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Q1 FY14 Results Preview

Q1 FY14 Results Preview

January 01, 1970 5:30 IST | India Infoline News Service
Automobiles

  • Q1 FY14 was a weak quarter for Indian Auto OEM’s, which saw the total volumes declining substantially across all categories (except tractors).  Economic activity not picking-up, continuous rise in fuel prices and high interest rates continue to hurt demand in the sector and we do not see any signs of a recovery in near term. In the CV space, while M&HCV remained the most impacted, LCV growth rates also moderated sharply. Ashok Leyland volumes de-grew by 21% yoy and we expect it to report loss at PAT level. We note, fleet utilization levels are hovering around all time lows of ~63-65%.  

  • UV segment also cooled off but managed to post low single digit growth rates. Tractors sales were a highlight in the quarter and M&M grew its tractor volumes by ~25% yoy. We expect EBITDA margin for M&M to improve sequentially on back of higher share of tractor sales. We also expect 13% topline growth in Swaraj Engines on back of healthy tractor sales. Two wheeler space sustained its weak trend, especially the motorcycle segment with Bajaj Auto reporting a fall of 9.2% yoy in its total volumes. Hero Moto fared relatively better on back of cushion from volumes in the scooter segment.
Q1 FY14 volumes
Company Name
 Q1 FY14
 Q1 FY13
 Q4 FY13
 yoy (%)
 qoq (%)
Ashok Leyland
 21,721
 27,487
 34,627
 (21.0)
 (37.3)
Bajaj Auto
 979,365
 1,078,971
 981,242
 (9.2)
 (0.2)
Hero Motocorp
 1,559,282
 1,642,292
 1,527,351
 (5.1)
 2.1
Maruti
 266,434
 295,896
 343,709
 (10.0)
 (22.5)
M&M
 197,561
 185,607
 198,895
 6.4
 (0.7)
Tata Motors
 153,172
 188,774
 196,370
 (18.9)
 (22.0)
TVS Motors
 494,494
 519,160
 509,210
 (4.8)
 (2.9)
Source: Company, IIFL Research
  • Operating margins for all players except CV manufacturers are expected to inch up sequentially. Operational deleverage will be the key reason for the decline for CV manufacturers (Tata Motors and Ashok Leyland). Currency benefits will help Bajaj Auto (Rupee depreciation), Maruti and Hero Motocorp (gains from a weak Yen). M&M will see improved margins on the back of sharp growth in volumes in the tractor segment, which generates higher margins when compared with its automotive segment.

  • Among the auto ancillaries, we expect revenue growth of 7% yoy in Motherson Sumi on back of expected growth in SMR and standalone business. In Bosch, we expect a 3% decline in revenues on back of weak CV sales in the quarter. 

  • Revenues for Apollo Tyres are expected to decline by 4.3% on yoy basis primarily on account of 5% and 10% decline in revenues for Indian and South African Operations respectively. We expect revenues for European operations to increase by modest 3% on yoy basis. We expect operating margins to improve ~120bps yoy to 12.3%, driven by a decline in the prices of natural rubber.

  • In the battery space, the growth in replacement market revenues is likely to drive in topline growth for Exide and Amara Raja.  Also we expect margins to expand on qoq basis on back of fall in lead prices (~10% qoq). However a 3% qoq weakness in the rupee will limit these gains. 

  • In auto space, we prefer Maruti Suzuki which is positioned to benefit at operational level from the depreciation in JPY against USD. Reversal in tractor demand is likely to benefit M&M a great deal. Among auto-ancillaries, we prefer to stay invested in the battery sector where we have revenue visibility on back of robust replacement demand. We also like Motherson Sumi and Bosch.
Q1 FY14 estimates
Company
 Sales (Rs mn)
 OPM (%)
 PAT (Rs mn)
Q1 FY14
 yoy (%)
 qoq (%)
 Q1 FY14
 yoy (bps)
 qoq (bps)
 Q1 FY14
 yoy (%)
 qoq (%)
Ashok Leyland
 23,154
 (23.0)
 (37.9)
 4.5
 (350)
 (82)
 (720)
 (207.5)
 (559.4)
Bajaj Auto
 49,157
 1.0
 3.6
 18.1
 18
 47
 7,474
 4.0
 (2.4)
Hero Motocorp
 62,115
 (0.6)
 1.1
 13.9
 (110)
 7
 5,416
 (12.0)
 (5.7)
Maruti
 101,661
 (5.7)
 (20.5)
 11.1
 376
 65
 6,702
 58.2
 (41.6)
M&M
 103,010
 10.0
 (1.8)
 12.9
 106
 79
 8,526
 17.5
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