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Sector Name - Autos
Potential result outperformers: Eicher Motors
Potential result underperformers: Maruti Suzuki
Result Expectations – Key Highlights
We expect double digit YoY growth in sales for the sector. However on a
sequential basis, sales are expected to decline, mainly due to seasonality
(CVs) and slowdown in cars as well as strike at Maruti. Profits are expected
to grow much slower due to inflationary cost pressures impacting margins.
Two wheeler companies will likely register the strongest yoy growth rates,
followed by tractors. Commercial vehicle majors will report modest growth,
whereas car industry will register yoy declines.
We expect Tata Motors’ consolidated sales to grow 21% YoY, driven by 27%
increase in JLR sales. However, standalone sales would be a drag, up just
12% yoy. We expect consolidated margins to decline 30bps yoy to 14.3%
due to unfavourable currency movements (impacting JLR) as well as higher
costs, reflected in EBITDA increase of 18% yoy to Rs.46.6bn. We expect
profit to decline 2% at Rs.19.7bn to reflect sharp decline in standalone
operations (down 28% yoy) and high interest and depreciation due to JLR
fund raising and capex respectively).
Amongst other commercial vehicle companies, we expect Ashok Leyland’s
sales to increase just 6% yoy, despite significant increase in realization due
to 10% decline in volumes. Similarly margins are expected to decline 30bps
yoy, and net profit by 19% yoy. We expect Eicher to register strong 91%
profit growth in tandem with 54% increase in EBITDA due to higher sales and
improved efficiencies post-integration with Volvo.
We expect Maruti’s sales to grow just 1% YoY, due to slight decline in
volumes following slower domestic consumption and strike at Manesar plant.
Margins are expected to decline 155bps due to higher input costs, rising
incentives and discounts and negative operating leverage. We therefore
expect EBITDA to decline by 17% yoy and net profit by 22% yoy to Rs.4.1bn.
We expect M&M to register 31% yoy growth in sales, driven by 22% increase
in volumes. EBITDA will grow 14% yoy despite mix favourable high margin
tractor business, on expected margin decline due to higher input costs and
vat drawback. We expect profit to grow 7% yoy and decline 1% qoq to
Rs.6.0bn, restricted by increase in depreciation and tax expense.
In the two wheeler space, Hero Honda is expected to record the strongest
growth (32% yoy) in sales driven by volumes (up 24% yoy). EBITDA growth
will however be restricted to 13% yoy on expectations of lower margins due
to cost pressures, thereby restricting profit growth to 13%. On a sequential
basis, we expect profit to grow 9%. Bajaj Auto will be the strongest performer
with 24% yoy increase in sales and similar 24% yoy increase in profit. We
expect margins to decline slightly on higher input costs. TVS Motor will
register 20% YoY sales growth. EBITDA will however improve 12% yoy and
profit 20% yoy due to operating leverage.
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