Autos

2QFY17E Results Preview

8 Oct 2016

Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171 7336

Abhishek Jain
abhishekkumar.jain@hdfcsec.com
+91-22-6171 7320

Rupin Shah
rupin.shah@hdfcsec.com
+91-22-6171 7337

2QFY17E RESULTS PREVIEW

2QFY17E: All in festive mood, except MHCVs

In 2QFY17, MHCV volume growth declined for the second

consecutive quarter by 10% YoY on account of higher base last
year (pre-buying on implementation of mandatory ABS in Oct15). LCV volumes continued to witness a steady recovery at 9%
YoY. PVs and 2Ws witnessed strong volume uptick led by
inventory build up ahead of the festive season. Tractors too
witnessed strong traction led by improving rural sentiments
(above normal monsoon).

We expect net sales/EBITDA growth of 11/10% YoY (ex-Tata

Motors) for our coverage universe and 1/-5% YoY for auto
components. Companies with a relatively higher export mix are
facing volume pressures given the volatile commodity/currency
trends/lower demand across several end markets.

We have rolled forward our estimates for Bharat Forge to

Sept-18E, which gives a TP of Rs 1,012. Given more than 20%
upmove in share price and current price more than 20% of
our TP, we are placing our estimates and reco on Balkrishna
Industries under review. We are revising our reco on Jamna
Auto to Neutral on the backdrop of fair valuations and MHCV
volume moderation.

Retain preference for Tata Motors, as JLRs volume growth

momentum is likely to continue with its healthy new product
cycle, and margin trajectory. We believe M&M, Atul Auto and
Maruti Suzuki are the best placed to play the demand revival
on better monsoon and higher boost to sales led by the 7th Pay
Commission benefits.

2QFY17 Volume Summary

Company
Ashok Leyland
- LCV
- MHCV
Atul Auto
Bajaj Auto
- 2W
- 3W
Eicher Motors
- 2W
- CV
Force Motors
Hero MotoCorp
M&M
- Auto
- Tractor
Maruti Suzuki
Tata Motors
- India
- JL
SML Isuzu

2QFY17

% YoY

% QoQ

33,446
8,100
25,346
11,761
1,031,945
897,414
134,531
181,091
166,940
14,151
9,041
1,823,498
187,837
126,179
61,658
418,456
263,949
134,149
129,800
3,427

(10.4)
8.0
(15.1)
(1.4)
(2.3)
(0.6)
(12.4)
41.9
30.8
16.7
10.4
15.8
18.6
11.5
36.3
18.4
8.8
15.1
3.0
12.7

7.3
13.5
5.5
54.6
3.7
2.9
9.1
22.8
13.2
(12.9)
20.4
4.5
(5.0)
2.4
(17.3)
20.8
7.7
8.1
7.3
(28.4)

Key Commodity Prices

Commodities
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17
CRC (USD/MT)
509
431
379
442
500
493
% QoQ
(11.8)
(15.3)
(12.1)
16.6
13.2
(1.4)
Aluminium (USD/MT)
1,767
1,594
1,494
1,515
1,572
1,620
% QoQ
(1.9)
(9.8)
(6.3)
1.4
3.8
3.0
Lead (USD/MT)
1,938
1,718
1,682
1,740
1,718
1,873
% QoQ
7.0
(11.3)
(2.1)
3.4
(1.3)
9.1
RSS4 (Rs/MT)
12,617 11,846 10,873
9,989 13,215 13,502
% QoQ
0.1
(6.1)
(8.2)
(8.1)
32.3
2.2
Source: Company, Bloomberg, HDFC Sec Inst Research
2

2QFY17E RESULTS PREVIEW

2QFY17E: 3Ws reversal in sight

3W volumes will remain challenged (-13% YoY) in 2QFY17E

driven by a combination of domestic growth (PV/CV 1/-13%)
offset by concerns in the export markets (PV/CV -32/-46%),
mainly in Africa (facing shortage of dollars).

2QFY17 3W Volume Summary (*based on actuals till Aug-16)

We are positive on Atul Auto despite the company posting 1%

YoY volume de-growth (+55% QoQ owing to the VAT issue in
Gujarat in 1Q) and currency limitations in the export markets.

Force Motors

We believe it will continue to capture higher market share

(currently, PV/CV 4.7/18.1%) with its strong product portfolio
(higher payload with two years warranty period) and a new
launch (0.35T gasoline 3W). With its strong presence in rural
India, Atul Auto will benefit from a normal monsoon.

Scooters India

Company

2QFY17E*

% YoY

% QoQ

Atul Auto

11,761

(1.4)

54.6

Bajaj Auto

134,220

(12.6)

10.6

702

19.4

6.7

M&M

15,525

0.1

29.2

Piaggio

47,590

(1.8)

6.7

1,539

(28.6)

(10.9)

20,401

(38.7)

17.7

231,738

(12.8)

(2.8)

TVS Motors
Total

Source: Companies, HDFC sec Inst Research

2QFY17E RESULTS PREVIEW

2QFY17E: Operating leverage benefits to offset RW price rise

COMPANY

Tata Motors

Maruti Suzuki

Bajaj Auto

M&M

Eicher Motors

2QFY17E
OUTLOOK

WHATS LIKELY

GOOD

Consol topline to improve by 12% YoY led higher volumes

at JLR (+23%) and Tata Motors (+8%). ASPs will improve
due to currency benefits (GBP depreciation vs USD)
EBIDTA margin to improve owing to favourable fx
movement and richer product mix.

JLRs demand trends and outlook

Update on Cheery JV
Discounts/demand trend in the CV segment
Update on new launches in India business

Healthy topline growth of 30% YoY aided by 18% volume

increase and 12% net ASP improvement owing to richer
product mix
EBITDA margin to improve by 40bps QoQ on account of
better product mix and benefit of operating leverage

Outlook for volume growth

Discount trends and scope for reduction
Fx hedges
Update on new product launch (Ignis)
Progress on commissioning Gujarat plant

Expect decline in topline owing to pressure in exports

(dollar availability constraint in African countries) and 3W
segment offset by strong domestic volume growth (up
21% YoY)
EBITDA margin to improve 20bps QoQ , driven by better
product mix in 2W (Avenger and V-15)
Topline growth of 17% YoY led by higher tractor and UV
(recent launches of TUV100 & KUV300) volumes
Margins to be decline by 84bps QoQ as share of tractor
volumes was lower

Export demand outlook

Details on new launches , specially Bajaj
Pulsar VS 400
Quantum of new 3W permit issuances

EXCELLENT

AVG

EXCELLENT

KEY MONITORABLES

Update on 2W business and Ssangyong

Status of petrol variant launches
Outlook on tractor and UV growth for FY17

YoY nos not comparable as Ind-AS accounting adopted in Order backlog for RE bikes
1Q. Strong demand fro RE bikes and CVs will drive topline Launch pipeline for RE
growth of 15% QoQ
Current demand, channel inventory and
Profitability improvement (+63bps QoQ to 30.9%) based
discount trends in CV business
on op lev and mix
4

2QFY17E RESULTS PREVIEW

2QFY17E: Operating leverage benefits to offset RW price rise

COMPANY

2QFY17E
OUTLOOK

WHATS LIKELY

KEY MONITORABLES

AVG

Strong scooter volumes to result in 13.3% YoY revenue

growth.
Expect 40 bps YoY EBITDA margin decline owing to higher
marketing expenses and lower ASP.

BAD

Sharp fall in revenue dragged by volume, poor product mix Volume outlook going forward
and lower Net ASP
Discounting trend and channel inventory in
Expect 120 bps QoQ EBITDA margin contraction impacted
MHCVs
by lower volume and higher discount
Comment on defence opportunity
Status of long-term and working capital debt
Comment on foundry acquisition and its
ongoing progress

BAD

Sharp drop in topline (10% YoY) led by to decline by 19% Outlook on Class 8 trucks for CY16/17
YoY decline in export revenues) and slowdown in domestic Outlook on user industries in US (oil&gas,
MHCV industry
mining)
EBITDA margin to decline by 156bps YoY due to negative Ramp-up of aerospace and defence orders
operating leverage

Exide Industries

Good

Expect revenues to grow 9 % YoY owing to higher OEM

sales and regain replacement market (incentivising local
garages to strengthen its distribution network and
commenced 2W courier services)
EBITDA margin to remain flat YoY as benefit of operating
leverage is likely to be offset by 9% increase in lead price

Balkrishna Industries

AVG

Expect topline to improve by 16% YoY

Demand outlook across agri/OTR segments in
Increase in average rubber prices to result in decline in
US/Europe
EBIDTA margin of 257bps QoQ

Hero MotoCorp

Ashok Leyland

Bharat Forge

Outlook for volume growth during festive

season and beyond
Initial response for Achiever model
Progress on cost-saving initiatives

Outlook for growth and pricing in 2W/4W

replacement segments
Market share in telecom segment
Outlook on insurance business

2QFY17E RESULTS PREVIEW

2QFY17E: Operating leverage benefits to offset RW price rise

COMPANY

Force Motors

Suprajit
Engineering

SML Isuzu

Jamna Auto

2QFY17E
OUTLOOK

WHATS LIKELY

KEY MONITORABLES

GOOD

Expect revenue to grow by 13% YoY on the back of strong Update on new launches
performance of OEMs(up 12.7% YoY growth in revenue) and sub- Comment on capex plan
contracting business
BITDA margin to expand by 110 bps YoY, benefited from operating
leverage

GOOD

Strong performance in the standalone business (led by higher auto Outlook on margins in SEL and Phoenix
volumes and market share gains) and Phoenix will result in 5% YoY Replacement volume growth for
improvement in topline
SEL/Phoenix
Operating leverage benefits to push margins up by 127bps YoY
Phoenixs market share trends in the
aftermarket
Performance of newly acquired Wescon and
the way forward

GOOD

Healthy topline growth of 21% YoY on the back of robust 13% YoY
volume growth and improvement in Net ASP.
Despite significant seasonality in the business, expect robust
2QFY17 EBITDA margin at 8.2% (+348bps YoY)

Comment on new launches into above 12

ton buses and truck segment.
Timeline for commencement of new cabin
facility and capacity expansion

With decline in MHCV volumes, we expect tonnage sales to fall 15%

YoY. This will lead to 9% YoY drop in revenue
Negative operating leverage to drag margins 423bps QoQ

Mix of conventional/parabolic springs for

the quarter and outlook going ahead
Aftermarket growth and outlook
Update on MHCV growth for 2HFY17

BAD

2QFY17E RESULTS PREVIEW

2QFY17E: Operating leverage benefits to offset RW price rise

COMPANY

Atul Auto

Ramkrishna
Forgings

2QFY17E
OUTLOOK

WHATS LIKELY

KEY MONITORABLES

AVG

Flat volumes (-1% YoY) on change in dealer's payment method and New STA approvals received and timeline
initially lesser rain fall in key markets. 2% increase in Net ASP on YoY
for launching gasoline vehicle across India
basis to result in muted YoY growth in revenue
and understanding on launching BS IV
Expect EBITDA margin to decline slightly YoY on account of increase
compliant vehicles
in raw material prices
Outlook for export market, specially in
Africa
Volume outlook and margin guidance for
FY17

BAD

Lower domestic CV volumes and decline in class 8 truck orders Update on samples sent to exports for
could lead to 7% YoY fall in topline
12.5k MT
EBIDTA margins are expected to decline 300bps YoY owing to Update on export orders of heavy press
negative operating leverage
lines
Increase in wallet share of domestic
customers

2QFY17E RESULTS PREVIEW

2QFY17E: Financial summary

COMPANY
AUTOS
Tata Motors
Maruti Suzuki
Bajaj Auto
M&M
Eicher Motors
Hero MotoCorp
Ashok Leyland
Force Motors
SML Isuzu
Atul Auto
Aggregate
Aggregate (ex-TTMT)
AUTO ANCS
Bharat Forge
Exide Industries
Balkrishna Industries
Suprajit Engineering
Jamna Auto
Ramkrishna Forgings
Aggregate

NET SALES (Rs bn)

2Q
QoQ
YoY
FY17E
(%)
(%)

EBITDA (Rs bn)

2Q
QoQ
YoY
FY17E
(%)
(%)

EBITDA Margin (%)

2Q
QoQ
YoY
FY17E
(bps)
(bps)

APAT (Rs bn)

2Q
QoQ
FY17E
(%)

Adj. EPS
YoY
2Q
1Q
(%) FY17E
FY17

2Q
FY16

685.4
181.6
60.5
102.6
17.9
77.5
43.1
8.5
3.3
1.4
1,181.7
496.3

4.0
21.6
5.2
(2.6)
14.9
4.7
1.3
14.3
(29.6)
54.2
5.9
8.6

11.8
30.6
(0.8)
16.6
(42.7)
13.3
(12.7)
12.9
21.3
34.4
11.3
10.7

84.6
27.6
12.5
13.6
5.5
11.9
4.3
0.8
0.3
0.20
161.4
76.9

(0.3)
24.6
6.7
(8.3)
17.3
(2.9)
(9.2)
14.6
(56.7)
135.1
2.9
6.8

9.5
22.9
(4.7)
17.4
11.9
10.2
(27.2)
27.4
111.4
72.2
9.8
10.1

12.3 (53.6) (25.8)

15.2
36.1 (94.7)
20.7
28.3 (85.2)
13.3 (83.7)
8.6
30.9
62.9 1,507.4
15.4 (120.5) (42.6)
10.0 (115.6) (200.7)
9.7
2.1 110.3
8.1 (509.5) 346.4
14.3
(0.6)
1.4
13.7 (38.9) (19.5)
15.5 (25.7)
(9.2)

19.9
17.2
10.1
10.6
4.0
8.6
1.9
0.5
0.2
0.1
70.5
50.7

11.9
15.5
2.8
10.7
7.6
(3.2)
(20.3)
0.7
(63.1)
155.9
3.8
0.9

(10.6)
14.6
7.7
8.8
58.5
10.8
(33.0)
47.2
138.8
(4.8)
0.8
6.1

5.9
56.8
34.7
17.1
149.0
42.8
0.7
39.3
10.5
5.8
-

5.2
49.2
33.8
16.3
138.5
44.2
0.7
39.1
28.4
2.3
-

6.5
49.6
32.2
16.6
94.4
38.7
1.0
26.7
4.4
6.1
-

9.2
18.9
9.2
2.8
2.9
2.2
45.2

(3.6)
(6.0)
(0.4)
8.6
(14.6)
(0.4)
(4.0)

(17.4)
8.7
16.6
5.3
(9.9)
(8.3)
1.1

2.6
2.8
2.7
0.5
0.3
0.4
9.2

3.9
(11.7)
2.1
13.3
(37.5)
(16.2)
(4.4)

(21.7)
8.1
7.0
13.9
(7.8)
(25.4)
(4.5)

28.6 206.2 (155.8)

14.7 (94.1)
(8.3)
28.7
70.8 (256.5)
16.8
69.1 126.9
11.5 (422.9)
26.4
16.1 (304.4) (370.9)
20.4
(9.1) (121.1)

1.3
1.7
1.3
0.3
0.1
0.0
4.7

(1.5)
(10.6)
(12.4)
27.6
(52.8)
(31.1)
(9.9)

(30.3)
10.3
4.4
36.9
(15.4)
(74.6)
(6.4)

5.5
2.0
13.5
1.9
1.6
1.6
-

5.6
2.3
15.4
1.5
3.4
2.3
-

8.0
1.8
12.9
1.7
1.9
6.1
-

Source: Company, HDFC sec Inst Research

2QFY17E RESULTS PREVIEW

2QFY17E: Peer valuation

Mcap
(Rs bn)

CMP
(Rs/sh)

Reco

TP

Tata Motors

1,921

566

BUY

625

Maruti Suzuki

1,717

5,684

BUY

Bajaj Auto

834

2,884

M&M

811

Eicher Motors

Adj EPS (Rs/sh)

FY16 FY17E FY18E

FY16

P/E (x)
FY17E

FY18E

EV/EBITDA (x)
FY16 FY17E FY18E

FY16

RoE (%)
FY17E

FY18E

AUTOS
6.5

47.2

56.1

86.8

12.0

10.1

6.5

5.9

5.2

20.1

18.2

18.2

6,057

153.9

205.4

268.9

36.9

27.7

21.1

18.9

16.8

13.2

18.3

21.2

23.7

NEU

2,716

126.2

139.4

157.1

22.8

20.7

18.3

15.6

13.8

11.9

31.8

17.9

30.8

1,374

BUY

1,615

55.5

69.9

89.8

24.7

19.6

15.3

14.7

12.0

9.5

15.6

17.5

19.8

700

25,810

BUY

28,463

587.1

672.5

894.4

44.0

38.4

28.9

24.8

21.7

16.3

41.0

41.5

40.1

Hero Motocorp

694

3,474

BUY

3,731

156.8

180.6

214.8

22.2

19.2

16.2

14.8

12.6

10.3

43.1

41.3

41.9

Ashok Leyland

231

81

BUY

91

3.9

4.2

6.2

20.7

19.3

13.2

11.2

10.7

7.9

20.9

20.5

26.7

Force Motors

51

3,871

BUY

4,485

137.1

160.0

196.2

28.2

24.2

19.7

17.5

14.6

11.5

12.8

13.3

14.3

SML Isuzu

18

1,259

BUY

1,588

25.5

35.4

53.6

49.3

35.6

23.5

26.8

21.7

15.0

12.8

15.9

21.0

Atul Auto

11

486

BUY

569

21.6

26.0

32.3

22.5

18.7

15.1

13.8

11.0

8.8

34.4

32.6

32.3

Bharat Forge

223

957

BUY

1,012

58.8

53.5

68.6

16.3

17.9

14.0

21.9

21.7

17.5

22.3

17.2

18.8

Exide Industries

164

193

BUY

211

27.6

27.4

36.3

7.0

7.0

5.3

12.8

12.4

10.0

18.6

17.1

19.9

Balkrishna Industries

108

1,117

UR

972

6.5

6.8

8.3

171.5

164.9

134.7

11.6

10.5

8.7

14.2

16.2

21.8

Suprajit Engineering

28

213

BUY

224

9.0

12.4

14.8

23.7

17.2

14.4

17.8

13.9

11.7

32.5

36.0

34.6

Jamna Auto

17

218

BUY

222

19.1

30.0

42.2

11.4

7.3

5.2

15.0

10.7

8.7

12.4

16.9

20.3

Ramkrishna Forgings

10

365

BUY

590

5.9

8.1

10.1

61.5

44.8

36.3

8.3

6.4

5.3

22.6

21.4

21.7

AUTO ANCS

Source : Company, HDFC sec Inst Research

*Tata Motors - EV/EBIDTA based on adjusted R&D expenses # M&M- P/E adjusted for M&Ms stake in listed subsidiaries

2QFY17E RESULTS PREVIEW

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL
: Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period
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report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a
merger or specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the
research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research
Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with
and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We
have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst
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2QFY17E RESULTS PREVIEW

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