Q2 FY14 Results Preview

India Infoline News Service | Mumbai |

Q2 FY14 Results Preview


  • Q2 FY14 saw the total volumes declining substantially across all categories (except tractors and 2-wheelers).  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 sales also declined yoy. Ashok Leyland volumes fell by 22.6% 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 saw substantial deceleration owing to increase in excise duty and higher diesel prices. M&M reported 25.7% yoy fall in its passenger UVs. Tractors sales were a highlight in the quarter and M&M grew its tractor volumes by ~18.9% yoy. We expect EBITDA margin for M&M to improve sequentially on back of higher share of tractor sales. We also expect 26% topline growth in Swaraj Engines on back of healthy tractor sales. Maruti was an exception with a 31% yoy growth as Q2 FY13 volumes were low owing to the labour strike at Manesar plant. Two wheeler space saw some recovery towards the end of the quarter driven by better than normal monsoons, increase in MSPs and rural development initiatives by government. Bajaj Auto saw relatively tough times as domestic demand recovery was led by scooters. However, it fared better in the export markets.

Q2 FY14 volumes
  Q2 FY14 Q2 FY13 yoy (%) Q1 FY14 qoq (%)
Hero Honda 1,416,211 1,332,805 6.3 1,559,282 (9.2)
Bajaj Auto 961,330 1,049,208 (8.4) 979,365 (1.8)
TVS Motors 506,617 485,999 4.2 494,494 2.5
Maruti 568,165 433,687 31.0 570,190 (0.4)
M&M 177,546 191,077 (7.1) 197,561 (10.1)
Tata Motors 151,506 221,090 (31.5) 153,172 (1.1)
Ashok Leyland 23,110 29,840 (22.6) 21,721 6.4
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 35% yoy in Motherson Sumi on back of expected growth in SMR and standalone business. In Bosch, we expect a 4.8% rise in revenues on back of improving replacement demand. 

  • Revenues for Apollo Tyres are expected to rise by 2.7% on yoy basis primarily on account of recovery in India sales as replacement demand comes into market and sustained rise in SA operations. We expect revenues for European operations to increase by modest 3% on yoy basis. We expect operating margins to improve ~124bps yoy to 12.3%, driven by a muted 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 weakness in the rupee will limit these gains. 

  • In auto space, we prefer Hero Motocorp which is positioned to benefit from the recovery in rural demand and is expected to gain from vendor re-alignment. Sustained strength 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.

Q2 FY14 estimates
Company Sales (Rs mn) OPM (%) PAT (Rs mn)
Q2 FY14 yoy (%) qoq (%) Q2 FY14 yoy (bps) qoq (bps) Q2 FY14 yoy (%) qoq (%)
Ashok Leyland   24,898 (24.5) 5.3 1.8 (834) 82   (1,225) (185.9) (13.6)
Bajaj Auto   50,073 0.7 2.0 19.5 109 104   7,869 6.2 6.7
Hero Motocorp   56,503 8.9 (8.3) 14.9 104 4   4,898 11.2 (10.7)
Maruti   103,617 24.8 1.2 10.0 392 (135)   5,254 131.0 (16.8)
M&M   89,174 (9.1) (11.0) 11.9 50 (95)   7,863 (12.8) (16.2)
Tata Motors   551,303 27.0 17.8 14.6 109 16   30,449 46.8 76.4
TVS Motors   18,214 7.7 3.5 5.8 (19) 21   564 24.7 8.6
Apollo Tyres    34,643 2.7 8.6 12.1 124 (23)   1,822 19.7 9.7
Bharat Forge   8,106 (6.6) 2.4 24.0 160 (77)   814 (20.8) (10.1)
Bosch   21,495 4.8 (6.8) 16.0 268 26   2,322 14.5 (7.7)
Exide   16,848 10.0


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