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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04042012.pdf
Automobiles
India
4QFY12 results preview. We expect a strong quarter for auto companies driven by
robust volume growth and stable margin trajectory. Volume growth has been robust
driven by pre-buying ahead of the Union budget while the raw material costs have been
stable during the quarter. We do not expect any meaningful impact of currency in this
quarter barring Maruti Suzuki which will get impacted due to a quarter lag of currency
impact on indirect imports. Tata Motors is likely to outperform peers in this quarter.
Focus will be on Maruti and Tata Motors in this quarter
We believe focus will be on Maruti and Tata Motors in this quarter results. JLR margins are likely to
improve by 90 bps qoq, in our view, driven by positive geographical mix and operating leverage
benefit while Maruti Suzuki is also likely to report 200 bps sequential improvement in margins
driven by 50% qoq improvement in volumes. We expect sequential decline in Bajaj Auto and
M&M margins which is factored in the stock prices, in our view.
Tata Motors is likely to outperform peers
We expect Tata Motors to outperform its auto peers by a significant margin. We estimate a 78%
yoy growth in consolidated earnings and 81% yoy growth in consolidated EBITDA for Tata Motors.
We expect marginal sequential improvement in standalone business driven by 23% qoq
improvement in volumes which is likely to lead to improvement in EBITDA margins due to
operating leverage benefit. Jaguar and Land Rover will report a 43% yoy growth in volumes and
90 bps qoq improvement in EBITDA margins driven by operating leverage benefit and positive
geographical mix.
Maruti Suzuki EBITDA margins are likely to improve by 200 bps qoq
We expect Maruti Suzuki average realizations to improve by 5% qoq driven by higher diesel and
Dzire volumes. Diesel volumes will form 23.6% of total volumes in 4QFY12 versus 22.3% in
3QFY12. We expect discounts to inch up higher in 4QFY12 versus 3QFY12 which would offset
partial benefit of 2% hike taken in the later part of January 2012. We estimate a -120 bps
currency impact on vendor imports which impacts Maruti with a one quarter lag. We factor in 200
bps qoq improvement in EBITDA margins driven by (1) 200 bps improvement due to operating
leverage, (2) 40 bps improvement due to product mix, and (3) 80 bps improvement in pricing net
of discounts offset by -120 bps impact due to currency.
We maintain our underweight rating on the sector and maintain M&M as our top pick
We maintain our underweight rating on the sector as we believe volume growth is likely to slow
down in 1HFY13E driven by likely increase in fuel prices and rise in vehicle prices after excise duty
hike which will increase vehicle ownership costs.
We maintain M&M as our top pick as we see upside risks to our utility vehicle volume estimates in
FY2013E which could surprise the Street while we believe tractor volume growth is likely to recover
if monsoons are normal, which will be a key trigger for the stock.
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