India Autos: Earnings Preview 2QFY12E: Slowing growth, higher S&D expenses to impact profits:: JPMorgan,

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 2QFY12E preview – domestic sector earnings growth to be flattish: We
expect PAT growth for the auto OEMs to decline marginally by -1% yoy,
largely driven by lower profits at Maruti. We expect OEM's that have a
defendable niche (M&M, Bajaj Auto) to report modest growth while MSIL
should report lower profits.
 Healthy volume growth– Volume growth trends have been mixed over 2Q -
while two wheeler’s, LCV’s and tractor segment volumes were healthy;
M/HCV growth rates were sedate while the passenger car segment reported a
decline.
 EBITDA margins to be flat q/q: However, margins are likely to decline y/y
and be flat q/q – margins are likely to be impacted by inflationary pressures for
the sector, increased marketing activities (particularly for Hero Motocorp) as
well as higher discounting spends and appreciation of the JPY (for MSIL).


Sector outlook: The auto sector is likely to report mixed trends over 2H. While
we expect demand for four wheelers to remain sedate given slowing economic
activity, growth rates for two wheelers are likely to moderate post the festive
season. We believe that competitive intensity is likely to intensify across
segments. Sector EBITDA margins are likely to remain range-bound as any
moderation in input costs will be offset by slowing growth / rising competition.
We are OW on Mahindra and Tata Motors.