Angel Broking Q1 earnings estimates for auto sector

Angel Broking has come out with its June quarterly earning estimates for automobile sector. The research firm expects Apollo Tyres (APTY) to outperform the overall sector's earnings growth in 1QFY2013 primarily on account of receding cost pressures, leading to strong margin expansion.

Fag Bearings, led by healthy revenue growth and margin expansion. We expect Apollo Tyres (APTY) to outperform the overall sector's earnings growth in 1QFY2013 primarily on account of receding cost pressures, leading to strong margin expansion.

We expect APTY's consolidated top line to register healthy ~12% yoy growth, led by ~7% growth in volumes. On a sequential basis, the top line is expected to decline by ~2% mainly on account of slower growth in the domestic commercial and PV industries. EBITDA margin is estimated to expand by ~300bp yoy (40bp qoq) to 11.5%, benefitting from a 15.6% yoy (flat qoq) decline in natural rubber prices. Thus, adjusted net profit is expected to improve sharply by 84% yoy.

We expect Bharat Forge to report healthy revenue growth of ~13% yoy, driven by steady ramp-up in its non auto business (forms one-third of revenue). Operating margin is expected to improve by 100bp yoy due to stable commodity prices and better product mix (higher share of machining content), leading to ~23% yoy growth in net profit.

We expect Bosch to post moderate revenue growth of 9% yoy, primarily on account of slowdown in the CV sector, which grew by 7% yoy YTD in FY2013. Margins, however, are expected to improve by 170bp yoy to 20.1% mainly due to a decline in raw-material expenses. As a result, net profit is expected to grow by healthy 13% yoy during the quarter. Meanwhile, Bosch announced temporary production cuts at its Jaipur and Bangalore plants to avoid unnecessary buildup of inventory amidst slowdown in the industry.

Exide Industries is expected to witness sequential improvement in profitability (up ~4% qoq), led by ~50bp improvement in its EBITDA margin to 15.2% on account of a decline in overall raw-material costs. However, on a yoy basis, we expect net profit to decline by ~10% due to a ~270bp decline in operating margin, led by higher raw-material prices.

We expect Motherson Sumi Systems to report improvement in its operating performance, led by increased revenue from new plants in Hungary. However, lower operating efficiency at Peguform facilities may pose margin pressures. Led by consolidation of Peguform operations, the top line and bottom line are expected to post 189% and 141% yoy growth, respectively.

Outlook:
We believe long-term structural growth drivers of the Indian automobile industry such as GDP growth (leading to increasing affluence of rural and urban consumers), favorable demographics, low penetration levels, entry of global players and easy availability of finance are intact, which should support a 12-14% CAGR in auto volumes over FY2012-14E. As such, we prefer stocks that have strong fundamentals, high exposure to rural and exports markets and command superior pricing power. We remain positive on Ashok Leyland, Hero MotoCorp, Mahindra and Mahindra and Tata Motors.

(Rs- Cr)

• Home
• Markets
• Loans
• SPIN2WIN
• News
• Portfolio