Q3 FY14 Results Preview

India Infoline News Service | Mumbai |

Q3 FY14 Results Preview

Automobiles
  • Q3 FY14 saw the volumes declining substantially across all categories (except tractors and 2-wheelers).  Economic activity not picking-up, persistent rise in fuel prices and high interest rates continue to hurt demand in the sector. 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 24.5% yoy fall in its passenger UVs. Tractors sales were a highlight in the quarter and M&M grew its tractor volumes by 21% yoy. We also expect 22% topline growth in Swaraj Engines on back of healthy tractor sales. While Maruti saw a volume decline of 4.4% yoy, we expect revenues to fall steeper by 7.5% owing to fall in realizations which is driven by 1) rising proportion of mini segment, 2) falling share of diesel variants and 3) rising discounts. Two wheeler space saw a relative stronger performance driven by better than normal monsoons, increase in MSPs and rural development initiatives by government. Bajaj Auto saw relatively tougher times as domestic demand recovery was led by scooters where it lacks presence. In the motorcycles segment also it is losing market share to HMSI. However, it fared better in the export markets.

Q3 FY14 volumes
Q3 FY14
Q3 FY13
yoy (%)
Q2 FY14
qoq (%)
Hero Motocorp
1,680,940
1,573,135
6.9
1,416,211
18.7
Bajaj Auto
993,690
1,127,741
(11.9)
961,330
3.4
TVS Motors
519,308
518,496
0.2
506,617
2.5
Maruti
288,151
301,453
(4.4)
275,586
4.6
M&M - Auto
129,424
146,878
(11.9)
118,282
9.4
M&M - Tractors
78,419
64,800
21.0
59,264
32.3
Tata Motors
132,819
203,852
(34.8)
151,506
(12.3)
Ashok Leyland
18,453
22,666
(18.6)
23,110
(20.2)
Eicher - RE
55,102
31,968
72.4
48,242
14.2
Eicher - VECV
8,052
11,542
(30.2)
9,147
(12.0)
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 20% yoy in Motherson Sumi on back of expected growth in SMR and standalone business. In Bosch, we expect a flattish revenue due to strained demand from the OEMs. 


  • Revenues for Apollo Tyres are expected to rise by 3.3% on yoy basis primarily on account of recovery in Europe sales and modest rise in India as replacement demand comes into market. We expect operating margins to improve ~43bps yoy to 12.3%, driven by muted prices of natural rubber.


  • In the battery space, while volumes will be driven by growth in replacement demand, revenue growth will be restricted owing to price cuts implemented during the quarter.  Margins are expected to be strong for Exide given a low base in Q3 FY13 while Amara Raja is expected to report a 60bps yoy increase on operating leverage.


  • In auto space, we prefer Hero Motocorp which is positioned to benefit from the recovery in rural demand and is expected to gain from its cost cutting initiatives. Sustained strength in tractor demand is likely to benefit M&M a great deal. With demand for premium biking expected to remain strong, Eicher Motors with a monopoly like position is one of our top picks in auto space. Among auto-ancillaries, we like Motherson Sumi, Amara Raja Batteries and Exide.

Q3 FY14 estimates
Company
Sales (Rs mn)
OPM (%)
PAT (Rs mn)
Q3 FY14
yoy (%)
qoq (%)
Q3 FY14
yoy (bps)
qoq (bps)
Q3 FY14
yoy (%)
qoq (%)
Auto
 
 
 
 
 
 
 
 
 
Ashok Leyland
19,951
(16.2)
(21.7)
(1.5)
(580)
(371)
(2,179)
-
-
 

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