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AUTOMOBILE
Auto volume moderates in 1QFY12, performance varies across
segments
Volume growth during 1QFY12 has moderated significantly as compared to the runup
that we witnessed in the past couple of years. Various macro factors and higher
base have led to slowdown in the automobile volume growth in 1QFY12. 2W sector
remained the least impacted by the negative macro indicators. Among the 2W players,
Hero Honda has clearly outperformed the peers with a 24% YoY jump in volumes.
Other 2W majors like Bajaj Auto and TVS Motors has seen healthy 18% and
15.6% YoY volume growth helped by exports. Passenger car segment has slowed
down on account of rising interest rates and increasing fuel prices. For MSIL apart
from the general slowdown in car demand, strike at their Manesar plant has also
impacted its 1QFY12 volume performance where growth remained flat YoY for the
company. Within the CV sector, while the demand for the LCV segment remained
robust in 1QFY12, M&HCV sector witnessed a major slowdown in demand on back
of moderation in IIP numbers and detoriating truck operator's viability. In nutshell,
volume growth in 1QFY12 has been sluggish for the passenger and M&HCV segment
and healthy for the LCV and 2W category.
Revenues to grow YoY helped by price hikes and volumes
Revenues for the auto companies in 1QFY12 are expected to grow on account of 1.
Volume growth 2. Increase in realizations. For the 2W, companies we expect a decent
revenue growth rate helped by healthy volumes and various rounds of price increase
taken in the past one year due to rising input cost. For MSIL we expect volumes
in 1QFY12 to remain similar to that in 1QFY11 as volumes growth remained
flat. Escorts is expected to report 11% dip in revenues on back of poor tractor sales
during the quarter.
Margins to skid on higher input cost
Rising raw material prices have been the major concern for the auto companies
since the past one year and this quarter is no different. While prices of key raw
material like steel, aluminum and rubber are up significantly YoY, prices on QoQ
basis have largely remain the same. Accordingly we see sharp dip in margins for the
companies YoY. Sequentially though we expect MSIL and Escorts margins to see a
steep drop due to poor performance on the volume front. While we have seen some
price correction in the rubber prices, the impact of the same will be visible from
2QFY12 onwards. On the other hand metal prices continue to remain firm and pose
risk to the auto company's profitability in FY12.
Profit growth to fluctuate immensely among companies
Net profit for the company is expected to be impacted by moderation in volumes
and dip in EBITDA margin. YoY change in profit is expected to vary considerably
among companies. For the companies under our coverage, while on one hand we
expect BAL's YoY profit to grow by 26%, on the other hand Escorts profit during the
quarter is expected to come down by 69% YoY. Maruti Suzuki too is expected to
report a 8% drop in profit while Hero Honda and TVS Motors profits are expected to
increase by 15% and 5% respectively. On sequential basis we expect Hero Honda
to report 12.5% higher profits.
Key points to watch out for...
n Bajaj Auto - Company's EBITDA margin has been strong over the past several
quarters and is expected to remain healthy in 1QFY12.
n Hero Honda - Post split with Honda Motors in 3QFY11, margins improved in
4QFY11. We expect the trend to continue into 1QFY12. Volumes have grown at
a strong pace for the company during the quarter.
n Maruti Suzuki - With volumes remaining flat YoY, we expect tremendous pressure
on the company's margin in FY12. Furthermore the impact of strike needs
on the profitability needs to be watched out.
n TVS Motors -Volumes for the company has at a decent pace in the past few
quarters, but the company has been unable to improve its margins which remains
at a relatively low levels as compared to its peers.
n Escorts - Tractors volumes in the quarter has seen a sharp decline. We expect
significant impact of this on the company's margins.
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