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AUTOMOBILE
Weak economic environment plays out on 3QFY12 volumes
During the quarter under review, macro environment turned further weak for the
auto sector and the same were reflected in the sequential drop in volumes. Volumes
generally turn sluggish after the festive season. But weak consumer sentiment further
added to the pressure on volumes. While most of the players reported YoY
growth in volumes; sequentially volumes witnessed decline.
Drop in industrial activity have put freight rates under pressure and as a consequence
the truck operator's profitability has come under stress. This has led to slowing
of demand in the M&HCV segment. Overall economic slowdown, higher interest
rates and increased petrol prices has drastically impacted the demand for petrol cars.
On the other hand, increased fuel cost arbitrage has kept the demand for diesel cars
relatively buoyant. 2W segment that until now remained largely untouched by the
slowdown started facing pressure towards the latter half of 3QFY12. Tractor sales
too have started turning weak over the past couple of months. Declining growth in
the 2W and the tractor segment is pointing towards a probable slowdown in rural
demand.
Amongst the companies under our coverage, we expect ALL's volume to grow by
23% on a weak 3QFY11 base and MSIL's volume to de-grow by 28% on account of
weak demand and labor issues.
Revenues to grow at a slow pace
For the companies under our coverage list, we expect a mere 2% YoY growth in
revenues. While companies like HMC, BAL and ALL are expected to post robust
jump in revenues, MSIL's revenues are expected to drop on poor volumes. Given
various rounds of price hikes taken in the past 12 months, we expect realizations to
be higher for most of the companies.
Operating margins trend expected to remain mixed
We expect the EBITDA margin trend to remain mixed. For auto companies, raw
material cost is the single major cost accounting for ~70-80% of sales. Despite correction
in global commodity prices, manufacturers could not benefit due to sharp
rupee depreciation in 3QFY12. INR depreciated by 11% QoQ and 13% YoY in the
quarter under consideration. We therefore do not see any major sequential change
in raw material cost for the OEM's.
BAL being a net exporter is expected to positively benefit from rupee depreciation.
On the other hand, MSIL is expected to face pressure on their 3QFY12 margins on
account of rupee depreciation. ALL and HMC is expected to report significant improvement
in EBITDA margins YoY.
On the net profit front, we expect ALL to report 193% YoY jump in their net profits
on account of improved volumes and better margins. However the same comes on
a poor last year's base. HMC too is expected to report strong YoY growth in their
net profits. On the other side, we expect 3QFY12 to be one of the worst for MSIL
where we expect a 60% YoY decline in earnings.
Key points to watch out for….
n Ashok Leyland -ALL's key southern market has been underperforming other regional
market, thereby keeping absolute volumes under pressure. We expect
50bps sequential decline in ALL's EBITDA margin. However, YoY performance is
expected to be strong due to poor 3QFY11 performance.
n Bajaj Auto - Volumes remained slightly weak towards the latter part of 3QFY12.
However, rupee depreciation is expected to have a positive impact on the
company's margins during the quarter.
n Escorts - After performing poorly, the company has started reporting growth in
tractor volumes. We expect the same to have some positive impact on the
company's operating margin.
n Hero MotoCorp - For HMC, 3QFY12 was a strong month on volumes front. We
expect the EBITDA margin improvement trend to continue for HMC in 3QFY12.
n Maruti Suzuki - For MSIL, 3QFY12 is expected to be one of the worst quarters
with numerous negatives coming into play. Labor issues, slowing car demand
and adverse forex currency movement are expected to significantly dent the
company's earnings during the quarter.
n TVS Motors - TVSM's volumes during the quarter were below expectations.
Company's margins in the previous couple of quarters showed improvement, but
we expect no such improvement in the quarter under consideration
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AUTOMOBILE
Weak economic environment plays out on 3QFY12 volumes
During the quarter under review, macro environment turned further weak for the
auto sector and the same were reflected in the sequential drop in volumes. Volumes
generally turn sluggish after the festive season. But weak consumer sentiment further
added to the pressure on volumes. While most of the players reported YoY
growth in volumes; sequentially volumes witnessed decline.
Drop in industrial activity have put freight rates under pressure and as a consequence
the truck operator's profitability has come under stress. This has led to slowing
of demand in the M&HCV segment. Overall economic slowdown, higher interest
rates and increased petrol prices has drastically impacted the demand for petrol cars.
On the other hand, increased fuel cost arbitrage has kept the demand for diesel cars
relatively buoyant. 2W segment that until now remained largely untouched by the
slowdown started facing pressure towards the latter half of 3QFY12. Tractor sales
too have started turning weak over the past couple of months. Declining growth in
the 2W and the tractor segment is pointing towards a probable slowdown in rural
demand.
Amongst the companies under our coverage, we expect ALL's volume to grow by
23% on a weak 3QFY11 base and MSIL's volume to de-grow by 28% on account of
weak demand and labor issues.
Revenues to grow at a slow pace
For the companies under our coverage list, we expect a mere 2% YoY growth in
revenues. While companies like HMC, BAL and ALL are expected to post robust
jump in revenues, MSIL's revenues are expected to drop on poor volumes. Given
various rounds of price hikes taken in the past 12 months, we expect realizations to
be higher for most of the companies.
Operating margins trend expected to remain mixed
We expect the EBITDA margin trend to remain mixed. For auto companies, raw
material cost is the single major cost accounting for ~70-80% of sales. Despite correction
in global commodity prices, manufacturers could not benefit due to sharp
rupee depreciation in 3QFY12. INR depreciated by 11% QoQ and 13% YoY in the
quarter under consideration. We therefore do not see any major sequential change
in raw material cost for the OEM's.
BAL being a net exporter is expected to positively benefit from rupee depreciation.
On the other hand, MSIL is expected to face pressure on their 3QFY12 margins on
account of rupee depreciation. ALL and HMC is expected to report significant improvement
in EBITDA margins YoY.
On the net profit front, we expect ALL to report 193% YoY jump in their net profits
on account of improved volumes and better margins. However the same comes on
a poor last year's base. HMC too is expected to report strong YoY growth in their
net profits. On the other side, we expect 3QFY12 to be one of the worst for MSIL
where we expect a 60% YoY decline in earnings.
Key points to watch out for….
n Ashok Leyland -ALL's key southern market has been underperforming other regional
market, thereby keeping absolute volumes under pressure. We expect
50bps sequential decline in ALL's EBITDA margin. However, YoY performance is
expected to be strong due to poor 3QFY11 performance.
n Bajaj Auto - Volumes remained slightly weak towards the latter part of 3QFY12.
However, rupee depreciation is expected to have a positive impact on the
company's margins during the quarter.
n Escorts - After performing poorly, the company has started reporting growth in
tractor volumes. We expect the same to have some positive impact on the
company's operating margin.
n Hero MotoCorp - For HMC, 3QFY12 was a strong month on volumes front. We
expect the EBITDA margin improvement trend to continue for HMC in 3QFY12.
n Maruti Suzuki - For MSIL, 3QFY12 is expected to be one of the worst quarters
with numerous negatives coming into play. Labor issues, slowing car demand
and adverse forex currency movement are expected to significantly dent the
company's earnings during the quarter.
n TVS Motors - TVSM's volumes during the quarter were below expectations.
Company's margins in the previous couple of quarters showed improvement, but
we expect no such improvement in the quarter under consideration
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