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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr. Ajay Seth, Chief General Manager - Finance, Mr .
Nikhil Vyas, Manager - Corporate Planning, Mr. Vivek Kumar, Manager - IR
and Mr. Rishabh Jain, Deputy Manager - Finance, who shared their outlook
on the industry and company.
Key highlights
n Company is actively focusing on currency risk. It plans to bring down the indirect
imports by 50% in three years time. Also, there is a change in policy of compensating
vendors. If they fail to achieve the targeted localization, vendors will have to bear 50%
of the currency risk. Company is focusing on reducing reliance on Yen by looking at
alternative sourcing destinations like Europe/Thailand. Currently, transmissions,
electronics, diesel engines and HVACs account for bulk of import content. The company
has set an aspiration to achieve 12% margins in next three years
n New Swift has an advance booking of ~50,000 units. Expect initial wholesale billings
of ~16,000 to 17,000 units. New Swift is priced higher by ~3% to 5%. The prices are
higher for diesel version (vs earlier Swift)
n Expect Indian market to be ~5mn units by 2015. Company will be ready with a capacity
of ~1.9mn units in two phases of expansion (Phase I - Sep'11/Phase II - Sep'12).
Capex will be ~Rs 40bn/30bn for current year/next year and thereafter, will be normal at
~Rs 1.5bn per annum. Of this, ~Rs 0.8bn will be maintenance capex.
n Historically, in India, sustainable market share is not achieved with price cuts. There
are ample examples for the same. Company intends to retain its market share based
on wider product portfolio (UVs, alternative fuels, new models), expanding reach and
higher brand loyalty
n Demand outlook is subdued due to lower demand for low end segment vehicles like
Alto. The higher segment demand is still holding on. Also, rural sales, which were
growing at a scorching pace earlier, have now dropped to ~15%. The good point is that
enquiries are not falling. During 2008-09 period, there was also a sharp fall in enquires.
n Demand for diesel vehicles is very high- Swift (~80%), Ritz (~65%), SX4 (~85%) and
there is shortage of diesel capacity. There are concerns with respect to additional
capex on expanding diesel vehicle capacity as the demand is driven due to fuel price
differential. Expect demand for petrol vehicles to increase, as and when the difference
reduces
Valuations
The stock is trading at attractive valuations of 13.1x/11.6x PER and 7.1x/5.8x EV/EBITDA on
our FY12/13 estimates, given the near term concerns of rising interest rates, fuel prices
and appreciating Yen. Our TP of Rs 1,400 implies 15.8x/14x PER and 9.1x/7.5x EV/EBITDA
on FY12/13 estimates. We have factored in a cross currency rate of 1.8/1.78 Yen/Rs for
FY12/13. Given the current scenario of 1.67 Yen/Rs, there exists downside risk to our
estimate, if the Yen continues to appreciate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We were joined by Mr. Ajay Seth, Chief General Manager - Finance, Mr .
Nikhil Vyas, Manager - Corporate Planning, Mr. Vivek Kumar, Manager - IR
and Mr. Rishabh Jain, Deputy Manager - Finance, who shared their outlook
on the industry and company.
Key highlights
n Company is actively focusing on currency risk. It plans to bring down the indirect
imports by 50% in three years time. Also, there is a change in policy of compensating
vendors. If they fail to achieve the targeted localization, vendors will have to bear 50%
of the currency risk. Company is focusing on reducing reliance on Yen by looking at
alternative sourcing destinations like Europe/Thailand. Currently, transmissions,
electronics, diesel engines and HVACs account for bulk of import content. The company
has set an aspiration to achieve 12% margins in next three years
n New Swift has an advance booking of ~50,000 units. Expect initial wholesale billings
of ~16,000 to 17,000 units. New Swift is priced higher by ~3% to 5%. The prices are
higher for diesel version (vs earlier Swift)
n Expect Indian market to be ~5mn units by 2015. Company will be ready with a capacity
of ~1.9mn units in two phases of expansion (Phase I - Sep'11/Phase II - Sep'12).
Capex will be ~Rs 40bn/30bn for current year/next year and thereafter, will be normal at
~Rs 1.5bn per annum. Of this, ~Rs 0.8bn will be maintenance capex.
n Historically, in India, sustainable market share is not achieved with price cuts. There
are ample examples for the same. Company intends to retain its market share based
on wider product portfolio (UVs, alternative fuels, new models), expanding reach and
higher brand loyalty
n Demand outlook is subdued due to lower demand for low end segment vehicles like
Alto. The higher segment demand is still holding on. Also, rural sales, which were
growing at a scorching pace earlier, have now dropped to ~15%. The good point is that
enquiries are not falling. During 2008-09 period, there was also a sharp fall in enquires.
n Demand for diesel vehicles is very high- Swift (~80%), Ritz (~65%), SX4 (~85%) and
there is shortage of diesel capacity. There are concerns with respect to additional
capex on expanding diesel vehicle capacity as the demand is driven due to fuel price
differential. Expect demand for petrol vehicles to increase, as and when the difference
reduces
Valuations
The stock is trading at attractive valuations of 13.1x/11.6x PER and 7.1x/5.8x EV/EBITDA on
our FY12/13 estimates, given the near term concerns of rising interest rates, fuel prices
and appreciating Yen. Our TP of Rs 1,400 implies 15.8x/14x PER and 9.1x/7.5x EV/EBITDA
on FY12/13 estimates. We have factored in a cross currency rate of 1.8/1.78 Yen/Rs for
FY12/13. Given the current scenario of 1.67 Yen/Rs, there exists downside risk to our
estimate, if the Yen continues to appreciate.
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