Automobiles sector results preview for Q3FY12: Emkay

Emkay Global Financial Services has come with its December quarterly earning estimates for automobiles sector. According to the research firm adjusted EBIDTA margins to decline by 100bps YoY but expand 20bps QoQ to 12.3%. Tata Motors and Bajaj Auto top picks in auto space.

• We expect our automobile universe to report 22% YoY/9% QoQ growth in sales to Rs 756bn driven by volumes and pricing action. Excl. TML subs, sales growth to moderate to 13% YoY/2% QoQ to Rs 469bn
• Adjusted EBIDTA at Rs 93bn is expected to grow by 13% YoY due to higher input costs. Sequentially, EBIDTA is expected to be up by 11% on operating leverage benefits (festival season sales) and stable metal prices. Excl. TML subs, EBITDA growth is likely to remain flat YoY and up 3% QoQ to Rs 48.5 bn. This is largely due to 50% YoY/ 11% QoQ decline in MSIL EBITDA to Rs 4.6bn.
• Adjusted EBIDTA margins to decline by 100bps YoY but expand 20bps QoQ to 12.3%. Excluding TML subs, margins to decline by 130 bps YoY and remain flat QoQ to 10.4%. Sequential improvement is seen in Bajaj (80 bps), HMCL (40 bps), TTMT (40 bps), Eicher (25 bps) and TVS (15 bps). AL (12 bps), M&M (33 bps) and MSIL (50 bps) to report sequential decline in margins
• APAT to increase 10% YoY and 11% QoQ to Rs 55 bn. Ex TML subs, APAT to remain flat YoY and increase 4% QoQ to Rs 30bn. The disappointing YoY performance is largely due to sharp drop in profits of MSIL (64% to Rs 2.1bn). Highest YoY growth is witnessed in Ashok Leyland (85%) followed by Eicher Motors (56%).
• Key things to focus will be demand outlook in FY13, impact of currency swings and raw material contracts.
• We maintain our neutral stance on the sector and prefer stock specific bets. Our top two large cap picks are Tata Motors and Bajaj Auto. In the mid cap space we like Apollo Tyres and Eicher Motors.

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