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Automobiles
India
3QFY12 results preview. We expect a strong quarter for auto companies driven by
strong revenue growth. We expect net profit to increase by 9% yoy and 21% qoq in
3QFY12E for the companies under our coverage universe. Hero Motocorp is likely to be
the best performer followed by Bajaj Auto, Tata Motors and Mahindra & Mahindra.
Maruti is likely to report a 61% yoy decline in net profits impacted by 28% yoy decline
in volumes and operating margin pressures.
Most auto companies are likely to report strong earnings growth
We expect a strong quarter for auto companies driven by 26% yoy increase in revenue growth for
auto companies under our coverage universe in 3QFY12E. We expect raw material cost pressures
to remain stable in 3QFY12E.
Among the large-cap auto stocks, Hero Motocorp is likely to be the best performer followed by
Bajaj Auto, Tata Motors and Mahindra & Mahindra. Maruti is likely to report a 61% yoy decline in
net profits impacted by 28% yoy decline in volumes and operating margin pressures (due to sharp
depreciation of Rupee versus Yen and higher discounts which will be partially offset by
improvement in product mix).
Bajaj Auto and M&M are likely to report a sequential increase in EBITDA margins of 60-70 bps
driven by improvement in product mix in case of M&M (higher share of tractors in the product
mix) and improvement in export EBITDA margins due to depreciation of Rupee versus Dollar for
Bajaj Auto. Hero Motocorp and Tata Motors EBITDA margins are likely to remain stable
sequentially, in our view.
For Tata Motors, we expect a strong performance from JLR but we expect standalone profitability
to remain under pressure driven by increase in volumes of lower-margin passenger vehicles in the
product mix. Consolidated earnings are likely to be boosted by sharp depreciation of Rupee versus
Pound which is likely to reflect a much better picture than muted operational performance. Tata
Motors numbers are also likely to get impacted by forex loss on its foreign debt due to Rupee
depreciation during the quarter.
In the mid-cap auto space, Ashok Leyland and Bharat Forge are likely to report strong earnings
growth driven by strong revenue growth and stable operating margins. Exide is likely to report a
significant decline in earnings due to subdued replacement auto battery demand and high cost of
lead inventory which is likely to impact profitability, in our view.
We remain selective in the sector; M&M remains our top pick
We remain selective and maintain M&M as our top pick in the sector due to strong volume growth
and stable operating margin outlook. We also prefer Bajaj Auto over Hero Motocorp in the twowheeler
space due to stronger export franchise and premium product profile. We see limited
triggers for Maruti over the next six months but believe downside is limited.
3QFY12 results preview: Strong revenue growth to drive earnings growth
We expect a strong quarter for auto companies driven by 26% yoy increase in revenue
growth for auto companies under our coverage universe in 3QFY12E. We expect net profit
to increase by 9% yoy and 21% qoq in 3QFY12E for the companies under our coverage
universe. Volume growth is expected to remain strong in the quarter except for Maruti
Suzuki and EBITDA margins are likely to remain stable sequentially for the auto companies.
Raw material costs have declined significantly during the quarter (see Exhibit 1) in Dollar
terms, however Rupee has also depreciated by 11% during the quarter which has offset
most of the gains from softening of raw material prices for the auto companies. Hence we
expect a stable raw material cost environment for most auto companies except for Maruti
Suzuki which is likely to get impacted due to high import content from Japan.
Among the large-cap auto stocks, Hero Motocorp is likely to be the best performer followed
by Bajaj Auto, Tata Motors and Mahindra & Mahindra. Maruti is likely to report a 61% yoy
decline in net profits impacted by 28% yoy decline in volumes and operating margin
pressures (due to sharp depreciation of Rupee versus Yen and higher discounts which will be
partially offset by improvement in product mix). Maruti Suzuki has hedged its direct imports
in Yen (5-6% of net sales) at favorable rates than 2QFY12 levels; however, indirect imports
+ royalty (20% of net sales) are likely to get impacted by Rupee depreciation versus Yen. We
expect 150 bps decline in EBITDA margins qoq due to currency impact partially offset by
price increase on diesel models (+50 bps), improvement in product mix (+50 bps) and lower
raw material costs (+30 bps).
Bajaj Auto and M&M are likely to report a sequential increase in EBITDA margins of 60-70
bps driven by improvement in product mix in case of M&M (higher share of tractors in the
product mix) and improvement in export EBITDA margins due to depreciation of Rupee
versus Dollar. Hero Motocorp and Tata Motors EBITDA margins are likely to remain stable
sequentially, in our view.
For Tata Motors, we expect a strong performance from JLR but we expect standalone
profitability to remain under pressure driven by increase in volumes of lower-margin
passenger vehicles in the product mix. Consolidated earnings are likely to be boosted by
sharp depreciation of Rupee versus Pound which is likely to reflect a much better picture
than muted operational performance.
Among the mid-cap auto space, Ashok Leyland is likely to report strong earnings growth
due to low base effect in 3QFY11 (as volumes were impacted by emission norm changeover
in 3QFY11). Bharat Forge is also likely to report a strong performance driven by strong
growth in exports and non-auto revenues. We expect Exide performance to remain weak
due to subdued replacement auto battery demand and high-cost lead inventory which is
likely to impact profitability, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Automobiles
India
3QFY12 results preview. We expect a strong quarter for auto companies driven by
strong revenue growth. We expect net profit to increase by 9% yoy and 21% qoq in
3QFY12E for the companies under our coverage universe. Hero Motocorp is likely to be
the best performer followed by Bajaj Auto, Tata Motors and Mahindra & Mahindra.
Maruti is likely to report a 61% yoy decline in net profits impacted by 28% yoy decline
in volumes and operating margin pressures.
Most auto companies are likely to report strong earnings growth
We expect a strong quarter for auto companies driven by 26% yoy increase in revenue growth for
auto companies under our coverage universe in 3QFY12E. We expect raw material cost pressures
to remain stable in 3QFY12E.
Among the large-cap auto stocks, Hero Motocorp is likely to be the best performer followed by
Bajaj Auto, Tata Motors and Mahindra & Mahindra. Maruti is likely to report a 61% yoy decline in
net profits impacted by 28% yoy decline in volumes and operating margin pressures (due to sharp
depreciation of Rupee versus Yen and higher discounts which will be partially offset by
improvement in product mix).
Bajaj Auto and M&M are likely to report a sequential increase in EBITDA margins of 60-70 bps
driven by improvement in product mix in case of M&M (higher share of tractors in the product
mix) and improvement in export EBITDA margins due to depreciation of Rupee versus Dollar for
Bajaj Auto. Hero Motocorp and Tata Motors EBITDA margins are likely to remain stable
sequentially, in our view.
For Tata Motors, we expect a strong performance from JLR but we expect standalone profitability
to remain under pressure driven by increase in volumes of lower-margin passenger vehicles in the
product mix. Consolidated earnings are likely to be boosted by sharp depreciation of Rupee versus
Pound which is likely to reflect a much better picture than muted operational performance. Tata
Motors numbers are also likely to get impacted by forex loss on its foreign debt due to Rupee
depreciation during the quarter.
In the mid-cap auto space, Ashok Leyland and Bharat Forge are likely to report strong earnings
growth driven by strong revenue growth and stable operating margins. Exide is likely to report a
significant decline in earnings due to subdued replacement auto battery demand and high cost of
lead inventory which is likely to impact profitability, in our view.
We remain selective in the sector; M&M remains our top pick
We remain selective and maintain M&M as our top pick in the sector due to strong volume growth
and stable operating margin outlook. We also prefer Bajaj Auto over Hero Motocorp in the twowheeler
space due to stronger export franchise and premium product profile. We see limited
triggers for Maruti over the next six months but believe downside is limited.
3QFY12 results preview: Strong revenue growth to drive earnings growth
We expect a strong quarter for auto companies driven by 26% yoy increase in revenue
growth for auto companies under our coverage universe in 3QFY12E. We expect net profit
to increase by 9% yoy and 21% qoq in 3QFY12E for the companies under our coverage
universe. Volume growth is expected to remain strong in the quarter except for Maruti
Suzuki and EBITDA margins are likely to remain stable sequentially for the auto companies.
Raw material costs have declined significantly during the quarter (see Exhibit 1) in Dollar
terms, however Rupee has also depreciated by 11% during the quarter which has offset
most of the gains from softening of raw material prices for the auto companies. Hence we
expect a stable raw material cost environment for most auto companies except for Maruti
Suzuki which is likely to get impacted due to high import content from Japan.
Among the large-cap auto stocks, Hero Motocorp is likely to be the best performer followed
by Bajaj Auto, Tata Motors and Mahindra & Mahindra. Maruti is likely to report a 61% yoy
decline in net profits impacted by 28% yoy decline in volumes and operating margin
pressures (due to sharp depreciation of Rupee versus Yen and higher discounts which will be
partially offset by improvement in product mix). Maruti Suzuki has hedged its direct imports
in Yen (5-6% of net sales) at favorable rates than 2QFY12 levels; however, indirect imports
+ royalty (20% of net sales) are likely to get impacted by Rupee depreciation versus Yen. We
expect 150 bps decline in EBITDA margins qoq due to currency impact partially offset by
price increase on diesel models (+50 bps), improvement in product mix (+50 bps) and lower
raw material costs (+30 bps).
Bajaj Auto and M&M are likely to report a sequential increase in EBITDA margins of 60-70
bps driven by improvement in product mix in case of M&M (higher share of tractors in the
product mix) and improvement in export EBITDA margins due to depreciation of Rupee
versus Dollar. Hero Motocorp and Tata Motors EBITDA margins are likely to remain stable
sequentially, in our view.
For Tata Motors, we expect a strong performance from JLR but we expect standalone
profitability to remain under pressure driven by increase in volumes of lower-margin
passenger vehicles in the product mix. Consolidated earnings are likely to be boosted by
sharp depreciation of Rupee versus Pound which is likely to reflect a much better picture
than muted operational performance.
Among the mid-cap auto space, Ashok Leyland is likely to report strong earnings growth
due to low base effect in 3QFY11 (as volumes were impacted by emission norm changeover
in 3QFY11). Bharat Forge is also likely to report a strong performance driven by strong
growth in exports and non-auto revenues. We expect Exide performance to remain weak
due to subdued replacement auto battery demand and high-cost lead inventory which is
likely to impact profitability, in our view.
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