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Auto companies are expected to post strong set of numbers in Q2FY15 led by
revival in volume growth, muted raw material costs and stable currency.
EBITDA margin is expected to improve across the sector, led by higher
operating leverage and favorable input costs.
In PV segment, Maruti Suzuki is expected to post strong set of numbers driven
by higher volume and favorable currency movement. M&M appears to be
faced with a challenging near-term environment in both its key segments,
UVs and tractors.
In two wheeler segment, we expect Hero MotoCorp’s margins to improve
~200bps QoQ on stopping royalty payment to Honda Motor Co, along with
favorable input costs. For Bajaj Auto, we expect margins to recover ~122 bps
QoQ to 19.2%, led by higher export sales. TVS to show stellar performance
driven by strong volume growth (operating leverage).
Within auto ancillary, Exide would benefit from strong volume growth.
Outlook
We believe good governance and faster reform would lead to higher
employment/ disposable income that will improve consumer sentiment.
As consumer sentiments are improving, post general elections passenger
vehicle demand has improved considerably. Lead indicators of CV industry
such as freight rates, fleet operators’ utilization are turning positive over the
last few months. Recovery in two-wheeler industry continues with double
digit growth led by scooters.
We expect the new government would have more focus on rural employment
and development. Thus we expect rural market to be a key source of sustained
automotive demand in coming years.
Rural demand and new launches would act as a positive trigger for two
wheeler and PV segment.
In two- wheeler, Scooter segment is likely to outperform Motorcycle.
We believe long term volume outlook of auto companies remain positive
driven by lower penetration rate, new product launches and exports potential.
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