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Last Updated : Jan 17, 2013 01:29 PM IST | Source: CNBC-TV18

See Bajaj consolidating, weak Exide YoY nos: StanChart

In an interview to CNBC-TV18, Amit Kasat of Standard Chartered Securities gives his expectations from Exide and Hero Motocorp's Q3 results.

HCL Technologies delivered its performance but there are a couple of stocks from the auto space that will come out with their numbers today including Hero Motocorp and Exide. In an interview to CNBC-TV18, Amit Kasat of Standard Chartered Securities gives his expectations from the companies' Q3 results.

Kasat says while Exide will show a sharp improvement in its profitability, "but on a yearly basis, the results would be slightly on the negative side."

Below is the edited transcript of Kasat's interview to CNBC-TV18. 

Q: What is your expectation from Exide this time around after the volatile performance it has had in the last couple of quarters?

A: On a sequential basis, Exide will show a sharp improvement on the profitability. I am expecting 180 basis points (bps) improvement on the margin front for the company, the quarter. On the revenue front, I expect more than 25 percent revenue growth to be maintained by the company at the current level. On a sequential basis it is ok, but on a yearly basis, the results would be slightly on the negative side.

Q: Do you have a price target on Exide? How does all this compare with Amara Raja Batteries?

A: I have an out-performer rating. Just couple of quarters back, I upgraded the stock from a sell to out-performer. I have a target price of Rs 170 on the stock. The few changes, which the company is doing on the business model, will be reflected in Q4. Amara Raja definitely had a dream run in the last two years. The company’s performance was far more superior than Exide Industries.

At the current price, I think most of the positives in Amara Raja, have been factored in, in terms of the market share margin expansion. So I believe, I will maintain inline rating on Amara Raja at the current levels.

Q: What did you make of Tata Motors’ global sales figures and the way the stock reacted?

A: Global sales for the last two months are still under-performing. The expectation is that from January onwards, the global sale numbers from Jaguar and the LandRover front will be far more superior. That is what the stock price is factoring in currently.

Q: What about Bajaj Auto? What did you make of the numbers yesterday? Do the current valuations at around 16 times forward factor in the uncertainty in the demand environment that the management has been talking about?

A: Bajaj Auto’s numbers were fairly in-line with what the market and we were expecting in the quarter. Just look at Bajaj from the last five years perspective. The company has a dream run on the share price perspective and the performance of the company was consistently improving.

The run, which the company had in the last two-three quarters, definitely factors in a lot of the positives that may be there in the market for the two-wheeler industry. Hence, we believe that from here onwards, there will be a consolidation phase for Bajaj. Hence, after seven years, I have downgraded the stock from out-performer rating to in-line rating yesterday.

Q: How are you positioned on the sector because in the last couple of weeks, there’s been a lot of negative commentary from managements like Mahindra & Mahindra (M&M) and even from Maruti where they mentioned that at best, the sector will see a flat growth this time around. Is there anything within the space that you would advise a buy on right now?

A: I think most of the largecap companies’ stocks are factoring all the positives and the negatives that are expected in the next twelve months. The only stock which can keep on surprising us is Maruti Suzuki where I believe the currency will play an important role in the coming quarters.

Apart from that, I also believe that there will be a market share gain which will keep on happening for Maruti. Hence, the operating leverage will play an important role in the margin expansion. At Standard Chartered, we have only one stock which is our top pick in the auto space, in the original equipment manufacturing (OEM) space and that is Maruti Suzuki. Rest of the stocks which we have had in the last two quarters, we have downgraded them to in-line or to a sell.

Q: The M&M management yesterday put up a brave face in terms of the market share they have lost in the utility vehicle (UV) segment and also the pressure they are facing on tractors. What is your call on M&M, because it was a big star only a month back?

A: On a standalone basis, I am positive on M&M. They are having problems on the tractor industries side where the margins have collapsed from the highs of 18-19 percent, which will still continue atleast for a couple of quarters.

On the UV side, I am not worried about the market share loss because there are too many entrants who have come out with products. The competition has heightened in that space. As a leader, it tends to lose the market share.

My belief is that Bajaj will still maintain with the expanded pie of the UV segment at a 52 percent market share which should be there for them. I am not worried on that. I am worried on Bajaj on the investment which they will have to do in most of the loss-making ventures; ventures they had started in the last five years and there is a concern which I have there. Hence, the stock price is factoring that risk.

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First Published on Jan 17, 2013 10:49 am
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