Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dichotomous outlook
FY12 is set to be a tough year for Indian auto stocks as volume growth
slows and margin pressures intensify. We see an interesting dichotomy
between the share price outlook for 2Ws and 4Ws. 2Ws look set to hold
up better in the near-term given better volume and earnings growth, but
rising competition weakens the investment case on a 12m view. 4Ws
should underperform near-term but could offer better returns on an FY13
view if interest rates go down and the economy recovers. We cut
earnings for all 4W stocks, make modest upgrades to 2W earnings and
downgrade Maruti to U-PF & Ashok to O-PF. M&M is our top 12m pick.
Business environment for Autos under pressure
q After two strong years, volume growth is moderating across auto sub-segments
weighed down by rising interest rates and fuel prices.
q 2W growth is holding up better than car and CV growth. The low proportion of
financing in 2Ws (~30%) as compared to 4Ws (70-90%) is one reason for this.
q Input costs continue to rise and competition is rising in specific segments like cars.
Discounting is poised to rise and margin outlook is bleak, especially for 4Ws.
Portfolio option 1: Stay underweight; 2Ws can be defensives
q We see auto stock performance remaining under pressure in the near term and
anticipate further cuts to street estimates for most stocks. In this environment, an
underweight stance in the near-term is well-justified.
q 2W stocks can be better defensives in the near-term within an underweight sector
stance given better near-term volume and earnings growth.
q We don’t rule out more downside to 4W stocks in the next 6 months as quarterly
results disappoint and earnings get revised downwards.
Portfolio option 2: Go overweight on 4Ws in 2HFY12
q Believers in the thesis that interest rates will head south and economic growth will
improve in FY13 should go overweight on the 4W auto stocks at some point in
2HFY12. We see a good chance of this thesis playing out.
q Given that 4W volume growth and stocks have corrected more than 2Ws in FY12,
the bounce-back in FY13 could be higher for 4Ws as well. We suspect that the
markets will factor in this before the RBI officially starts cutting interest rates.
q CVs could have the strongest bounce in FY13 given that FY12 is likely to be
negative growth year. Cars, too, should see a strong bounce-back.
q We don’t like 2W stocks from an FY13 perspective given our view that competition
levels will worsen in the industry once HMSI becomes more aggressive.
We downgrade Maruti to U-PF
q We now estimate cars to grow 10% in FY12 (16% before), 2Ws to grow 13% (12%
before) and CVs to decline 5% (0% before).
q We cut FY12-13 EPS by a sharp 9-12% for Maruti and 8-13% for Ashok Leyland.
We are 13-15% below consensus on Maruti and we downgrade the stock to U-PF
from O-PF with a target price of Rs1265. We also downgrade ALL one notch to O-PF
from BUY noting limited upside to our new target price of Rs60.
q We cut FY12-13 EPS by a modest 1-2% in case of M&M and 1-3% in case of Tata
Motors. M&M remains our top 12m pick given multiple product launches and
minimal incremental competition and we maintain BUY with a target price of Rs800.
We maintain O-PF on Tata Motors with a revised target price of Rs1150 given that
valuations are now reasonable post recent correction.
q We upgrade FY12-13 EPS by a modest 1-5% for Hero Honda and 3-4% for Bajaj
Auto. We maintain U-PF on both as we see limited upside and remain concerned on
rising competition from HMSI in FY13 and beyond. Both stocks, though, could be
better defensives over the next six months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dichotomous outlook
FY12 is set to be a tough year for Indian auto stocks as volume growth
slows and margin pressures intensify. We see an interesting dichotomy
between the share price outlook for 2Ws and 4Ws. 2Ws look set to hold
up better in the near-term given better volume and earnings growth, but
rising competition weakens the investment case on a 12m view. 4Ws
should underperform near-term but could offer better returns on an FY13
view if interest rates go down and the economy recovers. We cut
earnings for all 4W stocks, make modest upgrades to 2W earnings and
downgrade Maruti to U-PF & Ashok to O-PF. M&M is our top 12m pick.
Business environment for Autos under pressure
q After two strong years, volume growth is moderating across auto sub-segments
weighed down by rising interest rates and fuel prices.
q 2W growth is holding up better than car and CV growth. The low proportion of
financing in 2Ws (~30%) as compared to 4Ws (70-90%) is one reason for this.
q Input costs continue to rise and competition is rising in specific segments like cars.
Discounting is poised to rise and margin outlook is bleak, especially for 4Ws.
Portfolio option 1: Stay underweight; 2Ws can be defensives
q We see auto stock performance remaining under pressure in the near term and
anticipate further cuts to street estimates for most stocks. In this environment, an
underweight stance in the near-term is well-justified.
q 2W stocks can be better defensives in the near-term within an underweight sector
stance given better near-term volume and earnings growth.
q We don’t rule out more downside to 4W stocks in the next 6 months as quarterly
results disappoint and earnings get revised downwards.
Portfolio option 2: Go overweight on 4Ws in 2HFY12
q Believers in the thesis that interest rates will head south and economic growth will
improve in FY13 should go overweight on the 4W auto stocks at some point in
2HFY12. We see a good chance of this thesis playing out.
q Given that 4W volume growth and stocks have corrected more than 2Ws in FY12,
the bounce-back in FY13 could be higher for 4Ws as well. We suspect that the
markets will factor in this before the RBI officially starts cutting interest rates.
q CVs could have the strongest bounce in FY13 given that FY12 is likely to be
negative growth year. Cars, too, should see a strong bounce-back.
q We don’t like 2W stocks from an FY13 perspective given our view that competition
levels will worsen in the industry once HMSI becomes more aggressive.
We downgrade Maruti to U-PF
q We now estimate cars to grow 10% in FY12 (16% before), 2Ws to grow 13% (12%
before) and CVs to decline 5% (0% before).
q We cut FY12-13 EPS by a sharp 9-12% for Maruti and 8-13% for Ashok Leyland.
We are 13-15% below consensus on Maruti and we downgrade the stock to U-PF
from O-PF with a target price of Rs1265. We also downgrade ALL one notch to O-PF
from BUY noting limited upside to our new target price of Rs60.
q We cut FY12-13 EPS by a modest 1-2% in case of M&M and 1-3% in case of Tata
Motors. M&M remains our top 12m pick given multiple product launches and
minimal incremental competition and we maintain BUY with a target price of Rs800.
We maintain O-PF on Tata Motors with a revised target price of Rs1150 given that
valuations are now reasonable post recent correction.
q We upgrade FY12-13 EPS by a modest 1-5% for Hero Honda and 3-4% for Bajaj
Auto. We maintain U-PF on both as we see limited upside and remain concerned on
rising competition from HMSI in FY13 and beyond. Both stocks, though, could be
better defensives over the next six months.
No comments:
Post a Comment