With continued high petrol prices and no major cut in interest rates at the retail level, volumes for most auto manufacturers declined on a sequential basis. The fall has been more pronounced for CVs and passenger cars. Two-wheeler players, however, saw sequential growth in volumes except for TVS Motors. For M&M, recovery in tractor volumes and steady demand for UVs led to a strong yoy growth in volumes.
|Q1 FY13||Q1 FY12||Q4 FY12||yoy (%)||qoq (%)|
With slowdown in demand and pile up in inventories, the companies resorted to offering price discounts across product categories. Changes in product mix will have a further impact 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.
During Q1 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 CV demand. Exide on the other hand is likely to report improved set of numbers due to lower raw material costs and market share gains in replacement market. Revenues for Apollo Tyres are expected to grow by 13.4% on yoy basis backed by strong growth in the domestic replacement market partially offset by flattish growth in the overseas market.
Higher interest rates, increased product prices, rising petrol prices and high base effect might restrict the volume growth. Our top picks in the sector are M&M and Maruti.
|Company||Sales (Rs mn)||OPM (%)||PAT (Rs mn)|
|Q1 FY13||yoy (%)||qoq (%)||Q1 FY13||yoy (bps)||qoq (bps)||Q1 FY13||yoy (%)||qoq (%)|
System loan and deposits growth on sequential basis is likely to be muted with data till June 15 indicating a flat trend. This is attributable to seasonal weakness in credit demand during Q1 on the back of typical acceleration in disbursals towards the end of the year (PSL target + seasonality in corporate loan demand). Yoy growth in credit has been resilient so far to significant moderation in economic and industrial activity but is likely to catch up soon. We therefore expect 15-16% credit growth for FY13, lower than current growth rate of 18-19%. Our recent interactions with few banks suggested that retail loan growth has been robust while corporate lending has become relatively unattractive due to high wholesale funding rates.
Weak deposits growth is also likely to constrain loan growth with mobilization running near multi-year low despite higher rates being offered on all maturity buckets. High retail level inflation and relatively attractive returns offered by other debt instruments has impacted deposits growth. Deposits mix for most banks is expected to mover further towards retail TDs and CASA ratio may continue to decline.
Liquidity in the AMJ quarter has been tight but the deficit has been lower than JFM quarter. CRR cut of 125bps and substantial OMOs have eased situation sequentially. Short term rates, though corrected from March levels, remain elevated on the back of continued deficit expectations. Weak deposits mobilization and high government borrowings would remain an overhang on liquidity situation.
Monetary transmission of the April 50bps policy rate cut has been weak so far. Only few banks have cut base rate and that too marginally. Some banks have reduced lending spreads over base rate for certain categories of borrowers. Action on the deposit rate front has been disparate within banks – some have cut short term rates, few have tweaked downwards 1-3 year rates, some have slightly raised longer term rates. In our view, cyclical decline in deposit and lending rates would take some time.
± Except for HDFC Bank, almost all the banks in our universe are likely to report sequentially muted loan growth in the range of 0-3%. HDFC Bank is estimated to deliver 7-8% qoq growth on the back of strong retail loan expansion. Deposit growth would more or less mirror the loan growth for most banks.
± NIM is estimated to correct by 5-20bps qoq for most banks in our coverage. HDFC Bank, CBOI and Federal Bank could report some improvement in margin. Key margin headwinds would be large proportion of PSL/Agri loans on balance sheet, higher re-pricing of retail TDs and full-impact of costly bulk deposits raised during March. For public banks, NIM is likely to remain under pressure in ensuing quarters impacted by inevitable base rate decline. Traditionally, PSU banks’ margins expand duri
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