Nirmal Bang has come with its December`12 quarterly earning estimates for auto and auto ancillary sector. The research firm expects the EBITDA margins of companies to remain under pressure YoY.
We expect the companies in our coverage universe to report a top-line growth of 16% YoY driven by a low base (Maruti Suzuki India’s vehicle sales numbers were subdued in 3QFY12 because of the workers’ strike at its Manesar plant). Typically, 3Q is a very strong for quarter for automobile companies on top-line as well as bottom-line fronts, given that most of them report higher sales during this period because of the festive season. However, 3QFY13 lacked the usual festive fervour with sales not picking up. Because of a low base of Maruti Suzuki India (MSIL), the top-line growth of our coverage universe in 3QFY13 stands inflated at 16% YoY, but for the companies other than MSIL the top-line growth is just 5% YoY. During the quarter, Hero MotoCorp and TVS Motor Company reported YoY decline in sales volume at 2% and 1%, respectively, while Bajaj Auto and MSIL posted sales volume growth of 5% and 26%, respectively, YoY. EBITDA to remain under pressure: We expect the EBITDA margins of companies in our coverage universe to remain under pressure YoY and so we have factored in just a 38bps YoY improvement, primarily led by the likely sharp rise in the EBITDA margins of MSIL (259bps) and Apollo Tyres (187bps). In the two-wheeler space, we expect the EBITDA margins to fall YoY. The likely improvement in the EBITDA margin of MSIL during the quarter will be driven by higher operating leverage YoY and favourable currency movement. In case of Apollo Tyres, the recent softening in rubber prices will drive the company’s profitability. In respect of two-wheelers, as there is no major improvement in volume, we expect the EBITDA margins of all three companies in our coverage universe to drop YoY. Bottom-line to remain under pressure: Due to limited growth in top-line as well as margins, we believe the earnings of companies will not be significantly high. We expect Hero MotoCorp and TVS Motor Company to report earnings decline of 2% and 10%, respectively. In case of Bajaj Auto, we expect a 4% YoY growth in earnings driven by a richer product mix. As regards MSIL, we expect its earnings to improve 152% YoY, but on a low base. In case of Apollo Tyres, we expect strong earnings growth of 37% YoY driven by EBITDA margin expansion. What to watch out for: Key things to watch out for in 3QFY13 result will be the impact of favourable movement of the Japanese yen against the Indian rupee for Hero MotoCorp and MSIL, which have yen exposure. As the festive mood was subdued for two-wheelers, volume guidance by original equipment manufacturers (OEMs) in this segment will be keenly monitored. In case of Apollo Tyres, the main thing to watch out for is the demand scenario across India, Europe and South Africa.
| Company | Ratings | Sales | PAT | ||||
| 3QFY13E | YoY (%) | QoQ (%) | 3QFY13E | YoY (%) | QoQ (%) | ||
| Maruti Suzuki | Sell | 109,994 | 39.5 | 32.4 | 5,187 | 152.3 | 128.1 |
| Hero MotoCorp | Sell | 61,535 | 2 | 18.6 | 6,031 | -1.6 | 36.9 |
| Bajaj Auto | Sell | 54,876 | 8.4 | 10.4 | 8,306 | 4.5 | 12.1 |
| TVS Motor | Sell | 18,141 | 3 | 7.3 | 507 | -10.2 | 12.2 |
| Apollo Tyres | UR | 34,406 | 6.6 | 2 | 1,747 | 37.2 | 14.8 |
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