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Auto and auto ancillary
Demand gets stifled in wake of interest rates and fuel hikes
Q1FY12 expectedly marred the auto sector with waning buyer
interest for both cars as well as stocks of various OEMs. The
industry, mired in all kinds of challenges ranging from stubbornly
stiff commodity prices to rising interest rates (up 75 bps QoQ) and
fuel costs (~13% in CY11) grew ~17% YoY. PV segment was
amongst the worst affected with ~8-9% YoY tepid growth. This was
affected to a certain degree from the 11-day strike at Maruti’s plant
by ~15,000 units, however, the demand is clearly stifling. The
MHCV segment volumes (~4-5% YoY growth) also came under
pressure with rising rates and fuel prices. The silver lining amid all
this remained the least rate sensitive two-wheeler segment with
volume offtake of ~19% YoY led by Hero Honda, Bajaj Auto.
However, DEPB removal and transitional issues with Hero Honda
are an overhang. Tata Motors remains our top pick in OEMs with its
strong luxury car sales-JLR driving profits. We expect our OEM
universe to have 21.1% YoY topline growth in Q1FY12E.
Replacement demand to help ancillaries to certain extent
Ancillary manufacturers have been affected with a slowdown in
OEM sales though we expect higher replacement sales to offset
their impact. We expect margins to at best remain stable QoQ as
cost pressures remained firm due to employee emoluments. We
prefer suppliers like Bharat Forge and Exide, which have stronger
supplier power and less OEM dependency. We expect our ancillary
universe to post revenue growth of 26.8% YoY in Q1FY12E.
Input costs remain sticky, forex lends a translational hand
Industry has spent the past five quarters amid higher commodity
prices reflected in our RM-index (up ~20% YoY). However, even as
it seems to remain sticky, the declining global growth prospect is
expected to bring some necessary correction in prices post
H1FY12E. On the positive front, currency movement (INR, USD, EUR
and GBP) is expected to be largely beneficial for domestic players
with higher realisations. We expect the I-direct coverage universe to
reflect a jump in EBITDA and PAT of 15.8% and 14.5% YoY.
Company specific view
Company Remarks
Automotive
Axle
It is expected to have modest topline growth of ~8-9% YoY with CV demand
slumping on rising interest costs. Input costs have remained firm causing steel
suppliers to renew contracts at higher rates. We expect pressure on EBITDA margin
leading to a YoY decline of ~90 bps at 13.2%
Apollo Tyres Apollo being the market leader has hiked prices by ~5-8% in Q1FY12 coupled with
expected volume growth of ~35% YoY. Input prices on both natural and synthetic
rubber front seem to be cooling off with higher supplies and lower crude. We expect
QoQ rise of 90 bps in EBITDA margins at 9.2%
Bajaj Auto Volume growth (~30% YoY) raced ahead to ~1.1 mn units in Q1FY12 with exports
leading the way (~36% YoY). Export benefits are expected to halve from Q1 post
DEPB withdrawal. We have factored in estimates revisions for the same. Pressure
from rubber, steel is expected reduce margin by ~30 bps QoQ to 20.2%
Balkrishna
Industries
Volume growth from the farm & off-highway segment continues to remain strong.
We expect it to push topline up ~24% YoY. The 5-6% decline in rubber prices is
providing comfort. However, rolling inventory cost is expected to trend higher
~$4.4/Kg. Interest and depreciation would go up in FY12 with rising capex
Bharat Forge Domestic CV segment sales have been slowing down. However, stronger non-auto
traction is expected to lever topline up ~37% YoY. Input prices have remained firm
for the quarter. However, with a better operative performance, we expect EBITDA
margins to improve ~30 bps to 24.5%
Escorts Q3SY11E has unexpectedly seen volume de-growth of ~20% YoY due to lower sales
in northern regions owning to higher costs and rising financing rates. Realisations
improvement of ~10% YoY has minimised the topline slide. The low margin
Tanzanian order is complete and expect margins to improve ahead
Exide The topline is expected to rise 21.5% YoY on a lower base. Slowdown in OEM sales
is expected to help raise aftermarket sales ratio from 1.1:1 to ~1.2:1. This is
expected to cushion any pressure on margins arising from the OEM side. We expect
EBITDA margins to remain flat QoQ at ~19.2% levels
Hero Honda Volumes outburst continued with Q1FY12 witnessing lifetime high volume sales at
1.5 million units (~22% YoY growth) leading to topline growth of ~33% YoY.
However, input cost pressures, along with increasing selling expenses and higher
royalty amortisation would lead to lower profitability
JK Tyre JK Tyres continued to ramp up capacity in the radial tyre segment with rise expected
of ~28% to 3.5 lakh MT by FY12E. Tepid PV and CV demand has averaged robust
two-wheeler demand causing a more modest topline growth of ~19.5%. The ~5%
decline in NR prices would help improve PAT margin ~30 bps at 1.2%
M&M Q1FY12 witnessed strong tractor sales (up ~20% YoY) and volume growth in the
automobile space (~26% YoY) led by the diesel portfolio. This along with price hikes
in April would help mitigate the impact of higher RM, ESOP amortisation costs on
margins.EBITDA margin is expected to improve ~20 bps at 13.1%
Maruti Suzuki Maruti’s PV segment had to face the brunt of climbing interest rates & petrol prices
along with production loss of ~15,000 units for the month due to 13-day strike in
Manesar facility. However, we have conservatively accounted for complete
depreciation in Q1. Margins could slip ~70 bps QoQ on EBITDA level at 9.5%
Subros The revenue growth has turned slow with marquee clients like Maruti and Tata
Motors showing a slowdown in PV volumes. Revenue growth is expected to grow at
a tepid pace at ~11% YoY. The PAT margin is expected to decline ~100 bps QoQ at
2.6%
Tata Motors Indian operations witnessed a slowdown in PV sales (~10% YoY). However, CV
sales grew higher than expected ~18% YoY. On the JLR front, we have factored in
10.0% YoY volume growth, ASP* jump of ~8% YoY with richer LR* mix. On a
consolidated basis, we expect it to see ~22% YoY topline, 15.4% YoY bottomline
growth
Source: Company, ICICIdirect.com Research *ASP~ Average selling prices *LR~ Land Rover
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Auto and auto ancillary
Demand gets stifled in wake of interest rates and fuel hikes
Q1FY12 expectedly marred the auto sector with waning buyer
interest for both cars as well as stocks of various OEMs. The
industry, mired in all kinds of challenges ranging from stubbornly
stiff commodity prices to rising interest rates (up 75 bps QoQ) and
fuel costs (~13% in CY11) grew ~17% YoY. PV segment was
amongst the worst affected with ~8-9% YoY tepid growth. This was
affected to a certain degree from the 11-day strike at Maruti’s plant
by ~15,000 units, however, the demand is clearly stifling. The
MHCV segment volumes (~4-5% YoY growth) also came under
pressure with rising rates and fuel prices. The silver lining amid all
this remained the least rate sensitive two-wheeler segment with
volume offtake of ~19% YoY led by Hero Honda, Bajaj Auto.
However, DEPB removal and transitional issues with Hero Honda
are an overhang. Tata Motors remains our top pick in OEMs with its
strong luxury car sales-JLR driving profits. We expect our OEM
universe to have 21.1% YoY topline growth in Q1FY12E.
Replacement demand to help ancillaries to certain extent
Ancillary manufacturers have been affected with a slowdown in
OEM sales though we expect higher replacement sales to offset
their impact. We expect margins to at best remain stable QoQ as
cost pressures remained firm due to employee emoluments. We
prefer suppliers like Bharat Forge and Exide, which have stronger
supplier power and less OEM dependency. We expect our ancillary
universe to post revenue growth of 26.8% YoY in Q1FY12E.
Input costs remain sticky, forex lends a translational hand
Industry has spent the past five quarters amid higher commodity
prices reflected in our RM-index (up ~20% YoY). However, even as
it seems to remain sticky, the declining global growth prospect is
expected to bring some necessary correction in prices post
H1FY12E. On the positive front, currency movement (INR, USD, EUR
and GBP) is expected to be largely beneficial for domestic players
with higher realisations. We expect the I-direct coverage universe to
reflect a jump in EBITDA and PAT of 15.8% and 14.5% YoY.
Company specific view
Company Remarks
Automotive
Axle
It is expected to have modest topline growth of ~8-9% YoY with CV demand
slumping on rising interest costs. Input costs have remained firm causing steel
suppliers to renew contracts at higher rates. We expect pressure on EBITDA margin
leading to a YoY decline of ~90 bps at 13.2%
Apollo Tyres Apollo being the market leader has hiked prices by ~5-8% in Q1FY12 coupled with
expected volume growth of ~35% YoY. Input prices on both natural and synthetic
rubber front seem to be cooling off with higher supplies and lower crude. We expect
QoQ rise of 90 bps in EBITDA margins at 9.2%
Bajaj Auto Volume growth (~30% YoY) raced ahead to ~1.1 mn units in Q1FY12 with exports
leading the way (~36% YoY). Export benefits are expected to halve from Q1 post
DEPB withdrawal. We have factored in estimates revisions for the same. Pressure
from rubber, steel is expected reduce margin by ~30 bps QoQ to 20.2%
Balkrishna
Industries
Volume growth from the farm & off-highway segment continues to remain strong.
We expect it to push topline up ~24% YoY. The 5-6% decline in rubber prices is
providing comfort. However, rolling inventory cost is expected to trend higher
~$4.4/Kg. Interest and depreciation would go up in FY12 with rising capex
Bharat Forge Domestic CV segment sales have been slowing down. However, stronger non-auto
traction is expected to lever topline up ~37% YoY. Input prices have remained firm
for the quarter. However, with a better operative performance, we expect EBITDA
margins to improve ~30 bps to 24.5%
Escorts Q3SY11E has unexpectedly seen volume de-growth of ~20% YoY due to lower sales
in northern regions owning to higher costs and rising financing rates. Realisations
improvement of ~10% YoY has minimised the topline slide. The low margin
Tanzanian order is complete and expect margins to improve ahead
Exide The topline is expected to rise 21.5% YoY on a lower base. Slowdown in OEM sales
is expected to help raise aftermarket sales ratio from 1.1:1 to ~1.2:1. This is
expected to cushion any pressure on margins arising from the OEM side. We expect
EBITDA margins to remain flat QoQ at ~19.2% levels
Hero Honda Volumes outburst continued with Q1FY12 witnessing lifetime high volume sales at
1.5 million units (~22% YoY growth) leading to topline growth of ~33% YoY.
However, input cost pressures, along with increasing selling expenses and higher
royalty amortisation would lead to lower profitability
JK Tyre JK Tyres continued to ramp up capacity in the radial tyre segment with rise expected
of ~28% to 3.5 lakh MT by FY12E. Tepid PV and CV demand has averaged robust
two-wheeler demand causing a more modest topline growth of ~19.5%. The ~5%
decline in NR prices would help improve PAT margin ~30 bps at 1.2%
M&M Q1FY12 witnessed strong tractor sales (up ~20% YoY) and volume growth in the
automobile space (~26% YoY) led by the diesel portfolio. This along with price hikes
in April would help mitigate the impact of higher RM, ESOP amortisation costs on
margins.EBITDA margin is expected to improve ~20 bps at 13.1%
Maruti Suzuki Maruti’s PV segment had to face the brunt of climbing interest rates & petrol prices
along with production loss of ~15,000 units for the month due to 13-day strike in
Manesar facility. However, we have conservatively accounted for complete
depreciation in Q1. Margins could slip ~70 bps QoQ on EBITDA level at 9.5%
Subros The revenue growth has turned slow with marquee clients like Maruti and Tata
Motors showing a slowdown in PV volumes. Revenue growth is expected to grow at
a tepid pace at ~11% YoY. The PAT margin is expected to decline ~100 bps QoQ at
2.6%
Tata Motors Indian operations witnessed a slowdown in PV sales (~10% YoY). However, CV
sales grew higher than expected ~18% YoY. On the JLR front, we have factored in
10.0% YoY volume growth, ASP* jump of ~8% YoY with richer LR* mix. On a
consolidated basis, we expect it to see ~22% YoY topline, 15.4% YoY bottomline
growth
Source: Company, ICICIdirect.com Research *ASP~ Average selling prices *LR~ Land Rover
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