Auto | Assetmultiplier

30 Jun

Monsoon – One of the key growth drivers of the Indian economy?

Southwest monsoon arrives early in the mainland of India and it covered many Indian states and union territories but many of those states have received deficit rainfall in early June.

But wait, why does it matter to us, how the excess or deficit rainfall is going to affect the Indian economy and Investors? So, let’s discuss

In India, the monsoon season starts in June and lasts till September. India receives more than ~70% of rainfall in this period. India is an agrarian economy and more than half of the workforce is engaged in agriculture and the allied sector. The farm sector also has a double-digit contribution to India’s GDP.

*LPA – Long Period Average

Here is the equation – Good monsoon = Good farm output = Strong consumer demand and vice versa

The monsoon has a direct relationship with the agricultural and allied sectors. Approximately half of India’s total food output is contributed by Kharif crops that are largely dependent on monsoon. A good monsoon season accelerates the farm output and boosts the income of the farmer community. This improves the spending power of rural areas which leads to strong demand sentiments. There is a hidden part of the above equation which is “Inflation”. Normal monsoon and bountiful harvest keep inflation under control since food contributes ~45% in the consumer Price Index (CPI). That is why a normal monsoon is a crucial factor for the inflation.

If we record deficit and a drought-like situation, it will directly weaken the farm production and lowers the income of the farmers. This reduces the consumption demand. At the same time, we get a hit from inflation as lower food production accelerate the food inflation. The government may have to spend towards import of food and adversely impacts the overall economy.

Sectors that have a large exposure to monsoon –

Consumer –India’s rural market contributes a significant share of the revenue of the Indian companies. Many Indian consumer companies are expanding their reach and significantly stepping up direct distribution in rural markets. The normal monsoon will improve the purchasing power of the rural population and may revive the sluggish rural demand and drive revenue growth.
Automobiles and farm equipment – Tractor companies have a direct relationship with the monsoon. A good monsoon improves the farmers’ spending capacity for better farm equipment. This will effectively result in better crop yields. Major Indian 2W makers derive ~50% of their revenue from the rural areas. This demand is again dependent on the agricultural growth.
Agro chemicals and fertilizers – Agrochemicals and fertilizers business directly depends on farmers’ income and agricultural growth. Companies derive their major revenues during the monsoon period. As the good monsoon sentiments enable farmers to spend more on crop care protection chemicals and fertilizers.

In the short, we need a normal monsoon for the smooth economic activity, especially in rural areas, So, let’s hope and pray for a good and normal monsoon every year.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Pratik Talvatkar Agro chemicals, Auto, Consumer, FMCG 0 Comments Read more...

14 Jun

Everybody’s gung-ho on EVs (Electric Vehicles), are we another sheep in the herd?

The primary motive of any business is to earn profits. Why are we saying this now – because today, there are businesses that have hardly made any profits which in turn means that they have destroyed shareholder’s wealth, although they have been very beneficial for the consumer.

A few examples of such businesses can be airlines, which have been highly beneficial for the mankind but most of them have failed to make any profits. A recent example would be food delivery apps which provide us with the convenience of quickly delivering food at our doorstep, have been losing money.

What’s common here? Huge capital investment. A highly capital-intensive sector needs barriers to entry for the players to make money. If there are too many players, each one of them have to keep investing in order to just capture a small piece of the pie. Every player fails to make return on investment higher than their cost of capital, hence, all of them lose money.

Who benefits here – First, the consumer, who gets the products which are cheaper, with better quality and higher variety. Secondly, in the longer run, a player or just a handful of them who emerge as winners.

What does it take for the business to emerge as a winner – lower cost production, scalability and better quality of product. Achieving all three at the same time and on a consistent basis is extremely challenging when you have to face competitors who are also running towards the same goal.

Companies dealing in electric vehicles will be facing teething problems as they have to spend heavily on technology and infrastructure right from the initial stage. Legacy automobile manufacturers, which are funding their EV losses from their ICE (Internal combustion engine) business, are competing with new entrants specializing in EVs with the backing of deep pocketed private equity funds.

What is the conclusion? Are we writing obituaries of auto companies? – certainly not. There is a big market to be captured both for ICE vehicles as well as EV. The hope is that, whoever emerges as the winner may eventually turn profitable, although, nobody knows when.

Volume data of electric vehicles sold

Source: Federation of Automobile Dealer’s Association

Consulting firm RBSA Advisors estimates Indian EV industry to grow by 90% every year for the next 10 years and will touch USD 150 bn in 2030.

By Pranav Mahajan Auto electric vehicles 0 Comments Read more...

01 Jun

e-XUV 300 to be launched in 4QFY23- Mahindra and Mahindra

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,523 (-0.4%) dragged by BAJAJ-AUTO (-3.7%), APOLLOHOSP (-3.3%), and HINDALCO (-2.9%). JSWSTEEL (+3.6%), COALINDIA (+2.0%), and HDFCLIFE (+1.5%) were the top gainers. Among the sectoral indices, PSU BANK (+0.7%), BANK (+0.4%), and PRIVATE BANK (+0.3%) were the top gainers, and HEALTHCARE (-1.5%), IT (-1.4%), PHARMA (-1.3%) were the top losers.

Excerpts of an interview with Mr. Rajesh Jejurikar, Executive Director (ED), Mahindra and Mahindra published in Moneycontrol on 30^th May 2022:

The revenue market share for sports utility vehicles (SUVs) is back to the top position, the company is getting 9,000-10,000 bookings every month for the XUV 700. The recently launched XUV 700 has seen only 10-12 per cent cancellations despite a waiting period of 18-24 months.
The Company has seen huge success in its XUV 700 Utility Vehicle and is not able to match the demand despite producing more than 5000 vehicles every month. The company plans to ramp up its production once supply issues subside.
The Management believes the worst supply constraints are behind it. And that as the company ramps up the capacity with semiconductors supplies expected to improve further, the waiting period will come down.
The Company announced the launch of Scorpio-N a new newer generation model of the classic Scorpio on 27^th June marks the 20^th anniversary of the first launch of Mahindra Scorpio in 2002.
While commenting on the overall market situation, ED reiterated that some risks remain on the external environment front and supply has been disrupted due to lockdowns in China. ED, however, added that they expect to see “strong growth” in the auto business in FY23E.
The company reported its highest-ever standalone revenue for auto and farm segments at Rs 553 bn for FY22 with April traction in tractors being strong, better than expectations. The farm equipment sector (FES) tractors market share for FY22 is at 40 per cent, up 1.8 per cent year on year with the highest ever farm export volume of 17,500 tractors in FY22.
The management reiterated the company’s goal to reach an 18 per cent return on equity (RoE), adding that focus on capital allocation and improved financial metrics continue to deliver results.
The Company is planning to launch the fully electric version of its XUV 300 SUV in the market in the first quarter of next year and is expected to unveil its electric vehicle business strategy, ‘Born Electric Vision’ of EV concept in Aug-22.

Asset Multiplier Comments

Mahindra and Mahindra continue to cement its position as the market leader in the utility vehicles segment and with the expected launch of e-SUV, the company can better consolidate its leadership.
The farm Equipment segment has been performing really well for the company, increased farm incomes due to government policy, and strong monsoon forecasts will augur well for the company’s demand in the medium term.

Consensus Estimates: (Source: market screener and investing.com website)

The closing price of Mahindra and Mahindra was ₹ 1,047/- as of 01-June-2022. It traded at 16x/ 11x the consensus earnings estimate of ₹ 69/ 94 – for FY23E/FY24E respectively.
The consensus target price of ₹ 1,150/- implies a P/E Multiple of 12x on the FY24E EPS estimate of ₹ 94/-.

By Pratik Mate Mahindra & Mahindra Auto, electric vehicles, passenger vehicles 0 Comments Read more...

19 May

Reducing dependency on two-wheeler segment – Minda Corporation

Update on the Indian Equity Market:

On Thursday, NIFTY settled down lower at 15,809 (-2.7%). HCLTECH (-6%), WIPRO (-5.8%), and INFY (-5.2%) were the top losers. ITC (+3.4%), DRREDDY (+1%), and POWERGRID (+0.4%) were the only gainers. Among the sectors, IT (-5.7%), METAL (-4%), and PSU BANK (-2.7%) led the losers. There were no sectoral gainers for the day.

Excerpts of an interview with Mr. Aakash Minda, ED, Minda Corporation (MINDACORP) with ET Now on 18^thMay 2022:

The company delivered revenue of Rs 9,470mn with an EBITDA margin of 11.4% and this was in line with management guidance of delivering consistent and improved performance.
MINDACORP is targeting to grow and perform more than 10-15% above the industry on a quarterly and annually and deliver consistent and sustainable EBITDA in double digits.
On Electric vehicles (EV) he said, MINDACORP has a very strong order book. In FY22 the company received a lifetime order book worth Rs 9,500mn and from FY23 it will start contributing to the revenues of ~Rs 700-800mn.
MINDACORP’s ~45-50% revenue was contributed by the 2W segment but this segment did not perform well. The company is focusing on diversifying its segments and reducing its dependency on 2W from ~50% to 40-45% and growing in other areas like passenger cars.
In FY22 the export revenues stood at 12% of total sales but in FY23 the company expects that the exports will be more than FY22.
On geographic expansion, America and Europe are the biggest markets of exports for the company but it is also focusing on entering into newer geographies.
In the last two years, raw material and logistics prices have gone up significantly and have impacted MINDACORP, although the company Is doing back-to-back arrangements with the customers the lag persists.
The company expects the input costs pressures and semiconductor chip shortage will continue in FY23 which will drag down the growth and profitability of MINDACORP and the overall industry for the upcoming quarters and years.
For FY23, it will maintain its CAPEX spend of ~4-5% of revenues and invest in new technology and smarter, futuristic, and advanced products. All the CAPEX will be funded from internal cash accruals.

Asset Multiplier Comments

Management’s guidance of outperforming the industry through contract wins in EVs increased revenues from CVs, and export focus will be key positives for the company.
Higher input costs, supply chain issues, semiconductor chip shortage, higher fuel costs, and increasing inflationary pressures on consumers are the key risks for the overall auto and auto component industry.
We believe Management’s target of reaching 12% EBITDAM by end of FY24E is achievable on the back of premiumization, improved product mix, commercial vehicle pick up, stable copper prices, localization of components, and productivity of labor.

Consensus Estimates: (Source: Market screener website)

The closing price of MINDACORP was ₹ 199/- as of 19-May-2022. It traded at 20x/ 16x the consensus earnings estimate of ₹ 10/ 12.7/- for FY23E/FY24E respectively.
The consensus target price of ₹ 264/- implies a P/E Multiple of 21x on the FY24E EPS estimate of ₹ 12.7/-

By Pratik Talvatkar Auto, Auto Ancillary 0 Comments Read more...

18 May

Capex of 2.6 bn pounds to be utilized for electrification operations – TATAMOTORS

Update on the Indian Equity Market:

On Wednesday, NIFTY settled lower at 16,204 (-0.1%). POWERGRID (-4.5%), BPCL (-3.2%), and TECHM (-2.2%) were the top losers. TATACONSUM (+3.1%), HINDUNILVR (2.1%), and ULTRACEMCO (+2.0%) were the gainers. Among the sectors, REALTY (-1.8%), PSU BANK (-1.6%), and CONSUMER DURABLES (-0.5%) led the losers. FMCG (+1.3%), PHARMA (+1.1%), and HEALTHCARE (+0.6%) led the gainers.

Excerpts of an interview with Mr. P.B Balaji, Group CFO, Tata Motors with Economic times on 17^thMay 2022:

In terms of capex plans, the company intends to spend Rs 60bn on Tata Motors and 2.6 bn pounds on JLR, which will be utilised for innovations and to prepare the company for the future as the industry transitions from IC engines to an industry of net-zero commitments. Capex will be used by the company for both traditional and electrification-related operations.

Capex will be funded by internal accruals, and the firm will generate free cash flows of over a billion pounds after spending 2.6 bn pounds on capex. The commercial vehicle business of Tata Motors is cash positive, whereas the passenger car division is cash neutral. The TPG transaction was executed to ensure investments in electrification are made on time.

The failure to meet market demand due to the semiconductor shortage is affecting revenues, both at JLR and Tata Motors is expected to result in a loss of contribution, profitability, and operational leverage.
As far as China lockdowns are concerned, they have impacted the April numbers for all OEMs that were released on 16^th May 2022.
The Company’s supply chain has not been directly harmed by the Russia-Ukraine war. They have two vendors in the regions that are being diverted.
Interest rate rises will undoubtedly weaken demand in the future as a result of inflation in fuel, commodities, and food. However, from the standpoint of JLR and Tata Motors, the premium market is not facing that challenge.
Domestically, the firm hasn’t seen any impact on demand, but it will be watching this closely for the next three to six months to see how the demand plays out.
Due to commodities, oil, and the resulting fuel price increase, management has begun to identify a risk of greater inflationary expectations, which might harm the premium sector as well as demand in India.
Due to the commodity cost rise, the company has roughly 200 basis points of unrecovered margins, compared to about 540 basis points previously.
The company anticipates commodity prices to stay steady at current levels. In April, the company raised its prices. If commodity prices continue to climb, the company will increase prices to protect our margins.
Lithium costs have risen as demand for electric cars has grown. The company has taken price hikes which are absorbed by the market. There is a very attractive equation in terms of the running cost of an electric vehicle vis-à-vis a diesel or a petrol car.

Asset Multiplier Comments

As supply-side concerns ease and commodity headwinds settle, Indian business, which was severely impacted by the second Covid wave, could witness some supply-side recovery. The renewed product range in its PV business is expected to lead to market share gains, and it is projected to achieve FCF breakeven by FY23E due to macroeconomic recovery.
JLR’s profitability is likely to improve as a result of cost-cutting activities in both variable and fixed costs, improved mix, increased operational leverage, and cost savings from its modular platform.

Consensus Estimate: (Source: market screener)

The closing price of TATAMOTORS was ₹ 415/- as of 18-May-2022. It traded at 24x/ 11x the consensus earnings estimate of ₹ 17.0/ 36.4/- per share for FY23E/FY24E respectively.
The consensus target price of ₹ 529 /- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 36.4/-

By Rujuta Tamhankar Auto Auto industry, EV 0 Comments Read more...

02 May

The commuter segment has seen a slowdown over the past 3 years – Bajaj Auto

Update on the Indian Equity Market:

The Indian indices opened the week in the red. NIFTY ended 0.2% lower at 17,069 led by INDUSINDBK (3.9%), COALINDIA (2.6%), and POWERGRID (2.1%). EICHERMOT (-3.4%), APOLLOHOSP (-3.4%), and TITAN (-2.9%) were top losers.

Among the sectoral indices, METAL (+0.6%), PRIVATE BANK (+0.5%) and MEDIA (+0.4%) were the top gainers. CONSUMER DURABLES (-2.0%), IT (-1.5%), and AUTO (-1.4%) led the sectoral laggards.

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto with CNBC-TV18 on 28^th April 2022:

EV transition provides the company with a huge opportunity in the scooter segment. The company is currently not present in the ICE scooter segment, ASEAN Markets are heavily skewed towards the non-motorcycle segment, so EV Scooters provide Bajaj Auto with a global opportunity.
The company launched has launched Chetak EV Scooter 2 years ago and will launch soon launch a new version in June-2022. The recent EV Fire incidents will impact buyer behavior in terms of safety concerns and brand preference but the transition to EV is inevitable.
The Mass Market segment (~100cc) has lost over 15% volume over the last 3 years due to economic slowdown in the rural parts of the country and decreased purchasing power of low-income groups due to COVID-19 and inflation.
The commuter segment contributes about 50% of 2 wheeler industry’s volumes, so the company is on the lookout for how the monsoon performs as it expects a revival in demand if a robust monsoon leads to a rise in disposable incomes which will be critical for the 2 wheeler industry’s turnaround.
The export segment has performed steadily with the company reporting the highest-ever volumes from the export segment. The company is a market leader or the runner-up in key export markets of Latin America, Africa, and ASEAN.
Demand will be buoyant during Q1, due to pent-up demand and marriage season in rural India, however, that cannot ve extrapolated to the outlook for FY23. Q2FY23 will be crucial to determine whether the 2 Wheeler industry is set for a turnaround after reaching a decadal low due to structural problems of inflation and unemployment across rural India.

Asset Multiplier Comments:

Bajaj Auto like other mass-market producers has borne the brunt of rural slowdowns and decline in demand, increasing commodity costs, and supply chain constraints but the issues seem to have bottomed out and the industry as a whole is set for a turnaround in FY23.
High export exposure and a robust portfolio of premium brands like Dominar, Pulsar, and KTM-Husqvarna have insulated Bajaj Auto from the slowdown in the commuter segment and made it better placed amongst the all the players in the 2 wheeler industry.

Consensus Estimate: (Source: Marketscreener website)

The closing price of Bajaj Auto was ₹ 3,623/- as of 02-May-2022. It traded at 19x/ 16x the consensus earnings estimate of ₹ 194/226 for FY23E/FY24E respectively.
The consensus target price of ₹ 4,120/- implies a P/E Multiple of 18x on the FY24E EPS estimate of ₹ 226/-

By Assetmultiplier Bajaj Auto electric vehicles, passenger vehicles, volumes 0 Comments Read more...

21 Apr

Time to reimagine supply chain strategies to be future-ready– Tata Motors

Update on the Indian Equity Market:

On Thursday, NIFTY ended 256 points in the green and closed at 17,392. AUTO (+2.2%), FINANCIAL SERVICES (+1.5%), and PRIVATE BANK (+1.5%) were the gainers, whereas, MEDIA (-0.1) was the only loser. Among the stocks, EICHERMOT (+4.4%), COALINDIA (+4%), and M&M (+3.2%) were the top gainers, and CIPLA (-1.2%), HINDALCO (-0.8%), and ONGC (-0.6%) were the top losers.

Excerpts of an interview with Mr. Rajesh Khatri, Vice President-PV Operations, Tata Motors with CNBC TV-18 on the 18^th of April 2022:

Covid-19 has affected global supply networks all across the world, particularly in the auto industry, which is currently recovering from a supply chain shock. The worldwide chip scarcity is still wreaking havoc on the automotive industry in particular. Lockdowns in Shanghai hampered supply, and consignments are now lying at airports. Geopolitical threats, on the other hand, have yet to be felt on the ground. The effects of the war on the automobile industry are yet unknown.
The company feels it is time to reconsider its strategic goals. Previously, supply chains were centered on cost optimization, with the goal of sourcing items at the lowest feasible price as quickly as possible. To be future-ready, the company believes that it needs a more agile, productive, robust, digital, and sustainable supply chain.
The company believes that adopting a digitally integrated value chain in conjunction with a collaborative approach will be more effective, whereas proactive risk management will prepare organizations for any uncertainties that demand a total supply chain transformation.
The company is attempting to increase visibility across the entire value chain to identify any potential risks. As a result, the firm has mapped all of its suppliers and locations to build a Supplier Grid, which is monitored to better analyze risk and take preventative steps.
In addition, the firm is diversifying its supplier risks rather than depending on a single supplier, which will assist the company to gain flexibility, dependability, and reliability within the supply chain.
To address the chip availability issue, the company is designing electronic components with catalog chips and developing alternate architecture with next-generation chips.
The company is utilizing AI (Artificial Intelligence) to create a digital control tower for simulating supply scenarios to predict supply chain risks.
No big investments are needed for the supply chain measures.

Asset Multiplier Comments:

The semiconductor shortage is likely to persist at least for a few months which will create a hindrance for most automobile companies. We believe, the company’s supply-side issues and commodity headwinds stabilize gradually. The company continues to address the supply chain bottlenecks via a strategic approach which will augur well for the company in the future.
We expect the company to benefit from the improving consumer demand for Passenger vehicles and Electric vehicles with the receding Omicron effect, the launch of new products.

Consensus Estimate: (Source: Marketscreener website)

The closing price of TATAMOTORS was ₹ 440 /- as of 21-Apr-2022. It traded at 20x/11x the consensus earnings estimate of ₹ 22/41 for FY23E/FY24E respectively.
The consensus target price of ₹ 547 /- implies a P/E Multiple of 13x on the FY24E EPS estimate of ₹ 41/-

By Rujuta Tamhankar Tata Motors, Uncategorized 0 Comments Read more...

18 Apr

To launch its first EV model by 2025 – Maruti Suzuki

Update on the Indian Equity Market:

On Monday, NIFTY ended 290 points in the red and closed at 17,173. FMCG (+0.6%), AUTO (+0.4%), and METAL (+0.3%) were the gainers, whereas, IT (-4.6%), PSU BANK (-2.5%), and FINANCIAL SERVICES (-2.2%) were the losers. Among the stocks, NTPC (+6.4%), SBILIFE (+2%), and HDFCLIFE (+1.7%) were the gainers and INFY (-7.2%), HDFC (-4.8%), and HDFCBANK (-4.6%) were the top losers.

Excerpts of an interview with Mr. Hisashi Takeuchi, MD & CEO, Maruti Suzuki published in Business Standard on the 18^th April 2022:

The shortage of necessary electronic components and semiconductors has resulted in a backlog of 270,000 units – the equivalent of nearly two and a half months of the company’s domestic sales.
For sourcing the semiconductor chips, the company is working with the parent, Suzuki Motor Corporation as well as placing bulk orders directly with chipmakers.
The market share of the company has come down to 43.4% from 47.7% two years back. Despite clocking a 13% YoY sales growth in FY22, the loss in domestic market share was due to the total industry growing at a similar pace.
The company deals predominantly in the small car market and has lagged in the SUV segment. It has strategies to make a comeback by introducing multiple models in the SUV space.
With Suzuki announcing investment in Gujarat to manufacture electric vehicles, the company is targeting localisation which will help in end-product cost reduction.
To manufacture electric vehicles and batteries by setting up greenfield projects takes around two to three years. The company thinks, a launch in 2025 is achievable.

Asset Multiplier Comments:

We believe, the company will continue to face competition from other existing as well as new players. The company’s goal of regaining its lost market share is a big challenge for the new CEO.
The semiconductor shortage is likely to persist at least for a few months which will create a hindrance for most automobile companies. The players who can rationalize the short supply by prioritizing selling the premium category models will turn out to be better performers.

Consensus Estimate: (Source: Tikr website)

The closing price of MARUTI was ₹ 7,579 /- as of 18-Apr-2022. It traded at 35x/22x the consensus earnings estimate of ₹ 219/343 for FY23E/FY24E respectively.
The consensus target price of ₹ 9,150/- implies a P/E Multiple of 27x on the FY24E EPS estimate of ₹ 343/-

By Pranav Mahajan Maruti Suzuki Auto 0 Comments Read more...

14 Mar

Supply-side issues disrupting demand fulfilment – Motherson Sumi

Update on the Indian Equity Market:

On Monday, NIFTY50 ended in green at 16,871 (+1.5%). Among the sectoral indices, MEDIA (+2.5%) BANK (+2.2%), and FINANCIAL SERVICES (+2.16%) were the top gainers, whereas REALTY (-1.7%), OIL & GAS (-0.5%), and METAL (-0.5%) were the top losers. Among the stocks, INFY (+3.8%), HDFCBANK (+3.3%), and SBIN (+3.2%) were the top gainers while IOC (-2.6%), ONGC (-2.3%), and HINDUNILVR (-1.7%) led the losers.

Excerpts of an interview with Mr. Vivek Chaand Sehgal, Chairman, Motherson Sumi Group (MOTHERSUMI) with CNBCTV18 on 11^th March 2022:

The Russia-Ukraine crisis has impacted the auto ancillary industry in the last couple of days. Some of these companies have European exposure where supply has been affected due to the current geopolitical conflicts.
The industry was on track to return to normalcy in terms of semiconductor chip supplies but due to the current crisis industry got another hit. The situation has not yet recovered but he expects that the semiconductor situation should not be highly affected due to the crisis.
Sehagal added, due to the crisis certain companies and suppliers who have a presence in Ukraine are affected. This adversely affected the operations of car manufacturers. MOTHERSUMI doesn’t have any facility in Ukraine but the company has small plants in Russia but the operations weren’t impacted.
He doesn’t expect demand to get affected due to the current situation but supply-side issues are disrupting the demand fulfillment.
The impact of rising energy costs was exacerbated by the rising geopolitical issues on the Auto OEMs.
The company is taking a lot of initiatives to protect profitability and MOTHERSUMI’s team also strongly focuses on mitigating the issues.
On the back of semiconductor and other issues, the current crisis affecting car manufacturing operations and carmakers also wanted to revive their business as quickly as possible.
Sehagal expects that the situation of semiconductor shortage might be stretched out further. If the issues are not resolved till Sep-22 or Oct-22, they might be stretched out further till Jan-23 or Feb-23. Car manufacturers are also trying to solve these issues by 1HFY23.
On international business, Mr. Sehgal said the demand was steady and war-like situations accelerated the demand and expects the North American business perform better than expectations.

Asset Multiplier Comments

We think that the raw material cost inflation, increased energy costs in Europe, and other supply chain disruptions are likely to delay the recovery in MOTHERSUMI’s revenue and profitability.
Global major car manufacturers are shutting their plants in Russia due to current conflicts and with warlike situations continuing, the demand for luxury cars is getting impacted. The top 20 clients contribute ~70% of MOTHERSUMI’s revenue. The list includes some of the luxury car manufacturers. The demand reduction is likely to impact the company’s revenues in the short term.
We believe that the pick up in production levels of OEM’s post supply chains improvement, and a stabilisation in commodity prices, and the execution of strong order book will improve the performance of the company.

Consensus Estimate: (Source: Marketscreener website)

The closing price of MOTHERSUMI was ₹ 128/- as of 14-March-2022. It traded at 16x/12x the consensus earnings estimate of ₹ 8.1/11 for FY23E/FY24E respectively.
The consensus target price of ₹ 206/- implies a P/E multiple of 19x on FY24E EPS estimate of ₹ 11/-

By Pratik Talvatkar Auto, Auto Ancillary 0 Comments Read more...

23 Feb

On a strong recovery path with new variant launches – Ashok Leyland

Update on the Indian Equity Market:

On Wednesday, Nifty closed lower at 17,063 (-0.2%). Among the sectoral indices REALTY (+3.2%), PSU BANK (+1.0%), and CONSUMER DURABLES (+0.9%) led the gainers while FINANCIAL SERVICES 25/50 (-0.2%), AUTO (-0.2%), and FINANCIAL SERVICES (-0.2%) led the losers.

Among the NIFTY components, the top losers were ONGC (-2.4%), HEROMOTOCO (-2.2%), and NTPC (-1.5%) while KOTAKBANK (+2.2%), TITAN (+1.8%), and INDUSINDBK (+1%) were the top gainers.

On a strong recovery path with new variant launches – Ashok Leyland

Edited excerpts of an interview with Mr. Sanjeev Kumar, Head of M&HCV, Ashok Leyland, with Livemint on 15^thFebruary 2022:

The Company plans to steadily expand its CNG range. It is targeting to bring in up to 40% of Intermediate commercial vehicle (ICV) sales from this fuel variant. It has been delaying its CNG vehicles launch despite this variant being the biggest volume generator in the commercial vehicle space.
Its electric mobility arm, Switch Mobility aims to raise funding of around USD 200-300 million. Under this arm, Ashok Leyland continues to develop its electric vehicle (EV) and E-Mobility-as-a-service (E-MaaS) portfolio. The E-MaaS service is soon to be started in India.
The competition was quick in providing CNG vehicles as they provided existing bus engines. Ashok Leyland developed CNG engines specifically for trucks. This new engine has the highest horsepower and torque in this segment.
The company has announced the launch of 14-tonne and 16-tonne CNG trucks. Further, they plan to extend this range to 11-tonne trucks in the next two months and eventually also to multi-axle vehicles.
The launch is timed at an opportune situation where after a three-year slump the commercial vehicle market is seeing a rebound. Positive signals from E-commerce, steel, cement, coal, iron ore will be the main growth drivers for a rise in demand for commercial vehicles.
The lower running cost of CNG vehicles as well as the rapidly increasing number of CNG fueling stations are making fleet operators of intermediate and light commercial vehicles prefer CNG over diesel variants.
In the intermediate commercial vehicles (ICV) market, 35%-40% of the existing vehicles are already CNG powered. Also, the shortage of trucks with the fleet operators is resulting in a spur in demand.
Further, Ashok Leyland is also developing alternate fuel technologies such as liquified natural gas (LNG) as a possible substitute for diesel-run M&HCVs.

Asset Multiplier Comments

An uptick in commercial vehicle demand will be strong on the back of the recovery in E-commerce, logistics, building equipment like steel, iron, and cement.
Ashok Leyland is well-positioned to service the demand for better and fuel-efficient CNG commercial vehicles.

Consensus Estimate (Source: market screener & TIKR websites)

The closing price of Ashok Leyland was ₹ 124 /- as of 23-February-2022. It traded at 29x/ 17x the consensus EPS estimates of ₹ 4.2/ 7.1 for FY23E/FY24E respectively.
The consensus target price of ₹ 143 /- implies a P/E Multiple of 20x on FY24E EPS estimate of ₹ 7.1/-.

By Pranav Mahajan Ashok Leyland 0 Comments Read more...