saw a sharp spike in the prices in 4QFY11
even though there was some correction in March 2011. Spot rubber prices in
4QFY11 were up by 68% YoY and 22% QoQ. Companies have been announcing
price hikes virtually every quarter (and sometimes more than one time in the quarter).
Through price hikes the companies have been able to pass on only a proportion
of cost increases and have been absorbing the balance.
Accordingly, despite volume growth and various rounds of price increases we expect
margins to be lower YoY. Sequentially too due to cost pressure we expect margins
to remain under pressure. However HH, MSIL and Escorts have shown sharp decline
in margins over the past few quarters for various reasons. 3QFY11 margins for these
companies were also impacted due to one-off items. We believe that their margins
have more or less bottomed and therefore anticipate sequential margin improvement
but will still remain way below 4QFY10 margins.
Profitability trend will continue to remain mixed
BAL is expected to report YoY jump in profits on account of healthy volume growth
and strong margins versus its peers. TVSM 4QFY10 profit was impacted by an extraordinary
loss to the tune of Rs455mn and there was tax write back of Rs138mn.
For MSIL, HH and Escorts, YoY growth in earnings are expected to remain flat/negative
due to sharp contraction in EBITDA margins
Key points to watch out for...
n Bajaj Auto - Management has been focusing on the 20% EBITDA margin and is
even willing to sacrifice on volumes in order to maintain healthy margins.
n Hero Honda - Volumes for the company remained flat sequentially. We believe
that the margins for the company have more or loss bottomed out and therefore
anticipate some recovery there.
n Maruti Suzuki - Volumes for the company remained strong for the quarter.
Given stable forex movement, we expect some improvement in margins over
3QFY11.
n TVS Motors - No major change in product mix will lead to slight decline in margins.
n Escorts - Price hikes coupled with healthy tractor sales should help the company
improve margins over 1QFY11.
No comments:
Post a Comment