Automobiles - Q3FY14 Results Preview - Earnings growth to be strong despite weak Volumes: Centrum

Earnings growth to be strong despite weak volumes



All auto OEMs under our coverage universe, except Hero MotoCorp and
Eicher Motors, saw YoY decline in volumes in their domestic operations
in 3QFY14. But, most companies except Ashok Leyland are likely to see
YoY expansion in margins due to company-specific factors and hence
will see strong earnings growth. However, on a sequential basis, we
expect EBITDA margin for our universe to decline due to the rise in
discount levels, increase in raw material costs and adverse impact of
currency (especially on Maruti Suzuki and Tata Motors). We expect CV
players, Tata Motors (domestic ops) and Ashok Leyland, to continue to
report losses.

$ Revenue growth to remain muted (Excluding for Tata Motors): Overall
for our coverage universe, we expect volume drop of 8.5% YoY (growth
of 4.5% QoQ). On the revenue side, we expect a growth of 20% YoY and
10% QoQ largely driven by TAMO and Hero MotoCorp. On a sequential
basis, we expect CV players Tata Motors (standalone ops), Ashok
Leyland and Eicher Motors’ revenues to decrease due to sharp drop in
volumes.

$ YoY expansion in margins due to company-specific factors: EBITDA
margins for our coverage universe are expected to increase by 190bps
YoY but contract by 69bps QoQ. On a YoY basis, we expect only Ashok
Leyland to report margin contraction, while other players are likely
to report margin expansion. On a sequential basis, while we expect
margins for our universe to contract by 69bps,  Hero MotoCorp and
Eicher Motors (RE) is likely to see margin improvement driven by
strong volume growth.

$ Earnings growth to be strong despite weak volumes:  We expect PAT
for our coverage universe to register a strong YoY growth of 52%
largely driven by Tata Motors, Hero and Maruti. On a QoQ basis, we
expect PAT growth of 9%. We expect Tata Motors to register strong
earnings growth of 120%/6% YoY/QoQ respectively.

$ Valuations and recommendations: We maintain Buy on Tata Motors
(strong traction in JLR), Maruti (new model cycle yet to play out),
Hero MotoCorp (retains market share, strong rural focus and presence
in scooter segment), MRF (replacement demand continues to grow despite
weak OE demand, benign rubber prices to aid margins), M&M and Swaraj
engines (strong traction in tractor segment). We upgrade Bajaj to Buy
from Hold (reasonable valuations, launch of new Discover models from
Jan’14 onwards to help market share gains). We maintain Hold on Eicher
Motors and Ashok Leyland due to the lack of visible signs of an uptick
in the CV sector.



Thanks & Regards

��

-->