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Auto and auto ancillary
ƒ Volume trend shows mixed picture
Q4FY12 was a mixed bag with PV sales remaining robust as consumers
made pre-Budget purchases in anticipation of higher excise/diesel duty.
Top players in the segment viz. Maruti, M&M and Tata Motors recorded
YoY volume growth of ~5%/30%/20%, respectively, for Q4FY12. CV
space was resilient with volumes driven by the fast growing LCV
segment (up ~27% YoY). However, the M&HCV space grew (~5% YoY)
albeit tepidly even as pressures of high interest rates/base effect were
prevalent. The growth in the two-wheeler space is cooling off for listed
entities as MNC players grow stronger. HMCL and BAL witnessed
sluggish sales growth of 8%/7% with TVS witnessing de-growth of 1%
in Q4FY12. Tata Motors/Ashok Leyland remains our top pick in the OEM
space. We expect topline growth of ~27.4% YoY for our OEM universe.
ƒ Ancillaries to gain as OEM volumes rebound
Ancillary companies had faced a challenging past few quarters as OEM
sales languished. However, with pick-up in the PV segment and strong
growth in LCV, the revenue outlook for ancillaries has improved.
Softening commodity prices (natural rubber down ~7% QoQ)
accompanied by favourable INR movement (average $/| rate for Q4FY12
at 50.3) would cushion margins. We prefer Bharat Forge due to its
improving product mix and strong demand outlook in both auto and
non-auto segments.
ƒ Macro headwinds continue to plague sentiments
High interest rates and dearer fuel prices have been a demand
dampener for the overall industry. However, favourable currency
movement (~12% QoQ fall in the yen will benefit MSIL) and softening
commodity prices provide relief on the margin front. The recent surge in
crude oil price to ~$123/barrel (up 8.4% QoQ) leading to inflationary
pressures stands in the way of strong interest rate cuts. We expect Idirect coverage universe to post PAT g
Company specific view -OEM
Company Remarks
Ashok Leyland Seasonally strong Q4, ~4% rise in M&HCV volumes and a surge in demand of LCV
Dost is expected to enhance topline by ~10% YoY. EBITDA margins will jump 238 bps
QoQ to 9.7% driven by higher operating leverage. PAT margin is expected to be
~4.9% aided by higher production from Pantnagar facility
Bajaj Auto Bajaj has been facing increasing competitive heat in the domestic market losing its
second largest two-wheeler seller tag in India to HMSI. Q4 volumes have been tepid
at 1.01 mn units (8% YoY growth) lower than revised management estimates of 1.07
mn. INR appreciation could take away some sheen off margins from last quarter by~
40 bps to ~20.6%. PAT could be higher than our estimate of | 763 crore due to any
reversals on range forward covers taken earlier
Eicher Motors We expect Eicher Motors to sustain earnings momentum and post ~20% YoY topline
growth driven by strong RE/VECV volumes (up 41%/13% YoY respectively). EBIDTA
margins are expected to remain flat QoQ to 9.8% due to higher operating leverage
reducing product mix pressures. Consolidated PAT margins are estimated to be
~4.5%
Escorts Tractor volumes for the quarter have declined (~15% YoY rise) due to 15,088 units
with weakness across the farm equipment segment. We expect topline to come in at
~| 783 crore (~13% decline), EBITDA margins to continue remaining weak at
~4.3%. PAT is thus expected to be only ~| 11.3 crore
Hero MotoCorp The company has witnessed volume strains with growth being scarce (~8% YoY) as
scooters, executive segments grew (~16%, 10% respectively) while premium
segment felt the MNC-pinch de-growing ~19%. EBITDA, PAT margins could remain
flat QoQ as higher other expenses would be covered by lower RM, royalty costs as
JPY declined
M&M M&M witnessed a mixed picture as the auto segment led by UVs/LCVs grew ~27%
to ~1.3 lakh units while tractor segment de-grew ~12% to 52,075 units. We believe
with higher profitability segment declining, EBITDA margins could decline ~60 bps
QoQ to 11.7%. Commentary on farm segment would be a key monitorable for the
stock
Maruti Suzuki The PV segment has witnessed strong ending to FY12E led by pre-excise hikes
sentiment in consumers. MSIL volumes rose ~5%/50% YoY/QoQ to ~3.6 lakh units
as production got streamlined and customer sentiment improved. EBITDA margins
could improve 150 bps QoQ to ~6.9%. The currency benefits from JPY/INR
movement (~12%) would be limited due to payments towards vendor currency
exposure (~14% of net sales) for Q3. PAT is expected to be at ~| 480 crore (down
~27% YoY)
Tata Motors JLR continued to drive robust volumes across geographies led by China. We expect
volumes to be ~93,550 units (up ~42%YoY)/ASP* jump of ~1.4% YoY. JLR margins
are expected to rise 330 bps YoY to 19.2% as GBP/INR/EUR remained favourable. On
domestic front, PV sales rose ~20% YoY to 1.08 lakh units, CV sales grew ~18% to
1.7 lakh units that led LCV growth even as MHCV growth was muted on a high base.
We expect lifetime high quarterly PAT at ~| 4,030 crore with forex reversal of ~|
160 crore expected
Source: Company, ICICIdirect.com Research
Company specific view- Ancillaries
Company Remarks
Amara Raja
Batteries
Robust demand from the replacement segment is expected to result in ~24% YoY
topline growth for Amara Raja. We expect EBITDA margins to remain flattish at 17.1%
(down 23 bps QoQ) driven by ~4% rise in LME lead prices. The PAT margin is
estimated at 10.4% (up 225 bps YoY)
Apollo Tyres The consolidated topline is expected to grow ~20% YoY driven by strong domestic
sales and robust European winter tyre sales. The consolidated EBITDA margins are
estimated to rise ~20 bps QoQ to 10.2% as rubber prices have cooled off ~7% QoQ.
PAT margins are projected at 3.9%
Automotive
Axle
Total revenues are projected to rise ~10% YoY and ~5% QoQ driven by strong
M&HCV volume growth of major clients like Tata Motors (up 18% QoQ) and Ashok
Leyland (up 61% QoQ). We expect EBITDA margins of 12.7% (up ~20 bps YoY) while
PAT margins are expected to around 6.5% levels
Balkrishna
Industries
Balkrishna is expected to continue its robust topline performance (up ~31% YoY)
driven by volume growth of 16% YoY and value growth of ~13% YoY respectively.
Moreover, softening of rubber prices would result in 18.7% EBITDA margins (up 266
bps YoY). PAT margins are expected to be at 10.5%
Bharat Forge We have factored in a robust 24% YoY topline growth driven by value growth (~8%
YoY) and volume growth (~17% YoY). EBITDA margins are expected to improve to
~24.8% driven by better product mix (higher machining content). PAT margins are
estimated at 11.1%
Exide
Industries
We expect a strong ending to FY12E in terms of profitability even as revenue growth
may be tepid at ~4% YoY at | 1302 crore due to high base effect. Inventory costing
issues that marred Q2/part Q3 results are over now & Q4 margins are expected to be
up (~360 bps QoQ). PAT may rise ~49% QoQ to | 155 crore
JK Tyre We factored in steady ~18% YoY topline growth driven by demand up-tick in
M&HCV, PV segments. We modelled a forex reversal gain of ~| 10 crore on raw
mateiral hedges. Also, fall in rubber prices by ~7% QoQ is expected to result in 75
bps QoQ EBITDA margin expansion to 5.8%. PAT margins are expected at ~1.1%
Motherson
Sumi
We expect a positive Q4 with higher operating benefits & currency benefiting. Expect
new SMR facilities ramp up, domestic PV uptick to lead topline growth of ~20% YoY
at ~| 2828 crore. EBITDA margins to rise ~320 bps QoQ to ~10% while PAT may
rise to ~ | 134 crore. Forex reversals may boost profits as INR turned favourable
Subros Topline performance is expected to improve sequentially (up 6% QoQ) reflective of
volume improvement of its key client Maruti. On the EBITDA margin front, margins are
expected to remain flat at ~8.6% driven by benefits of component localisation. The
PAT margin is expected to be ~1.1% (up 31 bps QoQ)
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.icicidirect.com/mailimages/ICICIdirect_ConsolidatedResultPreview_Q4FY12E.pdf
Auto and auto ancillary
ƒ Volume trend shows mixed picture
Q4FY12 was a mixed bag with PV sales remaining robust as consumers
made pre-Budget purchases in anticipation of higher excise/diesel duty.
Top players in the segment viz. Maruti, M&M and Tata Motors recorded
YoY volume growth of ~5%/30%/20%, respectively, for Q4FY12. CV
space was resilient with volumes driven by the fast growing LCV
segment (up ~27% YoY). However, the M&HCV space grew (~5% YoY)
albeit tepidly even as pressures of high interest rates/base effect were
prevalent. The growth in the two-wheeler space is cooling off for listed
entities as MNC players grow stronger. HMCL and BAL witnessed
sluggish sales growth of 8%/7% with TVS witnessing de-growth of 1%
in Q4FY12. Tata Motors/Ashok Leyland remains our top pick in the OEM
space. We expect topline growth of ~27.4% YoY for our OEM universe.
ƒ Ancillaries to gain as OEM volumes rebound
Ancillary companies had faced a challenging past few quarters as OEM
sales languished. However, with pick-up in the PV segment and strong
growth in LCV, the revenue outlook for ancillaries has improved.
Softening commodity prices (natural rubber down ~7% QoQ)
accompanied by favourable INR movement (average $/| rate for Q4FY12
at 50.3) would cushion margins. We prefer Bharat Forge due to its
improving product mix and strong demand outlook in both auto and
non-auto segments.
ƒ Macro headwinds continue to plague sentiments
High interest rates and dearer fuel prices have been a demand
dampener for the overall industry. However, favourable currency
movement (~12% QoQ fall in the yen will benefit MSIL) and softening
commodity prices provide relief on the margin front. The recent surge in
crude oil price to ~$123/barrel (up 8.4% QoQ) leading to inflationary
pressures stands in the way of strong interest rate cuts. We expect Idirect coverage universe to post PAT g
Company specific view -OEM
Company Remarks
Ashok Leyland Seasonally strong Q4, ~4% rise in M&HCV volumes and a surge in demand of LCV
Dost is expected to enhance topline by ~10% YoY. EBITDA margins will jump 238 bps
QoQ to 9.7% driven by higher operating leverage. PAT margin is expected to be
~4.9% aided by higher production from Pantnagar facility
Bajaj Auto Bajaj has been facing increasing competitive heat in the domestic market losing its
second largest two-wheeler seller tag in India to HMSI. Q4 volumes have been tepid
at 1.01 mn units (8% YoY growth) lower than revised management estimates of 1.07
mn. INR appreciation could take away some sheen off margins from last quarter by~
40 bps to ~20.6%. PAT could be higher than our estimate of | 763 crore due to any
reversals on range forward covers taken earlier
Eicher Motors We expect Eicher Motors to sustain earnings momentum and post ~20% YoY topline
growth driven by strong RE/VECV volumes (up 41%/13% YoY respectively). EBIDTA
margins are expected to remain flat QoQ to 9.8% due to higher operating leverage
reducing product mix pressures. Consolidated PAT margins are estimated to be
~4.5%
Escorts Tractor volumes for the quarter have declined (~15% YoY rise) due to 15,088 units
with weakness across the farm equipment segment. We expect topline to come in at
~| 783 crore (~13% decline), EBITDA margins to continue remaining weak at
~4.3%. PAT is thus expected to be only ~| 11.3 crore
Hero MotoCorp The company has witnessed volume strains with growth being scarce (~8% YoY) as
scooters, executive segments grew (~16%, 10% respectively) while premium
segment felt the MNC-pinch de-growing ~19%. EBITDA, PAT margins could remain
flat QoQ as higher other expenses would be covered by lower RM, royalty costs as
JPY declined
M&M M&M witnessed a mixed picture as the auto segment led by UVs/LCVs grew ~27%
to ~1.3 lakh units while tractor segment de-grew ~12% to 52,075 units. We believe
with higher profitability segment declining, EBITDA margins could decline ~60 bps
QoQ to 11.7%. Commentary on farm segment would be a key monitorable for the
stock
Maruti Suzuki The PV segment has witnessed strong ending to FY12E led by pre-excise hikes
sentiment in consumers. MSIL volumes rose ~5%/50% YoY/QoQ to ~3.6 lakh units
as production got streamlined and customer sentiment improved. EBITDA margins
could improve 150 bps QoQ to ~6.9%. The currency benefits from JPY/INR
movement (~12%) would be limited due to payments towards vendor currency
exposure (~14% of net sales) for Q3. PAT is expected to be at ~| 480 crore (down
~27% YoY)
Tata Motors JLR continued to drive robust volumes across geographies led by China. We expect
volumes to be ~93,550 units (up ~42%YoY)/ASP* jump of ~1.4% YoY. JLR margins
are expected to rise 330 bps YoY to 19.2% as GBP/INR/EUR remained favourable. On
domestic front, PV sales rose ~20% YoY to 1.08 lakh units, CV sales grew ~18% to
1.7 lakh units that led LCV growth even as MHCV growth was muted on a high base.
We expect lifetime high quarterly PAT at ~| 4,030 crore with forex reversal of ~|
160 crore expected
Source: Company, ICICIdirect.com Research
Company specific view- Ancillaries
Company Remarks
Amara Raja
Batteries
Robust demand from the replacement segment is expected to result in ~24% YoY
topline growth for Amara Raja. We expect EBITDA margins to remain flattish at 17.1%
(down 23 bps QoQ) driven by ~4% rise in LME lead prices. The PAT margin is
estimated at 10.4% (up 225 bps YoY)
Apollo Tyres The consolidated topline is expected to grow ~20% YoY driven by strong domestic
sales and robust European winter tyre sales. The consolidated EBITDA margins are
estimated to rise ~20 bps QoQ to 10.2% as rubber prices have cooled off ~7% QoQ.
PAT margins are projected at 3.9%
Automotive
Axle
Total revenues are projected to rise ~10% YoY and ~5% QoQ driven by strong
M&HCV volume growth of major clients like Tata Motors (up 18% QoQ) and Ashok
Leyland (up 61% QoQ). We expect EBITDA margins of 12.7% (up ~20 bps YoY) while
PAT margins are expected to around 6.5% levels
Balkrishna
Industries
Balkrishna is expected to continue its robust topline performance (up ~31% YoY)
driven by volume growth of 16% YoY and value growth of ~13% YoY respectively.
Moreover, softening of rubber prices would result in 18.7% EBITDA margins (up 266
bps YoY). PAT margins are expected to be at 10.5%
Bharat Forge We have factored in a robust 24% YoY topline growth driven by value growth (~8%
YoY) and volume growth (~17% YoY). EBITDA margins are expected to improve to
~24.8% driven by better product mix (higher machining content). PAT margins are
estimated at 11.1%
Exide
Industries
We expect a strong ending to FY12E in terms of profitability even as revenue growth
may be tepid at ~4% YoY at | 1302 crore due to high base effect. Inventory costing
issues that marred Q2/part Q3 results are over now & Q4 margins are expected to be
up (~360 bps QoQ). PAT may rise ~49% QoQ to | 155 crore
JK Tyre We factored in steady ~18% YoY topline growth driven by demand up-tick in
M&HCV, PV segments. We modelled a forex reversal gain of ~| 10 crore on raw
mateiral hedges. Also, fall in rubber prices by ~7% QoQ is expected to result in 75
bps QoQ EBITDA margin expansion to 5.8%. PAT margins are expected at ~1.1%
Motherson
Sumi
We expect a positive Q4 with higher operating benefits & currency benefiting. Expect
new SMR facilities ramp up, domestic PV uptick to lead topline growth of ~20% YoY
at ~| 2828 crore. EBITDA margins to rise ~320 bps QoQ to ~10% while PAT may
rise to ~ | 134 crore. Forex reversals may boost profits as INR turned favourable
Subros Topline performance is expected to improve sequentially (up 6% QoQ) reflective of
volume improvement of its key client Maruti. On the EBITDA margin front, margins are
expected to remain flat at ~8.6% driven by benefits of component localisation. The
PAT margin is expected to be ~1.1% (up 31 bps QoQ)
Source: Company, ICICIdirect.com Research
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