Q2 FY13 Results Preview

India Infoline News Service | Mumbai |

Q2 FY13 Results Preview

Automobiles
  • With continued high petrol prices and no major cut in interest rates, volumes for most auto manufacturers declined on a yoy basis. The fall has been more pronounced for passenger cars and two wheeler players. In spite of a difficult environment commercial vehicle volumes witnessed robust growth led by LCVs. For M&M, while tractor volumes weakened on the back of poor monsoons, automotive segment volumes continued to remain strong.  
Q2 FY13 volumes
Company Name Q2 FY13 Q2 FY12 Q1 FY13 yoy (%) qoq (%)
Ashok Leyland 29,840 23,869 27,487 25.0 8.6
Bajaj Auto 1,049,208 1,164,137 1,078,971 (9.9) (2.8)
Hero Motocorp 1,332,805 1,544,315 1,642,292 (13.7) (18.8)
Maruti 230,376 252,307 295,896 (8.7) (22.1)
M&M 191,077 178,848 185,607 6.8 2.9
Tata Motors 221,090 206,622 188,774 7.0 17.1
TVS Motors 485,999 604,229 519,160 (19.6) (6.4)
Source: Company, IIFL Research
  • Discounts picked up during the quarter owing to the difficult demand environment. The trend was more prominent in petrol passenger cars and M&HCVs. Changes in product mix will have a further bearing on realizations. For Tata Motors, higher proportion of light commercial vehicles would result sequential fall in domestic realizations, while strong volumes for Evoque may result in qoq lower realizations for JLR. For Maruti, higher contribution from diesel variants which are dearer in comparison to petrol variants would translate into better realizations to be offset by higher discounts. For Ashok Leyland, higher proportion of Dost volumes will negatively impact realizations.
  • During Q2 FY13, rupee weakened against most currencies. Companies with higher exports such as Bajaj Auto and Tata Motors (JLR translation) will benefit, while companies such as Maruti and Hero Motocorp with high import contribution will see pressure on margins.Margins are expected to be under pressure across the board on the back of higher discounts and higher raw material costs as steep rupee depreciation has more than offset the fall in commodity prices. Bharat Forge is expected to see sequential fall in revenues owing to slowdown in M&HCV demand. Amara Raja Batteries and Exide are likely to report improved set of numbers due to lower raw material costs and strong demand in replacement market. Revenues for Apollo Tyres are expected to grow by 12% on yoy basis backed by strong domestic replacement market coupled with robust growth in the South African market. We expect revenues for European operations to increase by modest 6% on yoy basis. Decline in rubber prices (~13% yoy) in addition to continued revival in the demand in the South African market is expected to translate into healthy expansion in OPM for the company.
  • Higher interest rates, increased product prices, rising petrol prices and high base effect might restrict the volume growth. In the auto space, valuations no longer appear cheap. Relatively we prefer staying invested in M&M and Bajaj Auto. In the auto ancillary space we like Amara Raja Batteries and Exide Industries.
Q2 FY13 estimates
Company Sales (Rs mn) OPM (%) PAT (Rs mn)
Q2 FY13 yoy (%) qoq (%) Q2 FY13 yoy (bps) qoq (bps) Q2 FY13 yoy (%) qoq (%)
Ashok Leyland   31,668 2.3 5.3 8.0 (271) (1)   669 (56.6) (0.1)
Bajaj Auto   49,269 (6.5) 1.3 18.2 (187) 28   7,309 0.7 1.7
Hero Motocorp   50,700 (13.0) (18.8) 13.4 (236) (160)   3,956 (34.5) (35.7)
Maruti   82,438 5.3 (23.5) 5.3 (101) (200)   1,693 (29.6) (60.1)
M&M   96,887 31.6 3.4 12.0 13 16   7,932 7.6 9.3
Tata Motors   441,236 21.9 1.8 13.2 (5) (114)   25,806 35.3 11.5
TVS Motors   16,168 (18.8) (11.2) 5.7 (163) (21)   394 (48.5) (22.9)
Apollo Tyres   32,160 12.0 1.6 11.7 372 64   1,553 98.5 11.8
Bharat Forge   9,193 1.0 (1.8) 25.1 143 (1)   1,027 (3.5) (2.4)
Exide   14,701 25.0 (5.4) 15.2 751 21   1,454 184.4 (4.3)
Amara Raja   7,431 32.2 7.1 17.3 160 6   819 58.0 7.7

Banking & Financials
  • System loan growth was anemic through the quarter driven by further deceleration in industrial activity, negligible new capacity investments and weak progress of infra projects. Data till September 7 suggest that non-food credit was flat from the start of the quarter. System credit growth continues to run below RBI’s projection of 17%. Contrastingly, deposits growth has improved at the system level over the past few months indicating depositors rushing to lock-in at the prevailing higher rates.   

  • Liquidity conditions eased further during the quarter aided by cumulative 150bps CRR reduction since January, liquidity infusion by RBI via OMOs and contra trend in deposit and credit growth. Borrowings by commercial banks under the LAF window averaged Rs0.47tn as compared to Rs0.97tn in the previous quarter. The yield curve further steepened as short term rates continued to fall; 3/6m CP and CD rates have declined by 80-100bps since June and 200-250bps since March. With loan demand unlikely to revive in the near term and RBI’s intense focus on ensuring comfortable liquidity conditions, the short-term rates are expected to remain benign. 

  • We estimate most of the PSU Banks to report credit growth of 1-3% qoq. Private Banks are likely to deliver a much better performance; however, individual loan growth may differ based on growth strategy and sound lending opportunities. HDFC Bank, Kotak Bank and Indusind Bank would report strong growth amongst our coverage universe.

 

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