20 July 2020 1QFY21 Results Preview Autos & Transportation · 1QFY21 Page | 5 E Results Preview COMPANY 1QFY21 OUTLOOK WHAT’S LIKELY KEY MONITORABLES Ashok Leyland WEAK Volumes

20 July 2020 1QFY21 Results Preview

Autos & Transportation

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Stocks factoring in an early recovery Volume growth over 1QFY21 was uneven as production was initially

impacted by the plant shutdown in Apr 2020, while retail demand picked up

sharply in June. Correspondingly, valuation multiple for auto companies re-

rated from trough levels to above mean P/E levels. NIFTY Auto index is up

51% from the Mar 2020 levels (vs. 28% for the broader NIFTY). The rally has

been driven by several factors, including (1) recovery in volumes for rural

segment/increased preference for personal mobility, (2) improved focus on

capital allocation, and (3) benign sector valuations. We believe that stock price

returns will be more gradual from here on as expectations of a recovery in

volumes is partially priced in. Against this backdrop, we recommend Maruti

and Endurance as our preferred sector picks.

Volumes revived in Jun 2020: (1) There was a significant MoM uptick in

volumes across two-wheelers, entry-level cars, and tractors. Hero's sales at

450k (3x higher MoM, -27% YoY), Maruti sales at 52k (up 2.8x MoM, -53%

YoY) and Hyundai (+70% MoM) have likely grown ahead of the market.

Escorts volumes at 10,851 units (+21% YoY) benefitted from the agri-led

demand. (2) With most of the dealerships open for operations, we believe

that the sales were supported by pent-up demand, improving rural demand

and shift to personal mobility. (3) With improving rural sentiments on the

back of structural government reforms and timely arrival of monsoons,

tractor sales have normalised to pre-pandemic levels.

Stock multiples have re-rated: Valuation multiples for auto companies have

now risen to above mean levels as the NIFTY Auto index is up 51% from the

Mar 2020 levels (vs. 28% for the broader NIFTY). The rally has been driven

by several factors, including (1) recovery in volumes for rural

segment/increased preference for personal mobility, (2) improved focus on

capital allocation, and (3) benign sector valuations. We believe that stock

price returns will be more gradual from here on as expectations of a

recovery in volumes are partially priced in.

1QFY21 earnings outlook: Earnings will be muted for the quarter due to

plant shutdowns in April and May. Weak commodity prices are likely to

partially cushion margins, as operating deleverage will impact profitability.

Earnings of the tractor segment (Escorts) are likely to outperform the sector.

Logistics: Volumes for container rail operators are expected to be muted.

However, the stock price of CONCOR will be driven by news flow around

privatisation, while that of Gateway Distriparks will be determined by

deleveraging initiatives.

Key recommendations: Maruti and Endurance are our preferred picks in the

auto/auto parts sector. The former will benefit from its entry-level portfolio

(rural is ~40% of sales) and higher exposure to gasoline vehicles. Endurance

is expected to gain share in the 2W/3W component segment, led by order

wins/new product introductions. We remain cautious on the commercial

vehicle sector due to a delayed recovery and recommend REDUCE for

Ashok Leyland.

Company CMP

(Rs/sh) Reco

Ashok Leyland 52 REDUCE

Bajaj Auto 3,002 ADD

Eicher 19,181 REDUCE

Escorts Ltd. 1,120 BUY

Hero Motocorp 2,856 BUY

Mahindra 594 ADD

Maruti Suzuki 5,867 BUY

Tata Motors 105 ADD

Endurance 878 BUY

Subros 165 ADD

Gulf Oil 587 BUY

CONCOR 446 ADD

Gateway

Distriparks 90 ADD

NIFTY Auto index is up 51% from

the Mar-20 levels

Source: Bloomberg, HSIE Research;

indexes rebased to 100

Aditya Makharia

[email protected]

+91-22-6171-7316

Mansi Lall

[email protected]

+91-22-6171-7357

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NIFTY NIFTY AUTO

Page | 2

1QFY21E Results Preview

1QFY21E earnings preview

COMPANY

Volume (in units '000) NET SALES (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

QoQ

(bps)

YoY

(bps)

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

4Q

FY20

1Q

FY10

Ashok Leyland 4 (85) (90) 5.9 (85) (90) 4.2 (57) (525) (1.1) NA (145) (0.4) 0.0 0.8

Bajaj Auto 443 (55) (64) 30.8 (55) (60) 16.9 (148) 145 7.1 (46) (37) 24.5 45.3 38.9

Eicher 57 (65) (69) 7.8 (65) (67) 18.8 (77) (700) 1.2 (61) (74) 43.8 111.6 165.7

Escorts 18 (3) (14) 13.5 (2) (5) 14.0 (8) 399 1.3 (5) 52 13.2 13.9 8.7

Hero Motocorp 563 (58) (69) 26.9 (57) (67) 9.9 (68) (452) 2.6 (58) (66) 13.0 31.1 38.2

Mahindra 95 (37) (56) 58.0 (36) (55) 13.0 (63) (101) 3.0 (6) (66) 2.5 2.7 7.5

Maruti Suzuki 77 (80) (81) 36.0 (80) (82) 8.0 (50) (238) 2.6 (80) (82) 8.5 42.8 47.5

Tata (S) 25 (75) (82) 25.0 (74) (81) (5.0) NA NA (13.9) (0) 1 (3.9) (5.8) (0.4)

Aggregate

203.9 (64) (71) 10.1 129 (161) 2.8 (85) (94)

Source: Company, HSIE Research

COMPANY

NET SALES (Rs mn) EBITDA Margin (%) APAT (Rs mn) Adj. EPS

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

QoQ

(bps)

YoY

(bps)

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

4Q

FY20

1Q

FY10

Endurance 12,499 (22) (35) 13.7 (120) (419) 458 (57) (72) 3.3 7.6 11.8

Subros 2,541 (45) (56) 8.5 (58) (113) (16) (110) (111) (0.2) 2.5 2.2

Gulf Oil 3,359 (7) (24) 15.0 (40) (267) 351 (2) (28) 7.1 7.2 9.8

Source: HSIE Research

COMPANY

NET SALES (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

QoQ

(bps)

YoY

(bps)

1Q

FY21E

QoQ

(%)

YoY

(%)

1Q

FY21E

4Q

FY20

1Q

FY10

LOGISTICS

CONCOR 12.3 (21) (25) 27.1 (315) 249 2.0 (34) (10) 3.4 5.1 3.7

Gateway

Distriparks 2.3 (22) (25) 20.7 (78) 94 0.01 (94) (99) 0.1 1.0 5.4


Estimate change

Rating Old TP New

TP Old target multiple New target multiple

Old EPS New EPS % change

FY21 FY22 FY21 FY22 FY21 FY22

Ashok Leyland REDUCE 47 49 13 13 0.9 3.6 0.9 3.5 - (3.6)

Bajaj Auto ADD 2,850 3,145 17 18 149.4 167.6 149.4 167.6 - -

Mahindra ADD 520 610 13x on core business 14x on core business 25.8 34.4 28.3 35.7 9.6 3.6

Maruti Suzuki BUY 5,810 6,750 23 25 146.0 252.4 146.0 252.4 - -

Endurance BUY 1,040 1,040 25 25 31.7 39.6 31.7 39.6 - -

Subros ADD 190 190 17 17 5.7 11.1 5.7 10.6 - (5.0)

CONCOR ADD 445 470 22 22 15.4 20.1 15.4 20.1 - -

Gateway

Distriparks* ADD 95 104 8x Rail business 8x Rail business 1.5 3.9 1.2 3.7 (20.2) (5.9)

Gulf Oil BUY 750 760 20 20 32.0 37.3 32.0 36.6 - (1.9)

Source: Company, HSIE Research; *valued on EV/EBITDA multiple

Valuation summary

Adj EPS (Rs/sh) P/E (x) RoE (%)

FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E

Ashok Leyland 0.9 3.5 4.7 56.4 14.8 11 3.2 11.5 14.3

Bajaj Auto 149.4 167.6 195.6 20.1 17.9 15.3 18.2 18.8 20.1

Container Corporation 15.4 20.1 24.9 28.9 22.2 17.9 9.2 11.4 13.3

Endurance 31.7 39.6 46.9 27.7 22.1 18.7 14 15.5 16.1

Gateway Distriparks 1.2 3.7 6.3 77.1 24.6 14.4 3.8 4.3 5.7

Gulf Oil Lubricants 32 36.6 41.9 18.4 16.1 14 21.4 21.9 22.2

Mahindra 28.3 35.7 42.4 21 16.6 14 9.2 10.8 11.7

Maruti Suzuki 146 252.4 324.9 40.2 23.2 18.1 8.5 13.6 15.8

Subros 5.7 10.6 13.9 29.1 15.6 11.9 19.5 24.8 29


Page | 3


AUTOS

1QFY21 Volume Summary

Volumes in units 1QFY21 4QFY20 1QFY20 % QoQ % YoY

Ashok Leyland 3,814 25,504 39,608 (85) (90)

- MHCV 1,021 16,953 26,719 (94) (96)

- LCV 2,793 8,551 12,889 (67) (78)

Bajaj Auto 443,103 991,961 1,247,174 (55) (64)

- 2W 399,929 853,540 1,082,627 (53) (63)

- CV 43,174 138,421 164,547 (69) (74)

Eicher 59,398 174,499 196,920 (66) (70)

- 2W 57,269 162,870 183,589 (65) (69)

- CV 2,129 11,629 13,331 (82) (84)

Escorts 18,150 20,108 21,051 (10) (14)

Hero Motocorp 563,426 1,334,511 1,842,920 (58) (69)

Maruti 76,599 385,025 402,594 (80) (81)

M&M 95,308 151,713 218,039 (37) (56)

- Auto 29,651 92,423 131,689 (68) (77)

- Tractors 65,657 59,290 86,350 11 (24)

Tata Motors 25,047 101,420 137,545 (75) (82)

- PV 14,571 32,351 37,188 (55) (61)

- CV 10,476 69,069 100,357 (85) (90)

TVS 266,933 632,920 923,195 (58) (71)

- 2W 255,428 590,318 883,670 (57) (71)

- 3W 11,505 42,602 39,525 (73) (71)

CONCOR (in TEUs) 732,711 941,270 926,923 (22) (21)

Source: SIAM, Company, HSIE Research

Volume Assumptions – Annual estimates (in units)

Company

FY18 FY19 FY20 FY21E FY22E

Ashok Leyland Total volumes 174,851 197,366 125,250 109,328 128,021

% YoY 21 13 (37) (13) 17

Bajaj Auto Total volumes 4,006,788 5,018,712 4,615,212 4,049,773 4,384,113

% YoY 9 25 (8) (12) 8

Eicher RE Total volumes 820,493 823,828 696,052 602,132 662,345

% YoY 23 0 (16) (13) 10

Escorts Total volumes 80,405 96,412 86,017 79,958 88,788

% YoY 26 20 (11) (7) 11

Hero Motocorp Total volumes 7,587,193 7,820,831 6,409,719 5,555,331 6,095,648

% YoY 14 3 (18) (13) 10

M&M Total volumes 135,306 165,797 123,910 108,757 117,216

% YoY 15 23 (25) (12) 8

Maruti Suzuki Total volumes 1,779,574 1,862,449 1,563,297 1,326,605 1,498,145

% YoY 13 5 (16) (15) 13

Tata Motors Total volumes 641,133 732,739 473,502 402,998 458,918

% YoY 17 14 (35) (15) 14

CONCOR Total volumes* 3,531,900 3,829,419 3,747,758 3,227,116 3,823,878

% YoY 14 8 (2) (14) 18

Source: SIAM, Company, HSIE Research, *volumes in TEUs

Page | 4


Monthly volumes (in units)

Ashok Leyland: CV sales remains weak Bajaj Auto: Pick-up in 2W volumes

Source: SIAM, Company, HSIE Research Source: SIAM, Company, HSIE Research

Royal Enfield: Sales pick-up due to pent-up demand Hero: Volumes have risen led by rural offtake


Escorts: Tractors sales back at YoY levels Maruti Suzuki: Entry level cars witnessing demand


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COMPANY 1QFY21

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

Ashok Leyland WEAK

Volumes are down 90% YoY and 85% QoQ

EBITDA margin is expected at 4.2% (-95bps

YoY, -85bps QoQ)

We expect the company to report a loss of Rs

1.1bn

Current industry utilisation levels

AL’s diversification initiatives

Bajaj Auto WEAK

Volumes in the quarter declined by 64/55%

YoY/QoQ

We expect revenues to decline by 60/55%

YoY/QoQ

Operating margins at 16.9% to contract by

150bps QoQ, +150bps YoY

We expect PAT to decline by 37% YoY to 7bn

Outlook on exports, particularly to the

African continent

Recovery trends in the Indian market

Eicher Motors WEAK

We expect revenue to decline by 67/65%

YoY/QoQ

EBITDA margin of 18.8% (-700/-80bps

YoY/QoQ)

PAT decline of 74/61% YoY/QoQ to Rs

1.19bn

Demand outlook in the semi urban areas,

where new format stores have opened up

Outlook for the 650cc Twins – both in local

as well as overseas markets

Impact of lockdown on urban centers

Escorts GOOD

Tractor volumes have surprised positively,

due to mere 14/3% YoY/QoQ decline in

volumes (much better than other segments)

We expect margins to improve YoY by

400bps to 14%, flat QoQ

PAT growth of 52% YoY, -5% QoQ

Outlook for tractor business on the back of

good monsoons and revival in rural

demand

Impact of agri reforms on farm segment

Progress on Kubota tie up

Hero

MotoCorp WEAK

We expect a decline in revenue of 66% YoY,

due to a 69% drop in volumes

We expect the margin to contract by

450/70bps YoY/QoQ to 9.9%

PAT to decline by 66/58% YoY/QoQ to Rs

2.59bn

Demand outlook in the rural areas, as these

regions are less impacted by COVID

Near term demand trends as Jun sales were

above expectations

Mahindra WEAK

Revenue to decline by 55% YoY owing to a

similar drop in volumes, though tractor vols

surprised

EBITDA margin at 13% to contract by

100/65bps YoY/QoQ

PAT decline of 66% YoY, -6% QoQ to Rs 3bn

Outlook for tractor business

The price hikes on its diesel model range

due to the emission rollover

Broader company strategy with regards to

overseas subsidiaries / capital allocation

Maruti Suzuki WEAK

We except revenues to decline by ~80% YoY

and QoQ. Volumes dropped 80% YoY.

EBITDA margin to contract by 240/50bps

YoY/QoQ to 8%

PAT to decline by 82/80% YoY/QoQ to Rs

2.55bn

Demand outlook in the current

macroeconomic backdrop

Sales mix of petrol / diesel variants for

small and mid-sized vehicles

Market share trends

Page | 6


COMPANY 1QFY21

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

Tata Motors WEAK

Standalone: Volumes declined 81/75%

YoY/QoQ. We expect a similar drop in

standalone revenues as well. We expect the

co to report and EBITDA loss of Rs 1.25bn

JLR margins to decline 80bps QoQ to 4%

We expect a consolidated loss of Rs 65.2bn

India business outlook and prospects for

strategic partnership in the India PV

segment

JLR – recovery trends in China and ROW

Endurance

We expect a revenue decline of 35/22%

YoY/QoQ.

EBITDA margin at 13.7% to contract by

420/120bps YoY/QoQ.

PAT at Rs 458mn to decline by 72/57%

YoY/QoQ.

Status of new order implementation as

RFQs have been encouraging

Outlook on industry growth trends

Subros WEAK

We expect sales to decline 60% YoY owing

to weak macroeconomic environment

EBITDA margin is expected at 8.5% (-110bps

YoY, -60bps QoQ)

We expect a loss of Rs 16mn

Expectations for volume recovery in

Passenger vehicle segment

Demand outlook for the home AC business

Gulf Oil WEAK

We expect revenue to decline by 24/7%

YoY/QoQ

Operating margin to contract by 270/40bps

YoY/QoQ to 15%

We expect PAT to decline by 28% YoY to Rs

351mn

Outlook on demand environment due to

the ongoing slowdown in auto industry

RM price trends as oil prices have

corrected sharply

CONCOR WEAK

Volumes in 1Q declined 21/22% YoY/QoQ.

We expect sales to decline 25/221%

YoY/QoQ.

EBITDA margin is expected at 27.1%

(-200bps QoQ)

We expect PAT to decline by ~10% YoY to

Rs 2bn.

Revised timelines on commissioning of the

DFC

Outlook for EXIM volumes in the current

downturn

Update on divestment initiatives by the

government

Gateway

Distriparks WEAK

We expect consolidated revenues to decline

by 25/21% YoY/QoQ

Operating margin at 20.7% to contract by

80bps QoQ, +95bps YoY

We expect profit to fall to Rs 7mn (vs. Rs

112mn QoQ)

Status of Snowman’s stake sale, after the

deal with Adani has been called off

Subsequently, what are the revised

deleveraging initiatives


Page | 7


1 year forward Price/Earnings

Bajaj Auto Eicher Motors

Source: Bloomberg, Company, HSIE Research Source: Bloomberg, Company, HSIE Research

Escorts Hero Motocorp


Mahindra & Mahindra Maruti Suzuki


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Endurance Subros


Gulf Oil CONCOR


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Page | 9


HDFC securities

Institutional Equities

Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,

Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Board: +91-22-6171-7330 www.hdfcsec.com

Disclosure:

We, Aditya Makharia, CA & Mansi Lall, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report

accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also

certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC

Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication

of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.

Any holding in stock –YES

HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

Disclaimer:

This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any investment

decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to

take professional advice before investing. Nothing in this document should be construed as investment advice. Each recipient of this document should make such

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Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

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