Automobiles: 3QFY15E preview - subdued quarter ::Kotak Sec report

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--> 3QFY15E preview – subdued quarter. We expect auto companies to report a muted
quarter with a revenue/EBITDA/PAT growth of 5%/10%/2% yoy for companies under
our coverage universe in 3QFY15. We expect companies under our coverage universe to
report a 60 bps yoy improvement in EBITDA margin aided by the positive impact of
currency movement and a richer product mix. Bajaj Auto and Mahindra & Mahindra are
likely to report a sharp decline in earnings while Hero Motocorp and Maruti Suzuki are
likely to report strong earnings growth in the large-cap space. In the mid-cap universe,
Eicher Motors, Wabco India and Bharat Forge are likely to report strong earnings growth

Quick summary of our expectations for key companies
 Amara Raja Batteries – we expect revenues to grow at 25% yoy led by strong demand in
the auto replacement and telecom battery segments. We expect EBITDA margin to decline by
50 bps qoq led by slightly inferior product mix (higher telecom revenues in the mix).
 Ashok Leyland – we expect volumes to grow at a robust 31% yoy in 3QFY15 led by strong
demand for heavy trucks. We expect revenues to grow at 58% yoy boosted by significant
growth in the heavy truck segment. We believe EBITDA margin will improve to 6% in
3QFY15 versus -5% in 3QFY14 but could decline qoq due to lower sales of defence kits this
quarter.
 Bajaj Auto – we expect Bajaj Auto volumes to remain flat yoy due to a sharp decline in
domestic motorcycle volumes offset by strong growth in export markets. We estimate
EBITDA margin will likely decline by 100 bps qoq due to a poorer product mix (lower share of
exports and three-wheelers) and currency headwind (the Nigerian currency has depreciated
by ~5% qoq versus INR).
 Bharat Forge – we forecast consolidated net profit will grow at 56% yoy in 3QFY15 led by
32% yoy growth in standalone revenues, driven by 38% yoy growth in export revenues. We
expect consolidated EBITDA margin to increase by 340 bps yoy due to a richer product mix
(higher proportion of machining and exports in the mix).
 Eicher Motors – we expect consolidated net profit to increase by 74% yoy in 3QFY15 led by
49% yoy growth in Royal Enfield volumes. We expect consolidated EBITDA margin to
improve 430 bps yoy led by 540 bps yoy improvement in Royal Enfield margins and 190 bps
yoy increase in VECV margins.
 Exide Industries – we project revenues to grow 16% yoy in 3QFY15 led by strong demand
in auto replacement volumes and the industrial business. We reckon automotive revenues
could likely increase by 13% yoy and industrial revenues rise by 29% yoy this quarter. We
believe EBITDA margin could decline by 180 bps qoq due to lower share of the inverter
business in the product mix and 14% qoq decline in revenues.
 Hero Motocorp – the company’s volumes declined by 2% yoy in 3QFY15. We believe the
company will still report a 38% yoy growth in EBITDA led by 380 bps yoy improvement in
EBITDA margin, mainly driven by price increase taken during the year and currency tailwind
(the yen has depreciated by 13% yoy versus the rupee).

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily05012015au.pdf