Autos 3QFY15E Results Preview :: HDFC Securities

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3QFY15E : Margin expansion led earnings growth
In 3QFY15, overall volume growth momentum was impacted by
disappointing festival season sales. However, the volume push
near the quarter end on account of the withdrawal in
concessional excise duty rates resulted in overall growth
appearing decent. For the quarter, MHCVs reported a sharp surge
in volumes on a low base. PV growth was largely driven by a few
players including Maruti, Hyundai and Honda. Two-wheeler
volume growth moderated on the back of weaker rural demand.
For our coverage universe, we expect EBITDA margins to improve
on a sequential basis, largely driven by favorable currency and
operating leverage benefits.
Our top picks in the sector include Hero Motocorp (HMCL IN, Rs
2977, TP Rs 3,245) and Tata Motors (TTMT IN, Rs 494, TP Rs 626)
Company wise expectations
 Ashok Leyland: We expect a sharp increase of 64% YoY in revenue
growth on the back of strong volume growth. Though we expect
operating margins to remain healthy, a slight moderation on a
sequential basis will be seen due a weaker product mix in MHCVs .
 Bajaj Auto: We expect Bajaj Auto to report a decline in Adj PAT on a
YoY/QoQ basis. Bajaj’s volumes declined by ~1%/7% YoY/QoQ due to
weak domestic 2W performance. We build a slight decline in EBITDA
margins on a QoQ basis as we expect weaker domestic product mix
and Niara currency devaluation impact to be partially offset by price
hike in 3Ws and favorable currency realizations.
 Eicher Motors: We believe that standalone profits would rise sharply
by 96% YoY on the back of strong volume improvement and EBITDA
margin expansion of 470bps YoY. We believe the VECV business
would also report decent results with ~15% YoY volume growth and
130bps YoY expansion in margins due to a more profitable product
mix with higher LMD sales and operating leverage benefits.
 Exide Industries: We expect decent YoY volume growth in the Auto
and Industrial segments on a low base. Sequentially, gross margins
would expand significantly due to the benefit of lower lead prices
flowing through in the quarter along with impact of the 5% price hike
taken on Inverters in Nov-14. However, EBITDA margin expansion on
a QoQ basis would be lower due to negative operating leverage.
 Hero Motocorp: We expect the company to report a slight drop in
topline growth on a YoY/QoQ basis, in tune with its volume decline.
Though the company has hiked prices by Rs 200/vehicle in Oct-14,
ASPs should be flat QoQ due to the higher mix of economy segment
bikes. Strong EBITDA growth at 34% YoY is aided by the absence of
fixed royalty charges in current quarter.
 M&M: Decline in volumes across the Auto and Tractor segment is
likely to result in weak 3QFY15 performance for M&M. We expect
Auto segment margins to see a slight improvement on a QoQ basis
aided by better product mix in UVs and lower losses in MHCVs.
Tractor segment margins are likely to be under further pressure given
the negative operating leverage impact.
 Maruti Suzuki: Expect 14% YoY growth in top line, largely driven by
volume growth of 12.4% YoY. EBITDA margins should see a healthy
expansion of 60bps on a YoY/QoQ basis driven mainly by the
favorable impact of depreciation in yen on direct imports and on
royalty provision. We expect healthy PAT growth of 31% YoY due to
healthy operating performance and higher other income which would
offset the impact of higher depreciation and tax expenses.
 Tata Motors: With a 5% depreciation in GBP vs. USD and likely receipt
of local incentives, JLR’s margins should expand by 90bps, despite
building in higher marketing expenses and China JV startup costs. The
domestic business is likely to remain a drag with negative operating
margins and high fixed costs resulting in significant losses at the net
level.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010608