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Slowdown visible in 2Ws and cars; UVs, CVs maintain momentum: The slowdown
earlier visible in passenger cars (3.2% YTD FY12 growth) is now clearly evident in 2W
volumes as well, with growth rate moderating to 12% over the last two months (v/s
YTD cumulative growth till Nov-11 of 18%). However, UVs and CVs continue to record
strong volume growth. Although volume outlook in the short term is impacted by
macro headwinds, we believe long term volume outlook remains positive driven by
strong economic growth, improved availability of finance, new product launches and
exports potential.
Margins to bottom-out in FY12, with gradual improvement from 1QFY13 onwards:
EBITDA margins are estimated to improve in FY13, benefitting from higher operating
leverage, stable commodity cost and favorable forex. However, increasing competitive
intensity in some segments would restrict pricing power. We anticipate price increases
coupled with productivity improvement programs and high operating leverage to
drive profitability from 1QFY13 onwards.
Receding macro headwinds augur well for FY13: Lending rates are at a 13-year peak
and are expected to start easing in FY13, auguring well for PV and CV demand. With
INR expected to stabilize, albeit at higher levels, there would be improved visibility
in operations. Easing of macro headwinds would be a key trigger for re-rating of auto
stocks. However, increase in fuel price (on top of 2% increase in excise duty) is a
potential negatives in the short term.
Valuation and view: While our entire coverage universe in Autos has outperformed
over the last 12 months, with a positive view on interest rates and stable commodity
prices, we believe that performance of 4-Ws could improve further. We prefer Maruti
Suzuki (gradual improvement as headwinds recede over next 6-9 months), TTMT (strong
volume momentum in JLR coupled with attractive valuations) and Hero MotoCorp
(scope to improve margins from historical lows coupled with strong volume
momentum).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Slowdown visible in 2Ws and cars; UVs, CVs maintain momentum: The slowdown
earlier visible in passenger cars (3.2% YTD FY12 growth) is now clearly evident in 2W
volumes as well, with growth rate moderating to 12% over the last two months (v/s
YTD cumulative growth till Nov-11 of 18%). However, UVs and CVs continue to record
strong volume growth. Although volume outlook in the short term is impacted by
macro headwinds, we believe long term volume outlook remains positive driven by
strong economic growth, improved availability of finance, new product launches and
exports potential.
Margins to bottom-out in FY12, with gradual improvement from 1QFY13 onwards:
EBITDA margins are estimated to improve in FY13, benefitting from higher operating
leverage, stable commodity cost and favorable forex. However, increasing competitive
intensity in some segments would restrict pricing power. We anticipate price increases
coupled with productivity improvement programs and high operating leverage to
drive profitability from 1QFY13 onwards.
Receding macro headwinds augur well for FY13: Lending rates are at a 13-year peak
and are expected to start easing in FY13, auguring well for PV and CV demand. With
INR expected to stabilize, albeit at higher levels, there would be improved visibility
in operations. Easing of macro headwinds would be a key trigger for re-rating of auto
stocks. However, increase in fuel price (on top of 2% increase in excise duty) is a
potential negatives in the short term.
Valuation and view: While our entire coverage universe in Autos has outperformed
over the last 12 months, with a positive view on interest rates and stable commodity
prices, we believe that performance of 4-Ws could improve further. We prefer Maruti
Suzuki (gradual improvement as headwinds recede over next 6-9 months), TTMT (strong
volume momentum in JLR coupled with attractive valuations) and Hero MotoCorp
(scope to improve margins from historical lows coupled with strong volume
momentum).
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