ƒAuto and auto ancillary ƒ :Q3FY15 Result Preview : ICICI Securities, report

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Auto and auto ancillary
ƒ Sentiment improves slowly as signs of recovery in place!
The quarter (Q3) witnessed YoY growth (~3-4%) even as on a
seasonality basis post festive (Q2) season, consumer sentiments have
been moderate. The 2W segment has been tepid after a good festive
period with growth of ~3% led by scooters at ~20%. PV sales grew ~1-
2% YoY despite a strong performance from MSIL, which grew ~12%
YoY. The CV segment has started to turn the corner as volumes rose
(~4-5% YoY) though led only by M&HCV volumes (up>30% YoY), even
as LCV declines are slowing down (~8-9%). Ancillary players have
benefitted from operating leverage benefits as demand rose and costs
reduced with global commodity correction. Thus, they are expected to
benefit and are expected to post strong earnings growth. We expect Idirect
universe topline to grow at ~11% YoY led by Tata Motors, Ashok
Leyland amongst the OEM’s. Motherson Sumi and JK Tyres are our top
picks.
ƒ Commodity correction comes to aid even as excise hikes come in!
With the excise duty period behind us, the growth momentum has been
modest to say the least (overall industry growth ~10%).The excise duty
could impact end customers with a ballpark price hike of ~5%. This
may impact Q4 demand seasonal demand momentum but a steady fall
in raw material (lead, rubber, copper, etc) would provide relief at least
on the earnings front. For the I-direct universe, EBITDA margins are
likely to improve ~100 bps QoQ due to improvement of margins across
the board. We expect overall EBITDA to grow ~20% YoY driven by
these improvements.
ƒ Profitability better on lower costs improving utilisations
With key factors on costs and revenues starting to look up the
profitability is likely to improve, especially for ancillary players. For the Idirect
universe, we expect profits to grow at ~24% YoY. This is
primarily driven by the strong growth in earnings from Tata Motors,
Motherson Sumi, Maruti Suzuki.

Company specific view -OEM
Company Remarks
Ashok Leyland Topline is expected to grow ~72% YoY as overall volumes have grown ~42% YoY to ~25300
units. M&HCV volumes have grown ~70% YoY, to ~18300 units while LCV segment has
remained flat at ~7,100 units. We expect EBIDTA margins to rise to ~8.6%. Topline, reported
PAT are estimated at ~| 3340 crore, | 135 crore
Bajaj Auto BAL witnessed overall growth of ~12% YoY growth to ~1 million units. The growth has been
led mainly by the export markets, which has seen strong ~17% YoY growth to ~5 lakh units
while domestic volumes at ~5.1 lakh units have lagged industry volumes and de-grown ~10%
YoY. Two wheeler volumes at ~8.6 lakh units de-grew ~3% YoY higher while 3-W segment
volumes at ~1.4 units grew ~36% YoY. EBITDA margins, thus, are expected to decline ~250
bps YoY to 19.6%. Topline, PAT are expected at ~| 5660 crore, ~| 930 crore, respectively
Eicher Motors Eicher’s RE business continues to remain strong and has grown ~50% YoY to ~82,700 units as
the Oragadam facility ramps-up. The VECV business at ~9500 units also has grown ~15% YoY
albeit at a faster pace. Consolidated EBIDTA margins could come at 13.8% and are likely to be
aided by RE that continues to post ~25+% EBITDA margins. Standalone topline, PAT is likely
to be ~| 825 crore, ~| 166 crore while consolidated topline, PAT is expected at ~| 2,180
crore, ~| 213 crore, respectively
Escorts The core tractor business saw a decline of ~9% YoY with volumes at ~17,300 units. However,
the product mix benefits and improvement in pricing have led the segment revenue decline to
be limited at ~5% YoY to ~| 930 crore. Better tractor margins, lower other businesses losses
on cost saving initiatives are expected to push EBITDA margins to ~6.4%. We expect overall
topline, PAT at ~| 1,100 crore, ~| 30 crore
Hero MotoCorp HMCL's volumes have witnessed a sluggish quarter on account of weaker offtake post festive
season. Volumes declined ~2% YoY ~1.65 million units. The motorcycle segment fell ~5% YoY
to ~1.4 million units while the scooter segment grew ~27% YoY to ~230,000 units. EBITDA
margins are expected to rise ~50 bps YoY to 13.6% on account of cost savings benefits from
"LEAP" program. Topline and PAT are, thus, expected at ~| 6650 crore and ~| 670 crore,
respectively
M&M M&M's automotive segment has witnessed ~12% YoY decline in volumes to ~113,500 units.
The tractor segment has witnessed a surprisingly bad quarter as volumes fell ~24% YoY to
~59,700 units. Due to lower operating performance margins are likely to decline ~100 bps YoY
to 12.1%. Topline, PAT is expected at ~| 9540 crore,~| 740 crore, respectively
Maruti Suzuki Maruti's volumes have outperformed the industry and grown at ~12% YoY to ~3.2 lakh units
led by strong demand for new products. EBITDA margins are expected to rise 120 bps YoY to
13.6% aided by favourable currency (JPY/INR), better product mix and operating leverage.
Topline and PAT are likely to be ~| 12,300 crore and ~| 930 crore, respectively
Tata Motors JLR could clock volumes close to ~121,500 units (up ~4% YoY) as new LR models start to
slowly ramp up. Jaguar volumes at ~18,700 units are likely to de-grow ~8% YoY while LR at
~102,700 units is likely to post ~4% YoY. JLR is likely to post topline of ~£5.7 billion while
margins are likely to rise ~40 bps YoY to 19.5% owing to better product/market mix even as FX
could play spoilsport. JLR PAT could be ~£645 million. Domestic sales declines have slowly
reduced at ~126,300 units (decline 3% YoY). M&HCV segment though is showing recovery as
volumes rose ~44% YoY to ~36,000 units. Thus, we expect the India EBITDA to break-even.
Consolidated topline, PAT are expected to come in at ~| 70,200 crore, ~| 5800 crore,
respectively
Source: Company, ICICIdirect.com Research

Company specific view- Ancillaries
Company Remarks
Amara Raja
Batteries
We expect strong volume growth (~20% YoY), primarily on the back of better 2-W demand.
Replacement segment is also likely to maintain demand growth. Overall, we expect an increase
in sales of ~30% YoY to ~ | 1130 crore. Average lead prices have declined ~6% YoY in INR
terms to ~| 125/kg. Thus, EBITDA margins are likely to expand ~60 bps YoY to 18%. PAT is
estimated at ~| 125 crore
Apollo Tyres The consolidated topline is expected to grow ~2% YoY as domestic markets have continued to
grow on the radial side (M&HCV). However, the bias remains sluggish. Domestic margins are
likely to improve ~70 bps YoY to 14.5% aided by raw material declines. Performance of the
European subsidiary Vredestein are also is likely to be better on the topline front with ~4% YoY
growth (INR terms). Consolidated EBITDA margins are, thus, estimated to reach 15.6%.
Consolidated topline and PAT are expected at ~| 3600 crore and ~| 300 crore, respectively
Balkrishna
Industries
The volume performance is expected to be ~38,500 MT (up ~14% YoY). The topline is
expected to rise only ~6% YoY owing to realisation cuts (down ~6% YoY). We expect margins
to weaken ~100 bps to 24.9% due to negative operating leverage in Bhuj hurting even as RM
eases. Topline and reported PAT are estimated at ~| 940 and ~| 111 crore, respectively
Bosch Bosch's performance has been resilient. Now, due to a diversified product portfolio it is
witnessing a growth recovery. We expect the topline to grow ~13% YoY to ~| 2450 crore.
Due to complete annual charge-off of tooling and other expenses, the margin may decline QoQ.
However, on a YoY basis it would be up 320 bps to 13.1%. Subsequently, PAT is expected at
~| 205 crore
Exide We expect sales revenues to grow ~30% YoY to ~| 1700 crore led by strong demand in the
automotive space (M&HCV, 2-W) coupled with increasing demand led by telecom space. We
believe margins would be aided by lower lead prices and better operating efficiencies. We
expect ~290 bps YoY increase in margins to 13.8%. Thus, PAT is expected at ~| 144 crore
JK Tyre On the topline front, an improvement in the truck bus segment coupled with increasing
radialisation is likely to help clock domestic revenues of | 1,580 crore (~9% YoY growth).
Favourable product mix impact, lower rubber prices (down 24% YoY) would aid margins to
expand ~320 bps to 14%. Consolidated topline, PAT is estimated at ~| 1900 crore, ~| 108
crore, respectively
Motherson
Sumi
We expect the consolidated topline to grow ~10% higher YoY even as the domestic business
growth has been led by strong OEM demand in the PV segment. We expect the performance of
the SMP, SMR to remain robust and expect SMR, SMP to post adjusted EBITDA margins of
10.0%, 6.5%, respectively. MSSL's margins are likely to decline ~130 bps YoY to ~19.3%.
Consequently, consolidated adjusted EBITDA margins are expected to remain flat at 9.9%.
Topline is expected at ~| 8800 crore while reported PAT is expected at ~| 330 crore
Wabco Wabco's performance is closely linked to the M&HCV industry. In Q3FY15, OEM growth was
>~30% YoY. Exports are likely to have continued to remained flat at ~| 105 crore. Wabco's
overall revenues are likely to grow ~31% YoY to ~| 340 crore. EBIDTA margins are likely to
improve ~310 bps YoY to 17% as utilisation levels improve. Subsequently, PAT is expected at
~| 40 crore
Source: Company, ICICIdirect.com Research

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http://content.icicidirect.com/mailimages/IDirect_ConsolidatedPreview_Q3FY15.pdf