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Autos & Logistics
1QFY20E Results Preview
10 July 2019
Aditya Makharia [email protected] +91-22-6171 7316
Mansi Lall [email protected] +91-22-3021-2070
2
1QFY20E RESULTS PREVIEW
1QFY20E: A challenging quarter The persistent weakness in auto volumes in 1QFY20 was due to (1)
Moderation in economic activity in an election quarter (2) Ongoing tight liquidity conditions due to the NBFC issue (3) Late arrival of monsoons (4) A demanding base effect. The logistics company CONCOR also reported flattish volumes in 1QFY20.
Recommendation: The auto index underperformed the broader market due to the weak demand environment and the recent announcements in the budget to promote Electric vehicles (OEMs will be compelled to accelerate the launch of EVs). We have a SELL on Eicher Motors given the sharp slowdown in the lifestyle biking segment. We recommend reducing positions in Ashok Leyland (Neutral) in the event of a stock price rally and buying Container Corporation of India, which will benefit from the upcoming Dedicated Freight Corridor.
Over the quarter, the 2W and CV segment posted a volume decline of ~10% YoY (though the decline in M&HCV is sharper). PV volumes declined ~15% YoY.
The aggregate profits for the OEM’s under our coverage is expected to decline -17% YoY. We have lowered our FY20-21 EPS estimates / price targets across companies to factor in the weak quarter.
Company 4QFY19 % YoY % QoQ
Ashok Leyland 39,608 (6) (33)
- MHCV 26,719 (13) (38)
- LCV 12,889 12 (17)
Bajaj Auto 1,247,174 2 4
- 2W 1,082,627 5 8
- 3W 164,547 (16) (14)
Hero Motocorp 1,842,920 (13) 3
Maruti 402,594 (18) (12)
M&M 218,039 (9) (7)
- Auto 131,689 (6) (25)
- Tractors 86,350 (14) 42
Tata Motors* 131,879 (20) (27)
- PV 36,945 (30) (31)
- CV 94,934 (15) (25)
TVS 923,195 (1) 2
- 2W 883,670 (1) 2
- 3W 39,525 11 (5)
Eicher 196,920 (19) (9)
- 2W 183,589 (19) (6)
-CV 13,331 (18) (35)
CONCOR (in TEU’s) 935,271 978,930 926,923
Company Reco Company Reco
Ashok Leyland NEU Jamna Auto BUY
Bajaj Auto BUY NRB Bearings NEU
Eicher SELL RK Forgings BUY
Hero Motocorp BUY Subros BUY
Maruti Suzuki BUY CONCOR BUY
1QFY20 Volume Summary
Source: Company,HDFC Sec Inst Research Source: Company,HDFC Sec Inst Research *Tata motors- Domestic sales #Volumes
3
1QFY20E RESULTS PREVIEW
The auto index has underperformed the broader market due to the weak demand environment and the recent budget announcements to promote electric vehicles
Stock performance (%)
1M 3M 6M 1Y
Nifty (3) (1) 6 6
NSE AUTO (8) (12) (15) (32)
Ashok Leyland (8) (9) (11) (36)
Bajaj Auto (7) (5) 3 (8)
Eicher Motors (5) (9) (6) (31)
Exide Industries (5) (8) (23) (25)
Hero Motocorp (11) (7) (17) (32)
Jamna Auto (10) (16) (20) (44)
Lumax Auto (18) (25) (40) (26)
M&M (2) (5) (13) (32)
Maruti (15) (18) (21) (37)
NRB Bearings (9) (21) (24) (13)
RK Forgings 0 (11) (11) (31)
Subros (6) (18) (13) (18)
Suprajit Engineering (4) (14) (9) (21)
Swaraj Engines 0 1 (7) (27)
Tata Motors (6) (24) (15) (43)
TVS (10) (11) (21) (27)
Stock Performance
Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research
3 months stock performance
Index performance
7,000
8,000
9,000
10,000
11,000
12,000
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
De
c-1
8
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
NIFTY NIFTY AUTO
(25)
(15)
(5)
5
Lum
ax A
uto
Tata
Mot
ors
NR
B B
eari
ngs
Subr
os
Mar
uti
Jam
na
Au
to
Su
pra
jit …
NSE
AU
TO TVS
RK
Forg
ings
Eich
er M
oto
rs
Ash
ok L
eyla
nd
Exid
e In
dust
ries
He
ro M
oto
corp
M&
M
Baj
aj A
uto
Nif
ty
Swar
aj E
ngin
es
4
1QFY20E RESULTS PREVIEW
1QFY20: Commodity Prices Over the quarter, base metal prices have declined by ~7% QoQ. This will partially cushion margins amidst weak demand trends
Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research
30
45
60
75
90
105
120
135
150
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Jun-
17
Jun-
18
Jun-
19
Brent price ($/bbl)
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
Jun
-14
Jun
-15
Jun
-16
Jun
-17
Jun
-18
Jun
-19
Copper Price ($)
1,000
1,500
2,000
2,500
3,000
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
Jun
-14
Jun
-15
Jun
-16
Jun
-17
Jun
-18
Jun
-19
Aluminium Price ($)
1,000
1,500
2,000
2,500
3,000
Jun
-09
Jun
-10
Jun
-11
Jun
-12
Jun
-13
Jun
-14
Jun
-15
Jun
-16
Jun
-17
Jun
-18
Jun
-19
Lead Price ($)
5
1QFY20E RESULTS PREVIEW
Cross Currency Trends – a strengthening INR Over the quarter, the INR has strengthened vs. key currencies. It has appreciated by 3% against the Euro and 4% against the GBP.
Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research
Source: Bloomberg, HDFC Sec Inst Research
68
69
70
71
72
73
74
75
Jul-
18
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan
-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
USD/INR
1.5
1.6
1.7
Jul-
18
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan
-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
INR/JPY
76
80
84
88
Jul-
18
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan
-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
EUR/INR
85
90
95
100
Jul-
18
Aug
-18
Sep
-18
Oct
-18
Nov
-18
Dec
-18
Jan
-19
Feb
-19
Mar
-19
Apr
-19
May
-19
Jun-
19
Jul-
19
GBP/INR
6
1QFY20E RESULTS PREVIEW
1QFY20E: A challenging quarter
COMPANY 1QFY20
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Maruti Suzuki WEAK
We except revenues to decline by 16% YoY due to lower sales (-18% YoY)
EBITDA margin to contract by 330bps YoY to 11.6% due to the impact of operating deleverage
PAT decline by 31% YoY (-24% QoQ)
Update on transition to BSVI as MSIL has launched BSVI compliant models.
On ground demand trends Business plans for roll out of EVs / hybrids
Bajaj Auto AVG
We expect revenues to grow by 3% YoY, led by 2% increase in volumes.
We expect operating margins to contract by 140bps YoY (+20bp QoQ) to 15.9%, due to a weaker product mix (lower share of three wheelers)
We expect PAT to decline 2% YoY
Export demand outlook Domestic market share targets in the two
wheeler segment New developments / launches in the EV
space – particularly for 3 wheelers
Hero MotoCorp WEAK
We expect a decline in revenue of 11% YoY, due to 13% YoY drop in volumes.
We expect the margin to contract by 170bps YoY to 13.9% PAT to decline by 14% YoY
Response to the premium product launches Channel inventories Business plans for roll out of electric bikes
Ashok Leyland WEAK
We expect 6% YoY decline in revenues due to similar drop in volumes.
EBITDA margin expected at 10.6% (+20bps YoY, -50bps QoQ) PAT decline of 6%
CV demand outlook – pre buying trends Update on appointment of new CEO
Eicher Motors WEAK
We expect a revenue decline of 10% led by 19% decline in the volumes. Realizations will be higher due to price hikes taken through the year (introduction of ABS)
EBITDA margin of 27.3% (-450bps YoY, -10bps QoQ) PAT decline of 23% YoY (-19% QoQ)
Demand outlook – particularly as sales decline has been steep
Export markets potential post the launch of the 650 twins
7
1QFY20E RESULTS PREVIEW
1QFY20E: A challenging quarter
COMPANY 1QFY20
OUTLOOK WHAT’S LIKELY KEY MONITORABLES
Subros WEAK
Net sales to decline by 5% YoY - a decline in passenger vehicle sales will be partially offset by Subros’s expansion into new products / segments
EBITDA margin contraction by 40bps YoY (-30bps QoQ) to 10.3% PAT decline by 13% YoY
Subros diversification plans, particularly post the acquisition of Zamil
The companies medium term strategy to supply components for the EV segment
Jamna Auto WEAK
We expect sales to be weak (-10% YoY) due to the decline in CV industry sales
Margin to contract by 120bps YoY to 12.2% due to the above We expect the PAT to decline by 23% YoY (-8% QoQ)
Mix of conventional/parabolic springs for the quarter
Update on aftermarket sales
NRB Bearings WEAK
Weak industry sales will result in 9% YoY decline in revenue Margins are expected at 14.7% (-430bps YoY, +240bps QoQ) We expect PAT to decline by 18% YoY and +28% QoQ.
Demand outlook – particularly for the two wheeler segment
Companies expansion plans in the mobility segment (railways, aerospace, etc.)
Ramkrishna Forgings
WEAK
Higher realizations / improved export revenues to result in 10% YoY growth (+2% QoQ) in revenue.
EBITDA margin expected at 20%, (-100bps YoY) PAT decline of 6% YoY
Update on new export orders in the European market
Demand outlook for the M/HCV segment – both for India as well as US markets
Container Corporation
AVG
Volume growth to be flat at -1% YoY. Margins expected at 25.7% (+80bps YoY) PAT growth by 7% YoY to Rs 2.7bn
Industry growth outlook for FY20 Progress on the DFC and expected timelines
for commissioning of Phase I
8
1QFY20E RESULTS PREVIEW
1QFY20E: Financial Summary
Source: Company, HDFC Sec Inst Research
COMPANIES NET SALES (Rs mn) EBITDA Margin (%) APAT (Rs mn) Adj. EPS
1QFY20E QoQ (%) YoY (%) 1QFY20E QoQ (bps) YoY (bps) 1QFY20E QoQ (%) YoY (%) 1QFY20E 4QFY19 1QFY19
AUTO ANCILLARIES
Jamna Auto 5,060 (7) (10) 12.2 (52) (119) 308.4 (8) (23) 0.8 1 1
NRB Bearings 2,126 (0) (9) 14.7 243 (430) 149.5 28 (18) 1.5 2 3
Ramkrishna Forgings 4,530 2 10 20.0 (13) (105) 259.9 4 (6) 8.0 10 11
Subros 5,051 (3) (5) 10.3 (30) (41) 192.8 19 (13) 3.0 3 3
Suprajit Engineering 3,582 (17) (1) 14.8 6 (52) 300.6 (28) 4 2.1 3 4
Swaraj Engines 2,195 15 (6) 14.5 18 (111) 202.8 22 (12) 16.7 14 15
Aggregate 22,543 (4) (3) 14.2 10.0 (99.6) 1,414 (2) (12)
COMPANY Volume (in units '000) NET SALES (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS
1QFY20E QoQ
(%) YoY (%)
1QFY20E QoQ (%)
YoY (%)
1QFY20E QoQ (bps)
YoY (bps)
1QFY20E QoQ (%)
YoY (%)
1QFY20E 4QFY19 1QFY19
AUTOS
Ashok Leyland 40 (33) (6) 59.1 (33) (6) 10.6 (54) 24 3.6 (45) (6) 1.2 2.2 1.3
Bajaj Auto 1,247 4 2 76.2 3 3 15.9 18 (137) 11.0 3 (2) 37.9 45.1 38.5
Eicher 197 (9) (19) 22.8 (9) (10) 27.3 (9) (448) 4.4 (19) (23) 163.1 201.0 212.6
Hero Motocorp 1,843 3 (13) 78.6 (0) (11) 13.9 34 (173) 7.8 7 (14) 39.0 36.6 45.5
Maruti Suzuki 403 (12) (18) 188.0 (12) (16) 11.6 105 (332) 13.6 (24) (31) 44.9 59.5 65.4
Aggregate 424.7 (12) (11) 13.5 68 (222) 40.4 (16) (19)
LOGISTICS
CONCOR 927* (5) (1) 16.2 (12) 3 25.7 23 82 2.7 (23) 7 4.4 (23.3) 7.0
* Volume in TEUs
9
1QFY20E RESULTS PREVIEW
Peer Set Comparison
Source: Company, HDFC Sec Inst Research *NR= Not Rated
Mcap
(Rs bn)
CMP
(Rs/sh) Reco TP
Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%)
FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E
AUTOS
Ashok Leyland 245 84 NEU 90 6.9 7.0 12.2 11.9 6.3 5.8 23.4 21.3
Bajaj Auto 806 2,786 BUY 3,090 161.1 176.8 17.3 15.8 11.7 10.6 20.4 20.3
Eicher 519 19,039 SELL 17,150 811.6 835.3 23.5 22.8 14.7 13.0 22.7 19.6
Hero Motocorp 488 2,444 BUY 2,875 168.0 179.8 14.5 13.6 8.0 7.2 23.7 22.8
Maruti Suzuki 1,796 5,945 BUY 6,780 267.5 308.2 22.2 19.3 11.3 9.3 16.3 16.7
AUTO ANCS
Jamna Auto 20 50 BUY 65 3.8 4.0 13.0 12.3 7.1 6.6 27.3 24.4
NRB Bearings 15 153 NEU 165 9.5 9.7 16.1 15.8 8.8 8.1 18.5 16.7
Ramkrishna Forgings 15 463 BUY 550 36.4 39.1 12.7 11.8 5.6 5.0 12.8 12.2
Subros 15 233 BUY 280 13.8 16.3 16.9 14.3 6.5 5.6 12.5 13.2
Suprajit Engineering 28 202 NR 185 9.6 11.0 21.0 18.5 30.1 26.4 16.2 16.0
Swaraj Engines 17 1,395 NR 1,380 68.7 81.2 20.3 17.2 11.7 9.7 33.3 34.9
LOGISTICS
Container Corporation 30 549 BUY 670 25.6 31.1 21.4 17.6 17.3 13.4 14.5 16.5
10
1QFY20E RESULTS PREVIEW
Change in estimates
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 308,040 328,745 329,077 350,893 (6) (6)
EBITDA 32,960 34,518 35,211 36,844 (6) (6)
EBITDA margin (%) 10.7 10.5 10.7 10.5 0 bps 0 bps
APAT 20,111 20,548 21,776 22,227 (8) (8)
Adj. EPS 6.9 7.0 7.4 7.6 (7) (8)
Ashok Leyland
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 106,181 116,065 114,326 125,779 (7) (8)
EBITDA 28,819 31,151 31,289 34,169 (8) (9)
EBITDA margin (%) 27.1 26.8 27.4 27.2 -23 bps -33 bps
APAT 22,123 22,771 24,002 25,164 (8) (10)
Adj. EPS 811.6 835.3 880.5 923.1 (8) (10)
Eicher Motors
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 319,506 350,075 334,272 366,111 (4) (4)
EBITDA 50,384 54,710 53,711 59,363 (6) (8)
EBITDA margin (%) 15.8 15.6 16.1 16.2 -30 bps -59 bps
APAT 46,630 51,147 48,977 55,119 (5) (7)
Adj. EPS 161.1 176.8 169.3 190.5 (5) (7)
Bajaj Auto
11
1QFY20E RESULTS PREVIEW
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 350,351 377,360 370,168 398,856 (5) (5)
EBITDA 48,556 51,935 52,043 55,690 (7) (7)
EBITDA margin (%) 13.9 13.8 14.1 14.0 -20 bps -20 bps
APAT 33,556 35,914 35,927 38,456 (7) (7)
Adj. EPS 168.0 179.8 179.9 192.6 (7) (7)
Hero Motocorp
Maruti Suzuki
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 901,606 1,006,049 950,159 1,060,270 (5) (5) EBITDA 120,815 137,829 130,172 148,438 (7) (7) EBITDA margin (%) 13.4 13.7 13.7 14.0 -30 bps -30 bps APAT 80,786 93,083 87,639 101,011 (8) (8) Adj. EPS 267.5 308.2 290.2 334.5 (8) (8)
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 22,255 24,432 23,161 25,429 (4) (4)
EBITDA 2,337 2,590 2,478 2,772 (6) (7)
EBITDA margin (%) 10.5 10.6 10.7 10.9 -20 bps -30 bps
APAT 903 1,063 998 1,188 (10) (11)
Adj. EPS 13.8 16.3 15.3 18.2 (10) (11)
Subros
Change in estimates
12
1QFY20E RESULTS PREVIEW
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E Revenue 19,333 20,895 20,414 22,263 (5) (6) EBITDA 3,983 4,242 4,205 4,519 (5) (6) EBITDA margin (%) 20.6 20.3 20.6 20.3 0 bps 0 bps APAT 1,187 1,275 1,337 1,442 (11) (12) Adj. EPS 36.4 39.1 41.0 44.2 (11) (12)
Ramkrishna Forgings
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 22,961 24,680 23,791 25,778 (4) (4)
EBITDA 2,902 3,071 3,215 3,485 (10) (12)
EBITDA margin (%) 12.6 12.4 13.5 13.5 -87 bps -107 bps
APAT 1,520 1,601 1,860 2,151 (18) (26)
Adj. EPS 3.8 4.0 4.7 5.4 (18) (26)
Jamna Auto
Particulars (Rs mn) New Old % change
FY20E FY21E FY20E FY21E FY20E FY21E Revenue 10,155 10,734 10,756.0 11,842.0 (6) (9)
EBITDA 1,751 1,841 2,038.0 2,185.0 (14) (16)
EBITDA margin (%) 17.2 17.1 18.9 18.5 -170 bps -130 bps
APAT 920 942 1,175.0 1,254.0 (22) (25)
Adj. EPS 9.5 9.7 12.1 12.9 (22) (25)
NRB Bearings
Change in estimates
13
1QFY20E RESULTS PREVIEW
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period
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. 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1QFY20E RESULTS PREVIEW
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