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Autos/Car Manufacturers
No longer cruising
Cut Ashok Leyland, TVS to Underperform
We expect returns to be muted this year driven by (1) earnings downgrades, on
slowing demand and higher costs and (2) sector de-rating, due to competition. We
therefore lower earnings & POs, but retain most Buy ratings as valuation still
seems reasonable. We however expect stocks to show varied performance. Our
top pick is Maruti, a significant under-performer over the past year, followed by
M&M, on the rural theme. Bajaj Auto is least preferred among majors, and we
also downgrade ratings on Ashok Leyland and TVS Motor. We hope to get more
positive on the sector by 2H FY12 on possible easing of commodity prices.
Lower FY12 forecasts, but more positive on FY13
We cut our sector profit forecast by 3% in FY12 by lowering volumes to align with
demand, as well as margin assumptions on higher commodity prices e.g., rubber.
We however largely retain our FY13 numbers, on expected easing of macroheadwinds,
especially commodity price pressure. While we roll forward to FY13
multiples, we have lowered our valuations to factor increased competition.
Maruti is our top pick
Maruti is our top sector pick, and we believe the following will drive the stock: (a)
our estimate of a 23% profit CAGR in the next two years is the fastest in autos, (b)
we remain above consensus & believe the market is getting overly concerned
about competitive pressures & (c) following severe under-performance, valuations
are at historical lows. We expect the stock to perform on street upgrades.
Bajaj Auto is least preferred among majors
We don’t prefer Bajaj Auto as (a) we estimate sharp earnings deceleration at 11%
CAGR over the next two years, (b) street expectations are higher based on strong
management guidance, which is unlikely to be met and (c) the stock is fully
valued, and trades at a premium to the historical and group average. We prefer
Hero Honda, available at a 4% discount despite stronger future growth potential.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Autos/Car Manufacturers
No longer cruising
Cut Ashok Leyland, TVS to Underperform
We expect returns to be muted this year driven by (1) earnings downgrades, on
slowing demand and higher costs and (2) sector de-rating, due to competition. We
therefore lower earnings & POs, but retain most Buy ratings as valuation still
seems reasonable. We however expect stocks to show varied performance. Our
top pick is Maruti, a significant under-performer over the past year, followed by
M&M, on the rural theme. Bajaj Auto is least preferred among majors, and we
also downgrade ratings on Ashok Leyland and TVS Motor. We hope to get more
positive on the sector by 2H FY12 on possible easing of commodity prices.
Lower FY12 forecasts, but more positive on FY13
We cut our sector profit forecast by 3% in FY12 by lowering volumes to align with
demand, as well as margin assumptions on higher commodity prices e.g., rubber.
We however largely retain our FY13 numbers, on expected easing of macroheadwinds,
especially commodity price pressure. While we roll forward to FY13
multiples, we have lowered our valuations to factor increased competition.
Maruti is our top pick
Maruti is our top sector pick, and we believe the following will drive the stock: (a)
our estimate of a 23% profit CAGR in the next two years is the fastest in autos, (b)
we remain above consensus & believe the market is getting overly concerned
about competitive pressures & (c) following severe under-performance, valuations
are at historical lows. We expect the stock to perform on street upgrades.
Bajaj Auto is least preferred among majors
We don’t prefer Bajaj Auto as (a) we estimate sharp earnings deceleration at 11%
CAGR over the next two years, (b) street expectations are higher based on strong
management guidance, which is unlikely to be met and (c) the stock is fully
valued, and trades at a premium to the historical and group average. We prefer
Hero Honda, available at a 4% discount despite stronger future growth potential.
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