Autos

2QFY17E Results Preview

8 Oct 2016

Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171 7336

Abhishek Jain
abhishekkumar.jain@hdfcsec.com
+91-22-6171 7320

Rupin Shah
rupin.shah@hdfcsec.com
+91-22-6171 7337

6) (12. 2QFY17 Volume Summary Company Ashok Leyland .0 12.2 (12.1) 16.4) Aluminium (USD/MT) 1.456 263.151 9.4) Key Commodity Prices Commodities 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 CRC (USD/MT) 509 431 379 442 500 493 % QoQ (11.498 187.873 9. and margin trajectory.1 (6.945 897.846 10.6 11.4 (17.4 4. PVs and 2Ws witnessed strong volume uptick led by inventory build up ahead of the festive season.494 1.620 % QoQ (1.1 7.9) (9.031. we are placing our estimates and reco on Balkrishna Industries under review. MHCV volume growth declined for the second consecutive quarter by 10% YoY on account of higher base last year (pre-buying on implementation of mandatory ABS in Oct15).718 1.3) (12.4 3.515 1.5 5.346 11. as JLR’s volume growth momentum is likely to continue with its healthy new product cycle. Given more than 20% upmove in share price and current price more than 20% of our TP.4 8.3 2.CV Force Motors Hero MotoCorp M&M .2W .682 1.012.427 (10.3 (28.India .100 25.  Retain preference for Tata Motors.940 14. which gives a TP of Rs 1.1 22.5 36.617 11.446 8.3) (2.5 54.8 18.4) (2. We are revising our reco on Jamna Auto to Neutral on the backdrop of fair valuations and MHCV volume moderation.989 13.2W .3) 1.8 7.  We have rolled forward our estimates for Bharat Forge to Sept-18E.1) (8.4 15.572 1.2 Source: Company.3) 20.740 1. Atul Auto and Maruti Suzuki are the best placed to play the demand revival on better monsoon and higher boost to sales led by the 7th Pay Commission benefits. LCV volumes continued to witness a steady recovery at 9% YoY.Tractor Maruti Suzuki Tata Motors .  We expect net sales/EBITDA growth of 11/10% YoY (ex-Tata Motors) for our coverage universe and 1/-5% YoY for auto components.3 18.658 418.8 13.3) 9.6 3. We believe M&M.1) (1.6 13.2QFY17E RESULTS PREVIEW 2QFY17E: All in festive mood.2 (1.873 % QoQ 7.Auto .LCV .5 (5.1) 3.041 1. Tractors too witnessed strong traction led by improving rural sentiments (above normal monsoon).718 1.823.800 3.179 61.0 (15.531 181.949 134.1 RSS4 (Rs/MT) 12.8) (15.1) 32.7 10. HDFC Sec Inst Research 2 .0 (11.1 3.0 Lead (USD/MT) 1.7 7.9) 20. Companies with a relatively higher export mix are facing volume pressures given the volatile commodity/currency trends/lower demand across several end markets.JL SML Isuzu 2QFY17 % YoY % QoQ 33.8 3. Bloomberg.2) (8.7 8.0) 2.4) 8.091 166.MHCV Atul Auto Bajaj Auto .3W Eicher Motors .938 1.502 % QoQ 0.761 1.4) 41.7 2.215 13.414 134.149 129.8 15. except MHCVs  In 2QFY17.9 30.767 1.837 126.8 16.9 9.3 13.594 1.3) (0.8) (6.4 (1.

6 702 19.590 (1.738 (12.8) 6.761 (1.6) (10.2 Piaggio 47.401 (38. PV/CV 4. 2QFY17 3W Volume Summary (*based on actuals till Aug-16) We are positive on Atul Auto despite the company posting 1% YoY volume de-growth (+55% QoQ owing to the VAT issue in Gujarat in 1Q) and currency limitations in the export markets.220 (12.9) 20. mainly in Africa (facing shortage of dollars).4) 54.539 (28.7) 17. Force Motors We believe it will continue to capture higher market share (currently.6) 10. With its strong presence in rural India. Scooters India Company 2QFY17E* % YoY % QoQ Atul Auto 11.8) TVS Motors Total Source: Companies. Atul Auto will benefit from a normal monsoon. HDFC sec Inst Research 3 .4 6.7 231.7 1.35T gasoline 3W).8) (2.2QFY17E RESULTS PREVIEW 2QFY17E: 3Ws reversal in sight    3W volumes will remain challenged (-13% YoY) in 2QFY17E driven by a combination of domestic growth (PV/CV 1/-13%) offset by concerns in the export markets (PV/CV -32/-46%).7 M&M 15.6 Bajaj Auto 134.7/18.525 0.1 29.1%) with its strong product portfolio (higher payload with two years’ warranty period) and a new launch (0.

    JLR’s demand trends and outlook Update on Cheery JV Discounts/demand trend in the CV segment Update on new launches in India business  Healthy topline growth of 30% YoY aided by 18% volume increase and 12% net ASP improvement owing to richer product mix  EBITDA margin to improve by 40bps QoQ on account of better product mix and benefit of operating leverage      Outlook for volume growth Discount trends and scope for reduction Fx hedges Update on new product launch (Ignis) Progress on commissioning Gujarat plant  Expect decline in topline owing to pressure in exports (dollar availability constraint in African countries) and 3W segment offset by strong domestic volume growth (up 21% YoY)  EBITDA margin to improve 20bps QoQ .2QFY17E RESULTS PREVIEW 2QFY17E: Operating leverage benefits to offset RW price rise COMPANY Tata Motors Maruti Suzuki Bajaj Auto M&M Eicher Motors 2QFY17E OUTLOOK WHAT’S LIKELY GOOD  Consol topline to improve by 12% YoY led higher volumes at JLR (+23%) and Tata Motors (+8%). Strong demand fro RE bikes and CVs will drive topline  Launch pipeline for RE growth of 15% QoQ  Current demand.9%) based discount trends in CV business on op lev and mix 4 . driven by better product mix in 2W (Avenger and V-15)  Topline growth of 17% YoY led by higher tractor and UV (recent launches of TUV100 & KUV300) volumes  Margins to be decline by 84bps QoQ as share of tractor volumes was lower  Export demand outlook  Details on new launches . channel inventory and  Profitability improvement (+63bps QoQ to 30. specially Bajaj Pulsar VS 400  Quantum of new 3W permit issuances EXCELLENT AVG EXCELLENT KEY MONITORABLES  Update on 2W business and Ssangyong  Status of petrol variant launches  Outlook on tractor and UV growth for FY17  YoY nos not comparable as Ind-AS accounting adopted in  Order backlog for RE bikes 1Q. ASPs will improve due to currency benefits (GBP depreciation vs USD)  EBIDTA margin to improve owing to favourable fx movement and richer product mix.

3% YoY revenue growth. MHCV industry mining)  EBITDA margin to decline by 156bps YoY due to negative  Ramp-up of aerospace and defence orders operating leverage Exide Industries Good  Expect revenues to grow 9 % YoY owing to higher OEM sales and regain replacement market (incentivising local garages to strengthen its distribution network and commenced 2W courier services)  EBITDA margin to remain flat YoY as benefit of operating leverage is likely to be offset by 9% increase in lead price Balkrishna Industries AVG  Expect topline to improve by 16% YoY  Demand outlook across agri/OTR segments in  Increase in average rubber prices to result in decline in US/Europe EBIDTA margin of 257bps QoQ Hero MotoCorp Ashok Leyland Bharat Forge  Outlook for volume growth during festive season and beyond  Initial response for Achiever model  Progress on cost-saving initiatives  Outlook for growth and pricing in 2W/4W replacement segments  Market share in telecom segment  Outlook on insurance business 5 . poor product mix  Volume outlook going forward and lower Net ASP  Discounting trend and channel inventory in  Expect 120 bps QoQ EBITDA margin contraction impacted MHCVs by lower volume and higher discount  Comment on defence opportunity  Status of long-term and working capital debt  Comment on foundry acquisition and its ongoing progress BAD  Sharp drop in topline (10% YoY) led by to decline by 19%  Outlook on Class 8 trucks for CY16/17 YoY decline in export revenues) and slowdown in domestic  Outlook on user industries in US (oil&gas.  Expect 40 bps YoY EBITDA margin decline owing to higher marketing expenses and lower ASP. BAD  Sharp fall in revenue dragged by volume.2QFY17E RESULTS PREVIEW 2QFY17E: Operating leverage benefits to offset RW price rise COMPANY 2QFY17E OUTLOOK WHAT’S LIKELY KEY MONITORABLES AVG  Strong scooter volumes to result in 13.

2QFY17E RESULTS PREVIEW 2QFY17E: Operating leverage benefits to offset RW price rise COMPANY Force Motors Suprajit Engineering SML Isuzu Jamna Auto 2QFY17E OUTLOOK WHAT’S LIKELY KEY MONITORABLES GOOD  Expect revenue to grow by 13% YoY on the back of strong  Update on new launches performance of OEM’s(up 12.  Timeline for commencement of new cabin facility and capacity expansion  With decline in MHCV volumes.7% YoY growth in revenue) and sub. Comment on capex plan contracting business  BITDA margin to expand by 110 bps YoY. expect robust 2QFY17 EBITDA margin at 8. This will lead to 9% YoY drop in revenue  Negative operating leverage to drag margins 423bps QoQ  Mix of conventional/parabolic springs for the quarter and outlook going ahead  Aftermarket growth and outlook  Update on MHCV growth for 2HFY17 BAD 6 .  Despite significant seasonality in the business. we expect tonnage sales to fall 15% YoY.2% (+348bps YoY)  Comment on new launches into above 12 ton buses and truck segment. benefited from operating leverage GOOD  Strong performance in the standalone business (led by higher auto  Outlook on margins in SEL and Phoenix volumes and market share gains) and Phoenix will result in 5% YoY  Replacement volume growth for improvement in topline SEL/Phoenix  Operating leverage benefits to push margins up by 127bps YoY  Phoenix’s market share trends in the aftermarket  Performance of newly acquired Wescon and the way forward GOOD  Healthy topline growth of 21% YoY on the back of robust 13% YoY volume growth and improvement in Net ASP.

5k MT  EBIDTA margins are expected to decline 300bps YoY owing to  Update on export orders of heavy press negative operating leverage lines  Increase in wallet share of domestic customers 7 . 2% increase in Net ASP on YoY for launching gasoline vehicle across India basis to result in muted YoY growth in revenue and understanding on launching BS IV  Expect EBITDA margin to decline slightly YoY on account of increase compliant vehicles in raw material prices  Outlook for export market. specially in Africa  Volume outlook and margin guidance for FY17 BAD  Lower domestic CV volumes and decline in class 8 truck orders  Update on samples sent to exports for could lead to 7% YoY fall in topline 12.2QFY17E RESULTS PREVIEW 2QFY17E: Operating leverage benefits to offset RW price rise COMPANY Atul Auto Ramkrishna Forgings 2QFY17E OUTLOOK WHAT’S LIKELY KEY MONITORABLES AVG  Flat volumes (-1% YoY) on change in dealer's payment method and  New STA approvals received and timeline initially lesser rain fall in key markets.

7) 8.1) (121.9 (15.8 2.6 12.7 84.6 94.5 10.2 (2.1 (509.2 9.2 (155.1) 155.9 (7.6) 54.6 7.9 (11.8) (31.9 3.7 28.9 6.7) 12.4) (370.1 126.2 (3.6) (6.7 1.9 2.8 34.0 42.4) (4.3 4.4 (9.3 15.2 0.5 102.7) (9.7) 17.1) (9.6 4.3 34.2 16.4) (74.1 2.7 17.1 - 9.6 (0.5 44.3 - 6.3 (37.2) 13.7 16.1 70.6 1.8 10.2 10.8 12.7 (38.7 (1.4 11.4 11.6 (14.6 32.0 (115.9 4.2 3.2 33.7 2.9 1.0 4.1 (94.3 1.2) 27.3) 24.6 27.9) 20.7 1.0) (0.9 (10.5 43.6 (42.5) (16.6 (3.1 13.4 1.1 0.9) (8.4 2.181.2 5.9 77.6 5.6) 1.2 0.3 14.7 39.3 (85.4 2.9 4.4 6.3 8.5 13.6 (56.5 (25.9 1.3 10.9 9.2) (4.1 12.8) 14.1 28.2 18.4 111.3 0.6 - 5.3) 0.5 22.4 16.2 36.3 (9.5) 346.5 2.7) 9.7 (94.507.7 (8.9 (4.2) 14.1 149.5) 16.6 6.6 30.3) 28.4 72.9) (30.7 39.3 138.4 9.4 1.2 (27.9 15. HDFC sec Inst Research 8 .6) (6.7 4.1 8.9) (9.7) 8.8 0.4 181.4) (21.1 2.3 - 8.4 (120.4 38.3 0.7) 20.6) 14.2 2.8 (4.6 17.7 7.3) 17.0) (17.3 4.9 (0.1 7.2QFY17E RESULTS PREVIEW 2QFY17E: Financial summary COMPANY AUTOS Tata Motors Maruti Suzuki Bajaj Auto M&M Eicher Motors Hero MotoCorp Ashok Leyland Force Motors SML Isuzu Atul Auto Aggregate Aggregate (ex-TTMT) AUTO ANCS Bharat Forge Exide Industries Balkrishna Industries Suprajit Engineering Jamna Auto Ramkrishna Forgings Aggregate NET SALES (Rs bn) 2Q QoQ YoY FY17E (%) (%) EBITDA (Rs bn) 2Q QoQ YoY FY17E (%) (%) EBITDA Margin (%) 2Q QoQ YoY FY17E (bps) (bps) APAT (Rs bn) 2Q QoQ FY17E (%) Adj.5 3.9 11.2 138.1) 1.0) 47.3 0.5 0.8) 15.0 13.6 5.9 8.9) (19.3) 1.8) 0.4 13.5 3.2) (20.6) 10.7) 13.8 6.7) 135.1) (8.5) 28.9 56.4 15.9 0.9 21.5 50.7 1.8 9.8 0.5) 15.5 11.0 1.3 (53.3 0.3 (0.6 1.4) 27.8) (25.2 49.5) (10.6 60.0 26.0 8.9) 26.5 (422.4) 8.9 1.0 21.5 5.8 (33.9 10.5) (42.9 6.20 161.6 2.1 110.7 11.9 17.8 0.9 62.7 1.3 0.8 16.4) 8. EPS YoY 2Q 1Q (%) FY17E FY17 2Q FY16 685.6 2.1 - Source: Company.6 206.8) 16.3 (12.7 0.4 36.3 10.5 1.7 8.4) 5.8 10.6) (12.6) (0.6 (52.4 14.7 70.8 58.5 0.3 (29.7 (63.6) 14.8 - 5.6) (200.4) (4.1 (304.8 2.2 45.3 (83.1 10.5 49.4 76.3 1.7) 2.0 13.3 (2.7 496.6 5.3) 10.1 5.6 11.8 69.8 30.5 2.8 (256.2) 19.6) (25.

3 12.0 34.8 13.2 10.4 17.7 18.5 26.9 36.0 12.1 Hero Motocorp 694 3.8 180.3 8.7 7.1 6.3 21.2 24.4 28.3 SML Isuzu 18 1.6 Jamna Auto 17 218 BUY 222 19.1 13.3 41.5 40.3 14.6 32.8 15.1 18.3 35.0 5.1 19.2 14.9 205.3 41.0 Atul Auto 11 486 BUY 569 21.8 13.7 12.259 BUY 1.3 6.485 137.7 Force Motors 51 3.8 13.3 17.2 11.1 18.7 16.6 10.8 36.4 157.7 11.374 BUY 1.0 10.6 21.8 11.6 15.6 214.9 Balkrishna Industries 108 1.9 20.2QFY17E RESULTS PREVIEW 2QFY17E: Peer valuation Mcap (Rs bn) CMP (Rs/sh) Reco TP Tata Motors 1.0 42.4 7.4 21.6 26.0 9.9 Ashok Leyland 231 81 BUY 91 3.8 21.4 53.2 56.012 58.5 14.921 566 BUY 625 Maruti Suzuki 1.1 10.8 12.5 19.2 18.1 160.7 17.4 14.9 20.474 BUY 3.2 6.7 19.2 28.6 11.2 21.EV/EBIDTA based on adjusted R&D expenses # M&M.7 12.3 22.9 11.2 16.3 5.9 4.7 15.5 894.5 35.9 8.4 16.7 15.0 12.1 672.5 8.3 22.5 18.9 14.8 22.8 700 25.731 156.5 164.7 17.8 12.7 19.3 Ramkrishna Forgings 10 365 BUY 590 5.8 20.8 1.3 17.0 21.4 36.2 18.P/E adjusted for M&M’s stake in listed subsidiaries 9 .2 15.0 32.7 8.0 196.9 21.1 30.7 NEU 2.0 7.6 17.5 47.6 16.463 587.8 12.9 5.3 171.2 19.2 139.9 30.588 25.3 Bharat Forge 223 957 BUY 1.8 23.717 5.4 44.2 14.884 M&M 811 Eicher Motors Adj EPS (Rs/sh) FY16 FY17E FY18E FY16 P/E (x) FY17E FY18E EV/EBITDA (x) FY16 FY17E FY18E FY16 RoE (%) FY17E FY18E AUTOS 6.5 44.117 UR 972 6.1 41.9 16.0 10.5 26.6 13.2 6.6 23.5 69.810 BUY 28.9 20.4 10.5 5.5 12.8 21.9 134.7 32.9 89.2 20.8 53.3 43.7 14.8 Exide Industries 164 193 BUY 211 27.0 38.5 6.716 126.8 Suprajit Engineering 28 213 BUY 224 9.3 15.5 22.6 10.4 268.4 32.2 19.871 BUY 4.5 68.9 27.2 20.5 15.6 17.0 8. HDFC sec Inst Research *Tata Motors .7 AUTO ANCS Source : Company.2 23.684 BUY Bajaj Auto 834 2.2 16.2 18.6 27.1 86.6 49.0 18.1 22.615 55.9 21.5 36.8 24.2 11.8 8.9 31.8 11.057 153.0 41.3 7.1 61.7 21.9 24.7 17.4 5.8 34.3 13.3 14.8 17.

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