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COMPANY QUICK COMMENT
The company reported ~17% y-y sales growth in Q2FY12 on a standalone basis, which was in line with our expectations. Net income on a standalone basis grew ~ 46% y-y with other income of INR130 mn. Excluding other income, PAT was below our estimates. The slowdown in the auto sector, especially passenger car segment, has impacted engineering and metal formed product business. Finance and insurance business were profitable in Q2. Our estimates, price target and rating are under review.
Auto slowdown impacts engineering and metal formed product business
Key takeaways from Q2FY12 results
Standalone business performance
On a standalone basis, the company reported net sales of INR 8463 mn in line with our expectation. This represents ~ 17.3% y-y growth. Gross margin dropped 160 bps y-y but increased by 90 bps Q-Q as steel prices have started coming down. Standalone PAT was at INR 451 mn, representing 46.3% y-y growth. The company reported other income of INR 130 mn which is very high, so excluding other income, PAT is ~ 14.5% below our expectation.
Slowdown in auto sector – impacted engineering and metal formed product business
As per management, growth in the auto sector declined, particularly in the passenger car segment, which registered negative growth of 8% y-y in Q2FY12 against 18% y-y in Q1FY12. This impacted growth in turnover in the engineering business and metal formed product business. Motor cycles grew by 17% in Q2FY12 which to some extent negated the impact due to the slowdown in the passenger car segment.
Segmental Performance
Cycle business - Net sales grew at ~ 14.6%, better than our expectation but demand for cycles continued to be sluggish. This resulted in pressure on margin. Segment reported EBIT margin of 6.6%, lower by 30 bps Q-Q and 10 bps y-y. Volume in Q2 was flat Q-Q which was mainly on account of flood in East India and drop in secondary sales across regions. During the quarter, the company continued its retail thrust and opened 55 retail outlets under various format. Total number of retail formats reached 737 stores. ~ 25% of total revenue of this segment is derived through these company retail stores. Electric scooter business registered growth of 79% y-y in Q2FY12 on small base of Q2FY11 and 7% y-y for H1FY12.
Engineering Business - Net sales registered growth of ~ 18.7% which was in line with our expectations. Precision Tubes (cold drawn welded and electric resistance welded tubes) reported 11% volume growth, mainly affected by negative growth of passenger car segment. The tubular components segment recorded growth of 14% during the quarter.
Metal Formed Products Business – Net sales grew by ~ 19.4% which is lower than our expectation. This segment was reporting growth rates in the thirties over the past 6 quarters. Volumes of automotive chain grew by 16% and automotive chain by 17%. Export of industrial chains registered growth of 56% mainly due to higher sales of industrial chains in the European market and better off-take from OEMs in the US. The products for the railway segment grew significantly registering 86% growth in volumes. The door-frame segment volumes registered negative growth of 17%.
Consolidated business performance
On a consolidated basis, the company reported net sales of INR 15013 mn, growth of ~ 27% y-y. Net income was reported at INR 622 mn, which represents growth of ~ 21% y-y. Cholamandalam Investment and Finance (subsidiary) reported achieved PBT of INR 660 mn which represents ~ 69% y-y growth. Cholamadalam MS general Insurance (subsidiary) recorded significant growth of ~ 50% in gross written premium and achieved PBT of INR 78 mn. Financiere C 10 (overseas subsidiary manufacturing Industrial chains) grew by 23% y-y and reported net sales INR 1140 mn and PBT INR 30 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
COMPANY QUICK COMMENT
The company reported ~17% y-y sales growth in Q2FY12 on a standalone basis, which was in line with our expectations. Net income on a standalone basis grew ~ 46% y-y with other income of INR130 mn. Excluding other income, PAT was below our estimates. The slowdown in the auto sector, especially passenger car segment, has impacted engineering and metal formed product business. Finance and insurance business were profitable in Q2. Our estimates, price target and rating are under review.
Auto slowdown impacts engineering and metal formed product business
Key takeaways from Q2FY12 results
Standalone business performance
On a standalone basis, the company reported net sales of INR 8463 mn in line with our expectation. This represents ~ 17.3% y-y growth. Gross margin dropped 160 bps y-y but increased by 90 bps Q-Q as steel prices have started coming down. Standalone PAT was at INR 451 mn, representing 46.3% y-y growth. The company reported other income of INR 130 mn which is very high, so excluding other income, PAT is ~ 14.5% below our expectation.
Slowdown in auto sector – impacted engineering and metal formed product business
As per management, growth in the auto sector declined, particularly in the passenger car segment, which registered negative growth of 8% y-y in Q2FY12 against 18% y-y in Q1FY12. This impacted growth in turnover in the engineering business and metal formed product business. Motor cycles grew by 17% in Q2FY12 which to some extent negated the impact due to the slowdown in the passenger car segment.
Segmental Performance
Cycle business - Net sales grew at ~ 14.6%, better than our expectation but demand for cycles continued to be sluggish. This resulted in pressure on margin. Segment reported EBIT margin of 6.6%, lower by 30 bps Q-Q and 10 bps y-y. Volume in Q2 was flat Q-Q which was mainly on account of flood in East India and drop in secondary sales across regions. During the quarter, the company continued its retail thrust and opened 55 retail outlets under various format. Total number of retail formats reached 737 stores. ~ 25% of total revenue of this segment is derived through these company retail stores. Electric scooter business registered growth of 79% y-y in Q2FY12 on small base of Q2FY11 and 7% y-y for H1FY12.
Engineering Business - Net sales registered growth of ~ 18.7% which was in line with our expectations. Precision Tubes (cold drawn welded and electric resistance welded tubes) reported 11% volume growth, mainly affected by negative growth of passenger car segment. The tubular components segment recorded growth of 14% during the quarter.
Metal Formed Products Business – Net sales grew by ~ 19.4% which is lower than our expectation. This segment was reporting growth rates in the thirties over the past 6 quarters. Volumes of automotive chain grew by 16% and automotive chain by 17%. Export of industrial chains registered growth of 56% mainly due to higher sales of industrial chains in the European market and better off-take from OEMs in the US. The products for the railway segment grew significantly registering 86% growth in volumes. The door-frame segment volumes registered negative growth of 17%.
Consolidated business performance
On a consolidated basis, the company reported net sales of INR 15013 mn, growth of ~ 27% y-y. Net income was reported at INR 622 mn, which represents growth of ~ 21% y-y. Cholamandalam Investment and Finance (subsidiary) reported achieved PBT of INR 660 mn which represents ~ 69% y-y growth. Cholamadalam MS general Insurance (subsidiary) recorded significant growth of ~ 50% in gross written premium and achieved PBT of INR 78 mn. Financiere C 10 (overseas subsidiary manufacturing Industrial chains) grew by 23% y-y and reported net sales INR 1140 mn and PBT INR 30 mn.
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