Maruti to do well in Q4; Hero may disappoint: Anand Rathi

Auto players Maruti Suzuki and Hero Motocorp will announce their fourth quarter earnings today.

Speaking to CNBC-TV18 about his expectations from these auto giants, Rohan Korde, auto analyst, Anand Rathi said Maruti is likely to report good set of numbers. Its EBITDA margin is seen at 100 bps on a year-on-year (YoY) basis and 150 bps on a QoQ basis to 9.5 percent, which should drive the company's profit. On the other hand, Hero Moto may disappoint. The company will have to bear the brunt of low volumes and weak operating performance in this quarter, he said. "In FY13, in three out of four quarters they have reported a volume decline on a YoY basis, this quarter was no exception and there should be about 15-17 percent decrease in their profit on a YoY basis." Below is the verbatim transcript of Rohan Korde’s interview on CNBC-TV18 Q: What kind of numbers are you expecting from Maruti Suzuki? A: It is going to be a good quarter for Maruti. We have seen the trend in the currency movement, incrementally that is going to benefit the company and this quarter should be the first quarter when we should start seeing the impact come into the numbers. While top-line should not be that great, volumes were lower by nearly 5 percent on a YoY basis, but in terms of EBITDA margin, I am expecting EBITDA margin of nearly 100 bps on a YoY basis and nearly 150 bps on a QoQ basis to 9.5 percent. That itself should be able to drive the reported profit of the company by nearly 11 percent to cross Rs 7 billion. This quarter should also give an indication about how the trajectory for FY14 is going to be. Everyone is factoring in lower volume than what we might have estimated a couple of quarters back, but the qualitative improvement in earnings due to the margin improvement and the merger of Suzuki Powertrain India (SPIL) which will happen, will also increase the estimates that is not currently being factored into the Rs 7 billion that I have given right now. So, this will be an indication of how FY14 is going to pan out earnings-wise and we should be getting a positive signal for Maruti in that respect. Q: Do you think the bottom-line will be shored up largely by the yen or do you think the product mix would have played a fairly significant role in shoring up margins as well? A: It is a combination of both. The growth going forward in the bottom-line will be more from the benefit that we will see in the beneficial currency movement and the EBITDA margin improvement rather than the product mix incrementally, because the petrol-diesel switch that had to happen already took place to a great extent in FY13. Incrementally from here, we are not going to see a movement in that fashion. Q: What about Hero Motocorp? How much of a disappointment are you expecting? A: It is going to be a disappointing number. If we look at FY13, three out of four quarters they have reported a volume decline on a YoY basis, this quarter was no exception and there should be about 15-17 percent decrease in their profit on a YoY basis. The company has taken steps to cut down on the additional cost and so advertising and everything has come down. In FY14, we should start seeing benefit of that. But this quarter we will see the brunt of the low volumes as well as a weak operating performance.