Get Fortune Equity's cues on Maruti, Bajaj Auto, Hero Honda

47495 Investors following Maruti Suzuki. Share this News with them.

0

Like this story, share it with millions of investors on M3

Get Fortune Equity's cues on Maruti, Bajaj Auto, Hero Honda

Mahantesh Sabarad, senior analyst at Fortune Equity Brokers discusses on CNBC-TV18 the impact on auto stocks on the newsflow emerging from the standoff between Maruti and its workers at their Manesar plant as well as the government's decision to extend a tax break for exporters beyond the June 30 deadline.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Maruti Suzuki BSE | NSE 30/05/12 Are Mutual Funds betting on Maruti Suzuki? Other Stocks in this news Bajaj Auto | Hero Motocorp | Bharat Forge | Rico Auto | Motherson Sumi Systems |

Mahantesh Sabarad, senior analyst at Fortune Equity Brokers discusses on CNBC-TV18 the impact on auto stocks on the newsflow emerging from the standoff between Maruti and its workers at their Manesar plant as well as the government's decision to extend a tax break for exporters beyond the June 30 deadline.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy. For complete details watch the accompanying video.

Q: On Maruti , what are the losses up until now that you have calculated and now that the stalemate continues what kind of impact do you think it would have on the stock and whether you have tweaked your target price at all?

A: Firstly, the strike is now a little over a week old. Normally, what happens is a five-six day production loss can be made up by ramping up the production once the work resumes to normalcy. Here we are finding that the strike is continuing and it's probably now a two-three day production loss for Maruti. A three day production loss would mean a 1 % loss in revenues for Maruti and roughly about 1.1-1.3% loss on the bottomline of the revenues.

We are seeing that come Tuesday we will see that they will probably lose at the bottomline something like Rs 35-40 crore which is our estimate. In terms of factoring it in our target price, we are anyways having a low price target of about Rs 1,252 on the stock. Right now we are not revising anything.

Q: Other thing that is impacting all these stocks is the DEPB factor. Bajaj Auto had indicated that they will export 1.5 million units in the current fiscal. How do you think they will be impacted if the DEPB is off for the second half of the year and is replaced by the duty drawback? What is the hit on the margin, prices not changing?

A: If you look at the last fiscal year, FY11 for Bajaj Auto then hey have earned export incentives of the order of roughly around Rs 470 crore which is about 10-11% of the total export revenues that they have. Firstly on two-wheelers there is no drawback available that means in the schedule for drawback rates it is not prescribed. There is 1% rate prescribed for cars but nothing for two-wheelers. Likewise, on the DEPB side, a 9% rate is the prescribed rate for two-wheelers and three-wheelers under DEPB.

Will unload 1-2% cost hike burden to consumers: Bajaj Auto

Q: So do we assume that there is a 9% hit?

A: No, not necessarily because we are of the view that that scheme will be modified such that the exporters are not hit very adversely. If the DEPB is modified into a new scheme then probably there is an opportunity for Bajaj to earn much more than the 1% rate prescribed under the duty drawback for cars.

We would assume that instead of Rs 470 or 500 crore that they would have earned as export incentives for the year, probably, the export incentives would fall down to about Rs 400-450 crore. That is the kind of impact we need to factor in. In this three month extension period, we expect Bajaj to ramp up their export production and dispatches such that they are partly protected.

Q: Hero Honda pretty much fell off a cliff and is now trading at Rs 1,700. What is the rating on the stock and how would you move with it?

A: We have a sell call on the stock. We initiated a sell call roughly about two months back. We are uncomfortable with Hero Honda post its split with Honda. For the year that is FY12 we are going to see expenses going up a) for brand transformation, b) R& D spends and c) there will be export market development costs.

All these costs go up and that should mean EBITDA margins should fall down and earnings would take a hit at least for the year. We have a sell call, Rs 1,464 is the target price and the recent stock performance is perhaps trying to tell us that.

Q: The auto ancillary space would also be impacted by the withdrawal of DEPB. Is there any stock over there where you may change the target price because of this eminent withdrawal on September 30?

A: We don't track much of the auto ancillary stocks but one of the largest auto ancillaries today is Bharat Forge which stands to loose out on the export incentives due to the DEPB. But if I am right, the DEPB rates prescribed for forgings is quite low and if it gets substituted by the drawback rate there will be only a marginal impact in the case of Bharat Forge.

Stocks like Bharat Forge to Rico Auto to Motherson Summi are the once who have certain amount of exports falling under the DEPB rate. These are the stocks to watch out for.