Auto

04 Jan

Production levels improving gradually – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, the benchmark index NIFTY 50 closed at 17,805 (+1.0%), 180 points higher. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.2%), and FINANCIAL SERVICES (+1.2%) led the gainers while HEALTHCARE (-0.8%), PHARMA (-0.8%), and REALTY (-0.5%) led the losers. Among the NIFTY50 components, NTPC (+5.2%), ONGC (+3.7%), and SBIN (+2.8%) were the top gainers while TATAMOTORS (-1.7%), COALINDIA (-1.7%) and TATACONSUM (-1.2%) led the laggards.

Excerpts of an interview with Mr. Shashank Srivastava, ED-Marketing & Sales of Maruti Suzuki (MSIL) with CNBC-TV18 on 03rd January 2022:

  • In December, MSIL could produce almost 90% of its planned production which was an improvement over the previous months. In September, the company did only about 40% of the production. In October it was about 60%. In November it was about 83-84% and it was close to 90% in December.
  • There seems to have been a progressive improvement on the supply side as well because of the improved situation on the semiconductor front. Going forward, the situation is still not expected to be normal and it is very difficult to pinpoint exactly at what time it will become normal. The company doesn’t believe January-22 will be normal.
  • 100% Normal Utilisation levels is a dynamic that involves the global supply chain and is a very complex issue involving not just Maruti Suzuki and India, but all the OEMs across the globe.
  • On the demand side, the momentum seems to be still pretty strong and it is across all segments. The company saw a good improvement in booking numbers as well as the overall inquiry level even in December.
  • The demand seems to be strong but in the last few months there was a supply disruption because of the semiconductor issue and that has led to the building up of waiting periods and the pending payments had gone up. Currently, MSIL has 2.3 lakh pending bookings. The demand for CNG seems to continue growing. The waiting periods for CNG models are much longer than that for the Petrol/Diesel models.
  • MSIL is very bullish about the Indian market in the long term and the company is planning to strengthen the portfolio in one of the areas where it is a little weaker as far as product portfolio is concerned. The Company plans to launch many new models in the mid SUV segment.
  • The company has no plans to launch an EV before 2025 because it believes the ecosystem which is required for sustainable large-scale, large-volume build-up in the industry is still not there. With regards to the product and investments in the product, Maruti Suzuki has been a very strong presence and along with its parent organization Suzuki Motor Corporation, the company plans to make robust investments in the e-product portfolio.
  • Commodity prices are pretty strong and there is no real relief on the cards. As a result, the company has announced a price hike. Most of the OEMs have announced a price hike in January-22 and the company plans to announce a price hike in line with that.

Asset Multiplier Comments

  • Auto Industry is undergoing a lot of turmoil due to high pent-up demand, increasing fuel prices, supply chain issues, and commodity inflation. As India’s largest carmaker- MSIL is at an inflection point as it navigates through these critical issues while maintaining its market share.
  • The migration to EV has already been started by MSIL’s peers, however, with the company delaying EV Launch to 2025, it remains to be seen how it reacts to aggressive expansion by its competitors in this segment.

Consensus Estimate: (Source: market screener and Tikr website)

  • The closing price of Maruti Suzuki was ₹ 7,630/- as of 04-January-2022. It traded at 56x/30x/25x the EPS estimates of ₹ 136/251/304/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 8,172/- implies a P/E Multiple of 27x on FY24 EPS estimate of ₹ 304/-

 

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.”

 

 

 

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03 Jan

Double-digit decline to continue in 4QFY22E as well – Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,625 (+1.6%). Among the sectoral indices, PRIVATE BANK (+2.7%), BANK (+2.7%), and FINANCIAL SERVICES (+2.5%) closed higher while PHARMA (-0.5%) and HEALTHCARE (0.4%) closed in the red. COAL INDIA (+6.4%), EICHERMOT (+4.6%), and BAJFINANCE (+3.6%) were the top gainers. CIPLA (-1.3%), DR REDDY (-1.0%), and M&M (-0.8%) were among the top losers.

Excerpts from an interview of Mr. Rakesh Sharma, Executive Director, Bajaj Auto with CNBC-TV18 dated 3rd January 2022:

  • On the demand environment, the company expects volume cutbacks in a variety of categories, including retail, rural, and urban.
  • The industry still facing a double-digit decline. Retail sales have dropped by 15%-17%, which is a big drop. The company does not see any bottom in sight. The management does expect the double-digit decline in volumes to continue, especially in the mass market group, in 4QFY22E as well.
  • The majority of the company’s 2-wheeler demand comes from the lower-income segment of the economy. Since the 2-wheeler industry has been affected during FY20 – FY22, and the economic recovery has not yet trickled down to this sector, the management does not see demand picking up. The COVID issue has receded and the decline in demand is driven by the economic performance.
  • Despite this, the firm has increased its market share by 3% in the previous three quarters. The business anticipates a 20% market share in the motorcycle industry by FY22E.
  • Within the EV space, the company is preparing to shift from ICE to electric with a positive outlook. The company had invested Rs 3,000 million for a capacity of 5,00,000 in their new electric vehicle plant. Their first EV will be rolled out in June-2022 from the company’s Akurdi production site.
  • The company said that the key constraint is related to the supply of EV-specific components. Supply is volatile and uncertain which makes it difficult to boldly plan bigger volumes in the immediate terms.
  • India’s two-wheeler market is still under-penetrated. The country’s demographic division, as well as the pace of urbanization and road penetration, have a direct influence on demand for two-wheelers. When compared to Southeast Asia, India lags in terms of these fundamental characteristics that influence demand. So, the demand components are in place, but there is a problem with purchasing power or the amount of money in the hands of the people. This has an impact on the ultimate demand.
  • Retail financing, which is performing significantly better than cash sales, indicates that individuals do not have enough cash in their pockets. However, as retail lending spreads into rural regions, this will be critical in fuelling demand growth.

Asset Multiplier comments:

  • Commodity inflation and a chip scarcity may continue to have an impact on margins and demand fulfillment in 2HFY22E and FY23E.
  • Strong brand image, product innovation, and expanding market share will eventually fuel Bajaj Auto’s future sales. We anticipate that the firm will benefit from the premiumization trend and export potential. Moreover, the company has the opportunity to build its EV 2-wheeler scooter market.

Consensus Estimate: (Source: Market screener website and Investing.com)

  • The closing price of Bajaj Auto was ₹ 3,274 as of 3-January-2022.  It traded at 18x/15x/13x the consensus Earnings per share estimate of ₹ 177/ 211/ 242/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 3,976/- which implies a PE multiple of 15x on FY24E EPS of 242/-.

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.”

 

 

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21 Dec

Product Development for Next-Gen EVs under Focus – Sona Comstar

Update on the Indian Equity Market:

After Monday’s freefall, Indian equities recovered on Tueday as the NIFTY 50 closed at 16,771 (+0.9%). None of the sectoral indices ended with losses. METAL (+2.9%), MEDIA (+2.5%), and CONSUMER DURABLES (+2.0%) were the best performers of the day.

Among the NIFTY 50 components, HCLTECH (+4.3%), WIPRO (+3.8%), and UPL (+3.6%) were the gainers. POWERGRID (-1.7%), AXISBANK (-1.1%), and BAJFINANCE (-0.7%) led the laggards.

Excerpts of an interview with Mr. Sunjay Kapur, Chairman of Sona Comstar with CNBC-TV18 on 20th December 2021:

  • Sona Comstar has inaugurated a new state of art research and innovation center in Chennai. This facility is dedicated solely to electric vehicles with an aim to foster the development of advanced products for next-generation electrified vehicles.
  • The semi-conductor shortage situation has not improved much over the past few weeks, as the number of chips required per vehicle are increasing as OEMs shift focus towards more digitally integrated systems in vehicles.
  • This is a trend across other industries as well, where the demand for more complex and efficient chips is increasing, adding to the supply issues. Currently, the Auto industry consumes 7% of semiconductor supply, which is slated to go up to 20% in the next 5 years.
  • There’s no immediate relief in sight as there’s no anticipation of a slowdown in demand, so until the supply catches up this issue will persist in the medium term.
  • Logistics, CIF, and Raw Material Inflation are near-term headwinds for the company, the demand persists the challenge lies in solving the supply-side issues in the medium term.
  • The company has set up a state-of-the-art Testing and R&D Facility in Chennai to develop 30-50 Kw Motors and Controllers for EVs. The company is in talks with global OEMs to gauge the demand arising from a shift towards EVs.
  • Conversion from ICE to EVs in terms of the 2 Wheeler market provides a once-in-a-lifetime opportunity for all auto-ancillary companies. The company believes that in a market of this size, competition can co-exist with significant market share

Asset Multiplier Comments

  • The shift to EVs provides a massive growth opportunity for all auto and auto ancillary companies and Sona Comstar is perfectly placed to take advantage of its unique R&D-led product portfolio.
  • The Auto Industry is reeling from the semi-conductor shortage crisis and with no respite in sight, we believe the company will be under pressure in the medium term until the supply side issues are sorted out.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Sona Comstar was ₹ 709/- as of 21-December-2021.  It traded at 118x/ 75x the EPS estimates of ₹ 6.0/ 9.5/- for FY22E/FY23E respectively.
  • The consensus target price of ₹ 708/- implies a P/E Multiple of 75x on FY23 EPS estimate of ₹ 9.5/-.

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 Auto Ancillary , , 0 Comments Read more...
15 Dec

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Update on the Indian Equity Market:

On Wednesday, markets continued to decline for a third straight session on the back of unsupportive global cues. The Nifty index ended lower by 0.6% at 17,226 levels. REALTY (-1.9%) PSU BANK (-1.4%) and MEDIA (-1.4%) were the top losers while AUTO (+0.5%) was the only gaining sector today. BAJAJFINANCE (-2.9%), BAJAJFINSV (-2.5%), and ADANIPORTS (-2.4%) were the top losers while SUNPHARMA (+2.8%) KOTAKBANK (+1.5%), and MARUTI (+0.9%) were the top gainers.

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Edited excerpts of an interview with Mr. Sanjay Saraswat, head of Medium and Heavy Commercial vehicle (M&HCV) at Ashok Leyland with CNBC-TV18 on 14th December 2021:

  • Ashok Leyland saw a pick-up in sales in the month of November-21, the overall numbers were above street expectations.
  • The M&HCV sales improved 10% YoY, but Light Commercial Vehicles sales continued to remain under pressure.
  • The Internal Combustion Engine (ICE) Trucks are performing well and growing faster than other segments.
  • Although MCVs performance is not satisfactory, it is expected to perform well from 4QFY22E.
  • According to the truck financers, the demand for Tipper Segment is improving on the back of increasing infrastructure and mining activities. Mr. Saraswat commented that the Tipper segment is growing equal to the industry growth. The company has improved its market share in the last 2 months and is continuing to improve further on an MoM basis. The company has a wide range of Tippers available as it has recently launched Avatar Brand under Tipper Segment which is doing phenomenally well.
  • From FY22E, Company has decided to keep the wholesale and retail volumes equal. In the month of Nov-21, the retail and wholesale sales volumes were almost the same.
  • According to the Federation of Automobiles Dealers, although the demand is back in Commercial Vehicles it is still away from pre-pandemic levels. Mr. Saraswat commented that FY18/FY19 was the best period in terms of sales and currently the numbers are far away from that period. But every month and quarter things are improving and moving in that direction.
  • The company is experiencing chip shortage issues for some of the models which are impacting the sales. The company is not able to fulfill the demand for vehicles especially LCVs due to the shortage.
  • Year till date FY22E, industry sales have doubled on a YoY basis. The base of FY21 was low due to pandemic and BSIV to BSVI transition, especially 1HFY21. For 2HFY22E the growth rate is expected to decline as the base improved gradually. For FY22E, Mr. Saraswat expects the volume growth to be in the range of 30-35% YoY.

 

Asset Multiplier Comments

  • We expect sales to pick up gradually in 2HFY22E on the back of seasonality, improvement in core economic indicators, increase in replacement demand, and easing restrictions.
  • We believe, Ashok Leyland is well-positioned to benefit from a strong recovery in the CV cycle on account of new product launches and a well-diversified product portfolio. It will also benefit from the cyclical recovery, especially in buses and higher tonnage trucks where it has a higher market share.

 

Consensus Estimate (Source: market screener and investing.com websites)

  • The closing price of Ashok Leyland Ltd was ₹ 126/- as of 15-December-21. It traded at 26x/17x the consensus EPS estimate of ₹ 5.0/7.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 158/- implies a PE multiple of 21x on FY24E EPS of ₹ 7.6/-.

 

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 Ashok Leyland 0 Comments Read more...
14 Dec

Multiple growth drivers for the Indian tyre industry – Apollo Tyres

Update on the Indian Equity Market:

The benchmark index NIFTY 50 declined for the 3rd straight session on Tuesday and closed at 17,325 (-0.3%). Investors’ will focus on the Fed policy decision due Wednesday which could induce volatility, amid concerns over elevated inflation and a delay in the economic recovery due to omicron strain.

Among the sectoral indices, MEDIA (+1.6%), PHARMA (+1.1%), and METAL (+0.4%) led the gainers, while FINANCIAL SERVICES 25/50 (-0.8%), AUTO (-0.7%), and REALTY (-0.6%) led the laggards. Among the NIFTY50 components, POWERGRID (+3.9%), DIVISLAB (+2.5%), and AXISBANK (+1.4%) were the top gainers while ITC (-2.7%), BAJFINANCE (-2.0%), and TATACONSUM (-1.9%) led the laggards.

Excerpts of an interview with Mr. Onkar Kanwar, Chairman, Apollo Tyres (APOLLOTYRE) published in Business Standard on 14th December 2021:

  • There are multiple growth triggers for the Indian tyre industry, apart from the ones arising due to import curbs on China. The National Infrastructure (NIP) for FY19-25 for which the government has allocated ₹ 111 tn is expected to have a multiplier effect. He believes there is enough research that indicates the multiplier effect due to the creation of road infrastructure in a country. The significant increase in the movement of goods and people via road is beneficial for the tyre industry.
  • There has been a revival in the truck side original equipment manufacturers (OEMs), which will result in repeat demand in the replacement segment as well. The growth in the replacement segment is a mixed bag, some months witness growth in bias-ply tyres demand while some others witness growth in radials.
  • The Company is hoping that the push on infrastructure development and increased consumer spending will further drive demand in the CV segment.
  • The only challenge facing the company now is the relentless inflation which has been and is expected to be a pain point in the near future as well. The price hikes taken lag the raw material inflation, which adversely impacts the margins.
  • The company has decided to specialise in the Enschede plant in the Netherlands to be cost-competitive in the European manufacturing operations. It has shuffled the manufacturing mix such that loss-making units (due to high costs of manufacturing in the Netherlands) were shifted to Hungary and India. With the successful execution of Dutch plant specialisation, there has been a significant improvement in the European operations’ performance.
  • The share of high margins passenger car sales mix has increased to over 30 percent and is expected to rise to 40% in the next 2-3 years.
  • The current focus is on ramping the facility in Andhra Pradesh. This unit along with Chennai and Hungary units services the demands of all geographies. Hence, the company is not looking at any acquisitions.

 Asset Multiplier Comments

  • The CV industry was one of the most ravaged by the pandemic. With a turnaround expected in the CV cycle in India, and pent-up demand in passenger vehicles, the entire tyre industry is likely to be a beneficiary.
  • The Indian business of APOLLOTYRE is expected to benefit from operating leverage and an increasing share of the Andhra plant. The European operations are likely set for a turnaround led by strategic initiatives at the front end (product side) and restructuring in the Netherlands.

Consensus Estimate: (Source: market screener website)

  • The closing price of APOLLOTYRE was ₹ 217/- as of 14-December-2021.  It traded at 18x/ 13x/ 11x the EPS estimates of ₹ 12/ 17/ 20/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 258 implies a P/E Multiple of 13x on FY24 EPS estimate of ₹ 20/-.

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 Apollo Tyre, Auto Ancillary , 0 Comments Read more...
01 Dec

Short term challenges persist– Minda Industries

Update on the Indian Equity Market:

On Wednesday, Indian benchmarks ended in green with NIFTY closing at 17,166 (1.0%). Among the sectoral indices, PHARMA (-1.6%), HEALTHCARE (-1.9%), and CONSUMERDURABLES (-0.4%) were the only losers. PSU BANK (+2.7%), METAL (+2.3%), and BANK (+1.9%) led the gainers. Among the stocks, INDUSINDBK (+5.8%), JSWSTEEL (+5.0%), and TATAMOTORS (+4.3%) led the gainers, while CIPLA (-4.4%), DIVIS (-2.3%), and ULTRACEMCO (-1.5%) led the laggards.

Short term challenges persist– Minda Industries

Excerpts of an interview with Mr Sunil Bohra, Group CFO, Minda Industries with CNBC-TV18 on 30th  November 2021:

  • There’s a significant impact on volumes in Europe, with the numbers down significantly at ~30% sequentially. The important thing to notice is that the volume numbers are also down year on year indicating the severity of the impact on a low base.
  • The recovery is expected to be volatile as the true impact of the new variant remains to be seen. International travel has also been impacted, it is expected that volumes will continue to be depressed until restrictions are eased.
  • The Industry is currently working to minimise the impact of low volumes through various cost optimisation measures, however, there’s a lack of assurance as to when will the volumes recover whether it will be in Q3 or Q4FY22.
  • However, the Industry expects pent up demand and volume recovery post this crisis to continue and thus keeps its long term outlook of double-digit growth unchanged.
  • Semi-conductor shortage volatility is expected to continue till H1CY22. There is some recovery seen, however, it’ll take another 6-8 months to indicate a semblance of normalcy. Over-stocking of inventory due to the existing shortage crisis is creating a mismatch between actual demand and supply further worsening the situation.
  • EV segment is at a nascent stage, but the company expects demand to grow exponentially once it picks up. The company is focusing on creating a base for this additional supply. The company benefits from having an agnostic product supply- i.e. it is ICE/EV neutral and the company plans to add value-added products to specifically cater to EV segments and has already launched 9 new products.
  • The company’s ICE toolkit currently tickets at Rs 7,000/-, however, the company’s new EV Value-added toolkit tickets at Rs 28,000/- The company will benefit from increased EV volumes and it’ll be margin accretive in the long run.

Asset Multiplier Comments

  • The auto industry has been severely impacted by intermittent lockdowns and supply chain issues, however, the underlying demand for the industry is set to stay and only increase in the medium term.
  • EV segment is a very value and margin accretive segment for the company, the recent shift in demand to EVs will augur well for the company’s profitability in the medium term.

Consensus Estimate (Source: market screener and investing.com websites)

The closing price of Minda Industries was ₹ 899/- as of 01-December-21. It traded at 69x/ 41x/ 32x the consensus EPS estimate of ₹ 13/ 22/ 29 for FY22E/ FY23E/FY24E respectively. The consensus target price of ₹ 927/- implies a PE multiple of 33x on FY24E EPS of ₹ 29/-.

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.”

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30 Nov

Increased rubber prices not sustainable – CEAT

Update on the Indian Equity Market:

On Tuesday, NIFTY ended lower at 16,983 (-0.4%). Among the sectoral indices, CONSUMER DURABLES (+2.2%), REALTY (+0.6%), and IT (+0.5%) ended higher, whereas METAL (-1.9%), AUTO (-0.9%), and PRIVATE BANK (-0.7%) led the losers. Among the stocks, POWERGRID (+3.1%), SHREECEM (+3.0%), and BAJAJFINSV (+2.0%) led the gainers while TATASTEEL (-4.0%), KOTAKBANK (-3.1%), and JSWSTEEL (-2.7%) led the losers.

Excerpts of an interview with Mr. Kumar Subbiah, CFO at CEAT LTD. with CNBC TV18 on 26th November 2021:

  • The rubber industry is currently struggling with a big demand-supply mismatch and this will impact tyre manufacturers. Approximately 60% of India’s rubber requirement is sourced locally.
  • Availability of natural rubber from local suppliers has been difficult in the last couple of weeks. The quantity of rubber was coming into the market was lower because of heavy rains in Kerala therefore tapping was slightly lower. Another reason was the inventory levels of the traders was also on the lower side.
  • The demand-supply mismatch is a short-term problem, the availability is a major challenge right now. Shortage of 30% to 40% is on a short-term basis.
  • As of now, it doesn’t affect CEAT’s production because they have inventory in the pipeline. But if adequate quantities of rubber are not supplied from the local markets, then the option is to import the natural rubber. If the Government facilitates in terms of concession in import duty, it will help the manufacturers.
  • An import of natural rubber needs to be planned because in the current situation it takes a little longer time for vessels to come from Southeast Asian markets.
  • The rubber prices in the local market as well as in the international market have gone up. It moved up from Rs 170 per kg to Rs 180 per kg due to the demand-supply gap in the local market. The increase in rubber prices will have a negative impact on margins.
  • The company expects the rubber prices will come down shortly and the current prices are not sustainable. The prices will come down closer to import parity levels soon.
  • Demand continuesto be similar to the previous quarter, there are different categories and they performed differently. The company expects some weakness in Truck, Bus and farm tyres to continue. The company expects weakness particularly in two-wheelers and passenger cars segments due to the shortage of chips.
  • In the export segment, CEAT is facing the issue of availability of containers, vessels, and increase in freight costs. It has seen some softness in material prices, but the vessels movement, container availability, continue to be a challenge. Post covid the company saw a positive response from the international markets.

Asset Multiplier Comments

  • The Global lockdowns, higher freight cost and issues of container availability and vessels might be impacting CEAT’s revenue, as out of total sales ~20% of sales come from Exports.
  • Increase in rubber prices are likely to continue in 2HFY22, and this higher input cost may affect margins in short term. The recovery in local rubber market will drive the company’s margin recovery in near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of CEAT LTD. was ₹ 1,165/- as on 30-Nov-2021. It traded at 18x/13x/12x the consensus earnings estimate of ₹ 65/88/98 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,334/- implies a PE multiple of 14x on FY24E EPS of ₹ 98/-.

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 Auto, Auto Ancillary, CEAT 0 Comments Read more...
25 Nov

Expect double digit growth in the wind-energy business– Timken India

Update on the Indian Equity Market:

On Thursday, NIFTY closed higher at 17,536 (+0.7%) led by REALTY (+2.0%), OIL & GAS (+1.9%), and HEALTHCARE (+1.6%), while AUTO (-0.5%), PSU BANK (-0.5%), and FINANCIAL SERVICES (-0.2%) ended lower. Among the Nifty50 components, RELIANCE (+6.4%), DIVISLAB (+2.4%), and ITC (+1.8%) ended higher, while MARUTI (-1.3%), BRITANNIA (-1.2%), and IOC (-1.1%) ended lower.

Excerpts of an interview with Mr. Sanjay Koul, MD, Timken India with CNBC TV-18 on 24th November 2021:

  • The business is continuing to recover, and they have seen strong 2QFY22 results, albeit on a low base.
  • Looking ahead, end user market demand in commercial vehicles or off highway raw materials is picking up, and the Indian government is going ahead with the infra push, and railways are back on track, all of which are very good signs for the company.
  • The export market is improving as a result of China’s current problems, and there is a strong demand for freight. Manufacturing plants are completely occupied.
  • The export market is picking up as problems in China are helping the business, good demand is seen on freight. Manufacturing plants are fully loaded.
  • There is strong demand across all categories. Commodity price inflation is an issue and the firm is in discussions with their B2B clients.
  • Commodity price hikes have been passed on to customers by the corporation. Revenue of Rs 20,000 mn is expected in FY22E. EBITDA margins will remain stable at 20-22 percent.
  • On a year-over-year basis, the company’s revenue in the wind-energy industry has been around Rs 1,000 mn. The company anticipates a double-digit growth rate in the business.
  • There are gear box manufacturers in India’s wind business. The gearbox market is rather healthy, and India has been looking for export potential. China’s wind market is down, and geo-political tensions with China provide India an advantage.
  • The company is in discussions with one of the top Indian companies intending to enter the wind-energy business.
  • Rail exports to Europe and North America are developing quite well, and they have begun to trickle into Russia, where they should gain traction in the future. During the epidemic, Indian passenger rails were shut down, but as the situation improves, more rail bearings are utilized. Rail exports have increased, although the global rail market remains subdued.
  • Orderbook contribution are around 22% rail, 22% heavy truck, 20% distribution, 35% exports, and the remainder is auto.
  • The company has been investing heavily in Barooch and Jamshedpur facilities in last 18 months. They have started making certain parts which used to be imported earlier.

Asset Multiplier Comments

  • Timken’s customers come from the defence, mining, aerospace, agricultural, rail, energy, and automotive industries. The company’s sales performance will improve as the Indian economy recovers.
  • The government’s Atmanirbhar Bharat initiative, which focuses on indigenous infrastructure development, has benefited industries ranging from defence to automotive, which includes some of Timken’s clients.

 

Consensus Estimate: (Source: market screener and Tikr.com websites)

  • The closing price of TIMKEN was ₹ 1,925/- as of 25-November-2021.  It traded at 53x/ 41x/ 33x the consensus earnings estimate of ₹ 36.3/ 46.9/ 58.3 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,757/- which implies a PE multiple of 31x the earnings estimate for FY24E of ₹ 56.8/-

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 Auto 0 Comments Read more...
23 Nov

No Plans to Sell Stake – Escorts

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 17,503 (+0.5%). The top gainers in NIFTY50 were BHARTIARTL (+4.0%), JSWSTEEL (+4.0%), and ASIANPAINT (+4.0%). The top losers were BAJFINANCE (-2.6%), BAJAJFINSV (-2.6%), and TATAMOTORS (-1.8%). Sectoral gainers were METAL (3.3%), REALTY (2.4%), and MEDIA (2.3%). There were no sectoral losers for the day.

Excerpts of an interview with Mr. Nikhil Nanda, Chairman and Managing Director, Escorts with Economic Times dated 19th November 2021:

  • Escorts has announced the onboarding of Japanese tractor maker Kubota as a joint promoter of the company along with the Nanda family. Kubota will infuse over Rs 94 bn into Escorts, including an open offer to its shareholders, to increase its stake to 53.8% becoming the majority shareholder of the company.
  • This deal was the best partnership for the company, with the kind of ability and strength that Kubota already has as a global brand it is possible to bring the best in the world to India and use Escorts’ platform to serve the needs of the farming community globally.
  • There’s no change in the stake of the promoter family, it’ll continue to stay the same, Mr. Nanda categorically denied media reports that claimed the Promoter family was selling its stake in Escorts. The family is absolutely honoured to have a chance to partner with Kubota and It looks forward to building this partnership between Kubota and Escorts.
  • The focus of the promoter family was to create an institutionalised company that can survive the fluctuations many family-held companies go through over generational shifts. The company aspires to be a market leader but to achieve that growth trajectory institutionalising was the need of the hour.
  • The partnership with Kubota is not a new one, the relationship started in 2018 with the announcement of a JV. This is just the next step of the partnership after the tremendous success that the company has witnessed over the past 3 years.
  • With the common philosophy and the alignment of interest that the promoter family shares with Kubota, The Promoter family will become joint Promoters with Kubota and as a testament to the respect and mutual admiration, the promoter family will not hold a golden share in the company.

Asset Multiplier Comments

  • Kubota is a Japanese tractor manufacturer which is one of the largest in the world, this partnership will help Escorts leverage the technological prowess of Kubota to provide best in class products.
  • With Kubota’s global presence, India can become a launch pad of Escorts’ Tractors as it aims to aggressively expand its exports portfolio.

Consensus Estimate: (Source: market screener and Tikr.com websites)

  • The closing price of Escorts was ₹ 1,803/- as of 23-November-2021.  It traded at 22x/20x/16x the consensus earnings estimate of ₹ 81/89/111 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,766/- which trades at 16x the earnings estimate for FY23E of ₹ 111/-

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.”

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17 Nov

Aluminum Prices continue to increase impacting margins in 2QFY22  – Endurance Technologies

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 17,898 (-0.05%). Top gainers in NIFTY50 were ASIANPAINT (+2.4%), MARUTI (+2.4%), and SBILIFE (+2.4%). The top losers were UPL (-3.2%), RELIANCE (-2.2%), and CIPLA (-2.1%). Top sectoral gainers were AUTO (+0.7%), MEDIA (+0.4%), and HEALTHCARE (+0.3%) and sectoral losers were REALTY (-1.6%), OIL & GAS (-1.5%), and PHARMA (-1.3%).

Excerpts of an interview with Mr Ramesh Gehaney, Director and COO– Endurance Technologies with CNBC -TV18 dated 16th November 2021:

  • On the European side, the semi-conductor shortage continues to hit production. The company anticipates that 3QFY22E will be stronger due to a perceived improvement in the semi-conductor chip situation.
  • However, there are further obstacles, such as a greater shift from traditional petrol and diesel cars to EVs and hybrid vehicles, which will need the use of more semi-conductors. The number of new automobile registrations in Europe and the United Kingdom is down by 22 to 23 per cent.
  • In terms of Malaysian chip production, the company believes that the allocation of semiconductor chips to the sector has grown, albeit the situation may not improve until the end of FY22.
  • The firm is actively engaging with OEMs and EV players and has obtained orders from Ather and Bajaj Auto, as well as being in active discussions with all of them. In Europe, they secured orders of Rs 110 mn on electric vehicle platforms and hybrid goods, accounting for 50% of 2QFY22 sales.
  • The current impact on margins is primarily due to a rise in commodity prices. Aluminium can price up to 50 Rs per kg, a 42 per cent increase over the current price. Steel prices were similarly high, but they are gradually levelling off. However, the company anticipates that the raw material situation will improve from present levels as steel prices stabilise.
  • Going Forward, margins numerically would be under pressure. But the company’s profit has increased by 55%.
  • Assuming the aluminium prices remain elevated, the impact on margins would be around 3.7% in FY22 and FY23. If the impact of higher material prices is removed, Endurance has maintained its EBITDA margin of 17%.

Asset Multiplier Comments–

  • 2QFY22 performance was impacted by raw material cost inflation and semi-conductor shortage.
  • We expect the share of EV/Hybrid technology to increase in the near future as the demand in Europe shifts towards less polluting vehicles to reduce carbon footprint as they have bagged a brake system order of RS 500 mn from Ather.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Endurance Tech was ₹ 1,759/- as of 17-November-2021.  It traded at 39x/ 27x/ 23x the consensus earnings estimate of ₹ 45/ 65/76 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 1,893/- which trades at 28x the earnings estimate for FY23E of ₹ 61/-

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.”

 

 

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