Auto sector results preview for Q4FY13: Motilal Oswal

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Motilal Oswal has come with its March`13 quarterly earning estimates for auto sector. The research firm believes that worst of competitive pressure is behind for passenger cars, but in 2W, UVs and CVs, rising competitive intensity poses a major challenge to incumbents.

Demand weakens further; to remain so for next couple of quarters Demand has weakened across auto segments on the back of economic slowdown
and consequently weak consumer and business sentiments:

• Two-wheelers: For most players, weak retail demand has led to higher inventory to 4-5 weeks.
• Passenger vehicles: The petrol segment remains weak for over a year now due to sharp rise in petrol prices. Now, even diesel segment demand has also moderated over the last 4-5 months (with YoY drop in volumes).
• MHCVs: The segment continues to fall sharply reflecting tough macroeconomic conditions. This coupled with higher competitive intensity has resulted in high level of discounting. 
• Tractors continue to struggle due to weak demand from Southern and Western regions. Expected softening in interest rates, and reform-led revival in business and consumer sentiment are key medium-term drivers for auto volumes.

4QFY13 margins to improve QoQ on favorable currency, stable RM cost- EBITDA margins for our Auto universe is expected to improve 70bp QoQ (-110 YoY) on favorable currency (JPY/INR) together with stable RM cost. Discount levels remain high across segments particularly for CVs and PVs. In two-wheelers, there is no widespread cash discount, but OEMs are aggressively pushing finance schemes to spur demand. Expect EBITDA margin to rise for Maruti Suzuki 140bp QoQ (+210bp YoY), and for Hero 80bp QoQ (-140bp YoY).

Lower rates, price hikes, soft commodities cushion slowdown impact- Over the last few months, major auto financiers have cut lending rates. This augurs well for auto demand, particularly for PVs and CVs. Besides, on the back of further monetary easing, economic activity and consumer sentiment should improve. At the company level, price increases and softening commodity prices are positive to cushion the impact of slowdown on profitability.

Valuation & view: Downgrades across companies; Prefer Maruti, Tata, Eicher- We have downgraded our volume growth and earnings estimates across companies given (1) the current weak demand environment, and (2) expected gradual economic recovery (2HFY14 onwards).

• Hero MotoCorp: FY14/15 EPS estimate lowered 10%/9.4% to factor in lower industry growth in FY14 and consequent pressure on margins.
• Maruti: FY14/15 EPS estimate cut 7.8%/6.4% to factor in demand weakness partly offset by favorable currency.
• Tata Motors: FY14/15 Consol EPS cut 7.0%/5.2% due to weak outlook on standalone business.

Changing competitive landscape in the auto sector would be one of the key determinants of stock performance. We believe that worst of competitive pressure is behind for passenger cars, but in 2W, UVs and CVs, rising competitive intensity poses a major challenge to incumbents. We prefer Maruti Suzuki, Tata Motors and Eicher Motors.

(Rs- Mn)

Company	Sales			Net Profit			Ratings
	Mar.13	Var. % YoY	Var. % QoQ	Mar.13	Var. % YoY	Var. % QoQ
Bajaj Auto	49,926	0.4	-7.8	7,356	-3.1	-10.2	Buy
Eicher Motors	17,331	2.2	6.5	875	-20.2	20	Buy
Hero Motocorp	62,174	4.3	1.1	5,266	-12.8	7.9	Buy
M&M	99,500	9.1	-2.9	8,407	4.7	-8.1	Buy
Maruti Suzuki	126,911	8.2	13.3	8,070	26.1	61	Buy
Tata Motors	548,591	7.8	19	27,378	-38.3	57.9	Buy

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.