Auto sector results preview for Q4FY13: Kotak Securities

Kotak Securities has come with its March`13 quarterly earning estimates for auto sector. According to the research firm, M&HCV segment continues to bore the maximum brunt of the current economic slowdown.

4QFY13 was a difficult quarter for the auto companies as volumes were weak in a generally strong quarter. We have witnessed volumes slowing down over the previous few quarters and that scenario only worsened during 4QFY13. Demand sentiment continued to suffer from weak macroeconomic conditions, increasing fuel prices, inflation and high interest rates. Poor demand led to discounts going up during the quarter.

M&HCV segment continues to bore the maximum brunt of the current economic slowdown. On one hand freight rates are under pressure due to lower level of industrial/economic activity and on the other hand, fuel prices is on the rise. LCV segment though performed well during the quarter. In the passenger car segment, petrol car sales remained weak. Demand for diesel car, which until last quarter was performing strongly, has started tapering off. 2W sales also suffered and remained largely weak. For the companies under our coverage, almost all the companies have reported YoY drop in volumes, with the steepest drop being for Tata Motors. On a sequential basis too, volumes dropped for most players expect for Maruti Suzuki and Ashok Leyland.

Apollo Tyres - We expect volumes to stay under pressure in both the OEM and replacement segment. Natural rubber prices have been lower YoY and we expect positive impact of that on the margins. However, on a sequential basis, we expect margins to be lower on account of price cut, further weakening of demand and end of winter season in Europe.

Ashok Leyland - On a YoY basis, volumes (ex LCV-Dost) have declined due to deteriorating macro-economic situation. On a sequential basis though, volumes have improved as 4Q is always a better quarter for M&HCV sales. We expect sharp YoY dip in EBITDA margins due to M&HCV volume drop and increased levels of discount. Sequential improvement in margins is expected due to improved volumes. Please note that during Q4FY13, Ashok Leyland sold stake in IndusInd Bank and we accordingly expect the company to report Rs2,163mn as one off/exceptional item. In order to provide comparable picture, we have not incorporated this in our estimates in the quarterly table.

Bajaj Auto - Bajaj Auto reported both YoY and QoQ dip in volumes. Volume pressure is coming from both the domestic and export markets. We expect operating margins in 4QFY13 to drop both YoY and QoQ on weak demand and product mix changes.

Escorts Limited - Tractor volumes declined for the company on YoY basis. Company's performance in the railway equipment business has been erratic. Auto ancillary business is expected to continue posting losses. Construction equipment business is suffering from slowdown in construction related activities. Please note that 2QFY12 numbers do not include financials of construction equipment business.

Hero MotoCorp - HMC is facing volume pressure due to general demand slowdown and increased competition. Volumes during the quarter de-grew both YoY and QoQ. EBITDA margins has been falling for the past 5 consecutive quarters. While on YoY basis, we expect EBITDA margin to be lower, but sequentially we are expecting improvement. Marketing related cost is expected to remain high but weakening of yen should aid sequential margin improvement for the company in 4QFY13.

Maruti Suzuki - We expect 4QFY13 to be very strong for Maruti. Volumes though declined YoY, but was higher by 14% QoQ. On a YoY basis, despite volume decline, revenues are expected to grow on account of higher share of diesel sales, improved product mix and CKD sales of Ertiga. EBITDA margin is expected to improve sharply due to benefits from yen depreciation.

Tata Motors - In the standalone business, we expect the company to report losses given sharp downfall in volumes in the passenger car and M&HCV segment. JLR volumes during the quarter were strong and that should aid consolidated performance as compared to Q3FY13.

TVS Motors - Volumes for the company has been largely under pressure over the past few quarters. We expect TVSM's revenues and operating margins to marginally decline during the quarter. PAT is expected to be lower both YoY and QoQ.

Company	Revenues (Rs mn)					PAT (Rs mn)
	Q4 FY13	Q3 FY13	QoQ (%)	Q4 FY12	YoY (%)	Q4 FY13	Q3 FY13	QoQ (%)	Q4 FY12	YoY (%)
Apollo Tyres	31,486	32,173	-2.1	32,314	-2.6	1,517	1,806	-16	1,570	-3.3
Ashok Leyland	32,847	23,805	38	43,110	-23.8	215	-821	-	2,571	-91.6
Bajaj Auto	46,677	54,127	-13.8	46,514	0.3	7,007	8,188	-14.4	7,517	-6.8
Hero MotoCorp	59,917	61,876	-3.2	60,349	-0.7	4,992	4,879	2.3	6,036	-17.3
Maruti Suzuki	129,144	112,003	15.3	117,270	10.1	7,669	5,013	53	6,398	19.9
Tata Motors	491,939	460,895	6.7	509,079	-3.4	22,488	16,275	38.2	44,079	-49
TVS Motor	17,493	17,992	-2.8	16,272	7.5	478	525	-8.9	572	-16.5
Escorts	9,201	10,282	-10.5	7,951	15.7	184	281	-34.7	181	1.4

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