Auto

06 Jul

Expect better traction July onwards– Eicher Motors

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally lower at 15818 (-0.1%) as it could not sustain the higher level from previous day close. Among the sectoral indices, BANK (+1.0%), FINANCIAL SERVICES (+1.0%), and PRIVATE BANK (+0.9%) ended higher while AUTO (-1.7%), PSU BANK (-1.3%), and IT (-1%) led the losers. Among the stocks, ULTRACEMCO (+3.2%), SHREECEM (+3.0%), and HDFCBANK (+2.4%) led the gainers while TATAMOTORS (-8.5%), TECHM (-2.3%), and COALINDIA (-1.5%) led the losers.

Excerpts of an interview with Mr. Vinod Aggarwal, MD and CEO-VECV of Eicher Motors (EICHERMOT) published with CNBC TV18 on 5th July 2021:

  • CV sales of Eicher Motors in June ’21 were 2,438 units, which were 99% more than the CV sales in May ’21 of 1,223 units. Yet, the sales were much lesser than the average pre-pandemic levels of 5,500 to 6,000 units.
  • The steel prices have fallen by 7% in the 1st week of July and there has been some softening of prices due to an increase in production of steel in China. Yet, Eicher Motors hasn’t experienced any decrease in the raw material prices as there is a lot of pressure from steel mills to increase prices.
  • Though the freight rates have gone up, the prices are required to increase further so as to reduce the pressure on margins caused due to an increase in fuel prices.
  • Speaking on demand, Eicher Motors is facing an issue in South India due to a severe lockdown. East is also not doing so well, but the demand in North and West has returned to normal. As the construction sector is doing well, more demand can be seen coming from the infrastructure/construction trucks.
  • The margin pressure has also been due to an increase in price related to BS-VI norm, steel price, tyre prices. Eicher Motors has better margins in FY21 due to better cost and price management, and it will be required to do the same in FY22 so as maintain or improve margins further.

Asset Multiplier Comments

  • With the prices in steel falling in the 1st week of July, we expect a reduction in the cost of raw materials for the auto manufacturers like Eicher Motors.
  • As the oil prices rise further with the talks of OPEC+ nations being called off, we look forward to oil price related global cues to understand its effect of the auto industry. High petrol prices will likely reduce the demand for 2 wheelers.

Consensus Estimate: (Source: market screener website)

  • The closing price of EICHERMOT was ₹ 2,713/- as on 06-July-2021. It traded at 33x/ 26x the consensus earnings estimate of ₹ 81/105 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,702/- implies a PE multiple of 26x on FY23E EPS of ₹ 105/-.

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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05 Jul

Rural India outlook positive on good rabi procurement, cash flow – M&M

Update on the Indian Equity Market:

On Monday, NIFTY closed up at 15,834 (+0.7%). Top gainers in NIFTY50 were Hindalco (+3.8%), ONGC (+2.4%), and SBI (+2.2%). The top losers were Tech M (-1.6%), HDFC Life (-1.4%), and BPCL (-0.6%). The top sectoral gainers were REALTY (+2.7%), METAL (+1.2%) and PVT BANK (1.1%) and sectoral losers were IT (-0.2%) and PHARMA (-0.01%).

Excerpts of an interview with Mr. Hemant Sikka, President of Farm Equipment Sector, M&M (M&M) with CNBC-TV18 dated 2nd July 2021

  • In the month of June 21, the total tractor sales went up 32 per cent, exports jumped over 90 per cent and the market share rose to 42.5 per cent. The company is optimistic about tractor demand in the coming months. The farm sector equipment industry has grown by 19 per cent in June and M&M has outperformed showing 32 per cent growth.
  • The rural outlook looks bright as demand has increased in June. Overall, the rabi procurement has gone around very well. Cash flow in the rural heartland is very positive.
  • With the second wave of COVID subsiding, confidence is coming back. It was a play of two factors, clearly, a little bit of pent-up demand and also some fresh demand coming in that is why June has played out so well for the industry overall.
  • They are getting into a very high base in Q2, Q3, and Q4 FY21 so they will wait for July and August, see how the monsoon pans out, and then maybe at the beginning of September, they will be able to revise the guidance.
  • Overall guidance remains the same and they will try to maintain their usual high & healthy margins.
  • In June, pent-up demand was there due to lockdowns in April & May but there was a little bit of fresh demand as well. The tractor industry has been on the roll and if the monsoon progresses well then the industry will be able to perform much better.
  • None of the players has a very high inventory. M&M also has a very reasonable inventory. In fact, they have reduced inventory in Q1, so production will be running at full capacity.
  • Automakers have raised prices in recent times with most citing increased output costs as a reason. M&M plans to gradually do so.
  • They have taken their latest price increase on July 1. They have taken a 3 per cent price increase. Before that on April 1 and January 1, they had taken the previous 2 price increases. Another increase might be there in 2HFY22.
  • Some of the states have come back as far as supply is concerned like Maharashtra, all the suppliers are running at 100% capacity. In Karnataka, Bangalore, suppliers are running at 50-60% capacity.
  • Overall, they are looking at positive sentiment from the Rural side.

Asset Multiplier comments:

  • Due to positive sentiment building up in rural India, we expect the tractor industry to perform very well.
  • Overall waiting time has increased due to semiconductor shortage but there has been a good demand for their newly launched models (XUV, Thar, bolero).

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

  • The closing price of M&M was ₹ 791/- as of 05-July-2021.  It traded at 20x/ 17x the consensus earnings estimate of ₹ 38.8/ 45.5 for FY22E/23E respectively.
  • The consensus price target is ₹ 947/- which trades at 21x the earnings estimate for FY23E of ₹ 45.5/-

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.”

 

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28 Jun

India will be a very important market for Electric Vehicle segment – Ashok Leyland

Update on the Indian Equity Market:

Nifty 50 ended 46 points down at 15,815 (-0.3%) amid Finance Minister Nirmala Sitharaman’s announcement of another stimulus package. Among the sectoral indices, PSU BANK (+2.4%), METAL (+1.3%), and PHARMA (+1.3%) were the top gainers while MEDIA (-0.6%), IT (-0.5%), and FINANCIAL SERVICES (-0.3%) were top losers. Among the stocks, DRREDDY (+1.8%), HINDALCO (+1.74%), and DIVISLAB (+1.7%) were the top gainers. HDFCLIFE (-4.1%), TITAN (-1.32), and SHREECEM (-1.2%) were the top losers.

India will be a very important market for Electric Vehicle segment – Ashok Leyland
Edited excerpts of an interview with Mr. Gopal Mahadevan, Chief Financial Officer at Ashok Leyland with CNBC TV18 on 28th June, 2021:
Ashok Leyland reported revenues of Rs 70,005mn and turned profitable after 4 consecutive quarters of losses in 4QFY21.
• FY22 Outlook: Internally company is budgeting for a growth. The growth will depend on how the economy and country open up after the second wave. It will also depend on the third wave and how the delta virus turns out. Overall, the industry and company are expecting a good growth in FY22.
• Jun-21 performance: Sales of the commercial vehicle happens in the last 2 days of the month and it is early to comment on the revenue growth of the month of Jun-21. But a significant growth is not expected as the opening up of the economy has happened recently.
• Ashok Leyland is preparing for the growth in terms of supply, keeping sufficient inventory, being in touch with dealers, network and financials. At the same time the company is keeping track of costs and keeping itself efficient.
• The company expects growth if there is no third wave and economy is open consistently. The forecast for country’s GDP is 9-9.5% which means there is growth from now to Mar-22.
• For Ashok Leyland, the Light Commercial Vehicles (LCV) business seems very promising. The reason being launch of ‘Bada Dost’ which is a completely new segment where the company has seen growth and increase in market share as well. Company is very positive about the LCV segment and doesn’t see demand getting affected significantly as there is a lot of activity witnessed in cities till now. There is intra city transportation, which this segment caters to. E-commerce is also helping this segment to grow.
• Heavy Commercial Vehicles: Growth is seen in three segments. 1) Intermediate commercial vehicles have seen healthy growth where Ashok Leyland is present. 2) Tippers are growing because of the infrastructure impetus provided by the government. This will continue to grow and also there is positive overweight on real estate which will help the demand of Tippers to grow. 3) Multi-axle Vehicles are used for multiple purposes like interstate transportation. So, once these lockdowns or states open up fully, growth of multi-axle vehicles will be visible where Ashok Leyland is very well positioned.
• Plan of action: 1) Heading for LCV growth, 2) Keeping in touch with dealer and customers for both Tippers and Multi-axle vehicles, and 3) Keeping variants of intermediate vehicles ready to capture the market further when it starts growing.
• Scope of Electric Cars and Buses: Mr. Mahadevan thinks that future will be mixed of both green and electric vehicles. He sees capability being built in internal combustion and expects it to stay for few more years and the company will continue to build capabilities in internal combustion and diesel. Ashok Leyland is also future proofing the company by initiative of Switch where all the Electric Vehicles initiatives of the company going forward will be housed under Switch. Switch is 91.5% owned by Ashok Leyland. Switch will have a subsidiary in India which will take care of the global market and will be the manufacturing hub. Switch will also cater to the Indian market and SAARC markets. He believes that India is going to be a very important market as far as EVs are concerned.
• His comments on margin as steel prices are going up: Margins are a factor of three things: 1) Revenue and growth of revenue, 2) Raw Material, 3) Management of the middle line. Ashok Leyland is working on revenue and market share growth. They are also managing the middle line as efficiently as possible. To tackle the high raw material cost problem, company is running a project to improve the performance of the product and take out cost. So, when the steel prices will cool off in the 2HFY22, it is expected that the company will benefit from all these three initiatives.

Asset Multiplier Comments
• Healthy medium-term demand prospects along with market share gain possibilities and structural margin-accretive factors will help Ashok Leyland to achieve robust growth.
• We believe post the Covid second wave, the domestic auto industry is expected to continue on the path of recovery and also expect pent up demand post 1QFY22.
Consensus Estimate (Source: tikr. com and market screener websites)

• The closing price of Ashok Leyland was ₹ 125/- as of 28-Jun-21. It traded at 57x/22x the consensus EPS estimate of ₹ 2.2/5.7 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 140/- implies a PE multiple of 25x on FY23E EPS of ₹ 5.7/-.

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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24 Jun

Inquiries and booking coming back as more states are unlocking- Maruti Suzuki

Update on the Indian Equity Market:

On Thursday, NIFTY closed up at 15,790 (+0.6%). Top gainers in NIFTY50 were Infy (+3.5%), TCS (+3.3%), and JSW Steel (+2.2%). The top losers were Reliance (-2.6%), IOC (-1.3%), and Coal India (-1.1%). The top sectoral gainers were IT (+2.8%), PVT BANK (+0.8%) and BANK (0.7%) and sectoral losers were PSU BANK (-1.4%), MEDIA (-1.1%), and REALTY (-0.8%).
Excerpts of an interview with Mr. Shashank Srivastava, ED, Maruti Suzuki (MARUTI) with ET Now dated 22nd June 2021

  • Car is a discretionary product. It is a very large-item product; it is probably the second-largest purchase people make in their lifetime in India. As a result, future demand depends on the economy in general — the per capita income growth and the sentiment.
  • Per capita income growth is expected around 10% as RBI had indicated, lower than the budget figure which was indicated around 14% or so. After the second wave, there has been a lowering down of expectations of economic growth.
  • The rural sentiment is a little more negative at this time of the year compared with last year. The fundamentals of the economy in the rural area are still strong. There can be a good bounce back.
  • OEMs are a little apprehensive of making forward projections at this time because of all this uncertainty. People are talking of a third wave. Unless the sentiment related to Covid becomes negative, there can still be a bounce back.
  • Inquiry levels are getting better. Last week’s levels were almost similar to what they had at the beginning of April. That is pretty good.
  • Closure of outlets, because of weekend lockdowns or whatever, naturally causes a dip. Having said that, inquiries and bookings seem to be coming back as more and more states are unlocking.
  • Cost of running and fuel efficiency are important criteria for the Indian buyer. There are substantial savings if you use CNG. Besides, the availability of CNG now is also much better. They have had good traction on that front.
  • A couple of years back, they were making about 100-1,000 CNG cars a year. In FY21 they did something like 1,58,000-1,60,000. This year they are projecting sales of almost 2,50,000 for CNG.
  • The percentage of electric vehicles being sold in India as well as globally is still very small. The primary reason for it is that the cost of acquisition of electric vehicles is extremely high, largely because the battery costs are very high. There is also the distance-per-charge limitation.
  • Cheaper technology is currently not available, which is one of the basic hindrances to the progress of EVs. The other major factor is the lack of charging infrastructure.
  • In hatchbacks their market share is 65-66%, in sedans almost 50%, in PVs segment, they are more than 60% now, and in vans, they are 90-95%. The one area which seems to be a weak area for them seems to be SUVs.
  • There too, in the entry-level, they are sitting pretty with the Brezza, the number one model there in the entry-level SUV segment.
  • In the mid-SUV segment where competition has the Seltos and the Creta, they have the S Cross. Their numbers are not so great yet. They are quite conscious of this fact and they are watching this SUV segment very closely.
  • After April’s plant shut down owing to the oxygen issue, they restarted production on May 17. They brought forward the maintenance shutdown from June to May. Since the restart, they have been ramping up rapidly. Their utilization is pretty strong at the moment.
  • About semiconductors, there is a global shortage. Maruti has been able to manage production well largely because they have the advantage of a large portfolio — different vehicles using different levels of semiconductors.
  • If semiconductors are not available of a particular type in a particular variant, they then go and produce more of the other. They are just hoping that the situation will normalize in a while.

Asset Multiplier comments:

  • There has been a good bounce back in volumes for auto companies in 4QFY21 and volume data is showing good recovery.
  • In a post-COVID-19 environment, the entry-level hatchback segment, national scrappage policy, and new launches are expected to drive sales.
  • The Indian electric vehicle (EV) market also might see positive movement in 2021-2022.

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

  • The closing price of MARUTI was ₹ 7,531/- as of 24-June-2021.  It traded at 35x/ 27x the consensus earnings estimate of ₹ 214/ 284 for FY22E/23E respectively.
  • The consensus price target is ₹ 6,367/- which trades at 22x the earnings estimate for FY23E of ₹ 284/-

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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09 Jun

Growth opportunities ahead across all segments – Bharat Forge

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 105 points to close at 15,635. PowerGrid (3.9%), SBILIFE (1.8%), and NTPC (1.6%) were the top gainers on the index while TATA MOTORS (-2.6%), ADANIPORTS (-2.4%), SHREECEM (-2.0%) were the top losers for the day. Among the sectoral indices,  MEDIA (-2.1%),  REALTY (-1.7%), and AUTO (-1.3%) were the top losers, and there were no Sectoral gainers.

 

Excerpts of an interview with Mr. Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 7th June 2021 :

 

  • Greenshoots have been seen in recovery over Q4FY21 despite lockdown, the industry is coming back to pre-covid levels but the management expects another quarter for things to fully recover.
  • Oxygen shortage affected steel supply due to the 2nd COVID wave in Q4, but significant recovery has been seen. The semiconductor supply shortage is still an issue but there’s no reduction in demand for chassis and powertrains.
  • Exports have seen tremendous growth across all segments over FY19 levels, and the company is benefiting from shifting from traditional supply chains in East Asia to India and the rest of the world.
  • There is a huge Commodity Upcycle, especially in metals. However, the company is poised to directly pass on the hikes to its customers.
  • The Company is expanding its capacities in the renewables sector, in order to reduce its reliance on Oil and Gas and focus on sustainable growth ahead.

 

Asset Multiplier Comments:

  • Bharat Forge like most Industrial manufacturing has already seen the worst of its days due to the pandemic, and recovery seems to be well on track.
  • Increased Government Expenditure, Focus on Atmanirbhar Bharat will help the company’s topline across all verticals in years ahead.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Bharat Forge was ₹757/- as of 09-June-2021.  It traded at 42x/ 30x the consensus EPS estimate of ₹ 18/ 25/-  for FY22E/23E respectively.
  • The consensus price target is ₹ 800/- which trades at 32x the EPS estimate for FY23E of ₹ 25/-.

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, Bharat Forge, Bharat Forge , 0 Comments Read more...
18 May

Impossible to pass on 100% price increase – Escorts

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,108 (+1.2%). Among the sectoral indices, Auto (+3.2%), Media (+1.7%), and Metal (+1.7%) closed higher. PSU Bank (-1.3%), Pharma (-0.2%), and FMCG (-0.2%) closed in the red. M&M (+5.8%), Bajaj Auto (+5.2%), and Titan (+5.0%) were the top gainers. Bharti Airtel (-2.3%), ITC (-1.1%), and Coal India (-0.9%) were among the top losers.

Excerpts of an interview of Mr. Bharat Madan, Group CFO, Escorts Ltd with CNBC-TV18 dated 17th May 2021:

  • Speaking about the impact on demand, Mr. Bharat Madan said the impact of the 2nd wave is serious.
  • On the rural side, things are better as compared to urban. The rural segment is expected to do well led by pent-up demand.
  • Sowing starts from mid of May and goes on till July, farmers don’t require tractors for sowing. He said even if the situation normalizes in June then demand would be back for tractors.
  • The channels have opened, but rising infection level is impacting the demand.
  • For FY22E, the situation is dynamic and depends on how the month of June shapes up.
  • Speaking about commodity prices, he said the raw material prices witnessed steep inflation of ~7-8%. The company passed 2 price increases of about ~4-5%.
  • There is further pressure in 1QFY22E, and passing 100% price hikes is not possible considering the current demand situation.
  • The company will take another price hike in Q1FY22E.
  • Speaking on exports, he said the JV has started producing tractors (Kubota tractors). The JV will start producing tractors with the Escorts brand from 2QFY22E.
  • The new JV will add a capacity of 30,000 units.
  • The exports have shown 30% volume growth in the last few weeks. The exports will a focus area going ahead.

 

Asset Multiplier comments:

  • We believe rising raw material prices will impact EBITDA margins in the near term, and it will be difficult to pass on the entire cost to the customers.
  • We also believe rural India is less affected as compared to urban areas and a good monsoon along will government measures might bring back the demand for tractors if the situation normalizes by May end.

 

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

  • The closing price of Escorts Ltd was ₹ 1,178 as of 18-May 2021.  It traded at 15x/12x the consensus Earnings per share estimate of ₹ 81.2/94.9 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,452/- which implies a PE multiple of 15x on FY23E EPS of 94.9/-.

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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19 Apr

Semiconductor shortage to resolve in 3-4 months: Eicher Motors

Update on Indian Equity Market:

An alarming increase in the number of Covid-19 cases resulted in a bloodbath in India’s Equity Markets, with Nifty slipping 258 points to 14,359. Adani Ports (-4.8%), Power Grid (-4.1%), ONGC (-4.0%) were the top losers on the index while Dr Reddy’s (+1.4%), Britannia (+0.9%), and Cipla (+0.9%) were the top gainers for the day. Among the sectoral indices, PSU Bank (-4.3%), Realty (-4.1%), and AUTO (-2.8%) led the losers while Pharma (+0.2%) was the only index to end in the green.

 

Excerpts of Interview with Mr. Vinod Dasari, Whole-time Director, Eicher Motors and CEO, Royal Enfield with CNBC-TV18 dated 16th  April 2021:

 

  • Demand has picked up strongly owing to backlogs from last year. The industry is facing some problems due to fresh restrictions owing to the rising COVID-19 cases. 
  • Learning from the past lockdowns, the industry is better equipped to deal with the short-term uncertainties and continue to keep up with the demand in the short term.
  • Royal Enfield expects supply-chain constraints in the first couple of months of FY22 and expects the recovery to be along the lines of FY21.
  • Metals inflation is putting pressure on margins, and the import restrictions on steel have resulted in an increase of 20% in prices which is unfathomable.
  • Optimistic about the semi-conductor and Anti-lock braking system (ABS) shortages, in the short run, there’s a notable pressure however recovery is expected within the next 2-3 months as all the stakeholders are coordinating to mitigate the issue.

 

Asset Multiplier Comments:

  • Demand is poised to recover in the FY22, however, Q1FY22 may see muted growth due to lockdowns and supply-side issues.
  •  As witnessed in Q4FY21, the demand is robust irrespective of the ongoing pandemic, the outlook for the auto industry is favourable for FY22 subject to supply-chain improvements.

 

Consensus Estimates (Source: market screener website):

 

  • The closing price of EICHER MOTORS was ₹ 2,377/- as of 19-April-2021.  It traded at 27x/ 21x the consensus EPS estimate of ₹ 87/ ₹ 115 for FY22E/23E respectively.
  • The consensus price target is ₹ 3,105/- which trades at 27x the EPS estimate for FY23E of ₹ 115/-

 

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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06 Apr

Tractor volumes show record growth, Momentum expected to continue: Escorts

Update on Indian Equity Market:

After yesterday’s rout markets traded flat to end the day as Nifty closed the day 45 points lower at 14,683.  Within the index, ADANIPORTS (+12.6%), TATACONSUM (+4.6%), and ASIANPAINT (+4.0%) were few of the gainers while POWERGRID (-2.3%), GRASIM (-1.3%), and EICHERMOT (-1%) led the losers. Among the sectoral indices, PHARMA (+1.8%), METAL (+1.4%), and REALTY (+1.2%)  led the winners while BANK (-0.5%), PRIVATE BANK (-0.4%), and MEDIA (-0.3%)  led the losers. 

Excerpts of Interview with Bharat Madan, Group CFO of Escorts Ltd. with CNBC-TV18 dated 5th April 2021:

  • Escorts posted very strong 10 percent tractor sales growth in March compared to the previous month. FY21 ended on a strong note with total tractor sales rising 24 percent vs FY20.
  • Escorts achieved an annual production level of 100,000 units for the first time in its history on the back of robust growth in sales despite the Covid-19 pandemic.
  • The rural sentiment is expected to be strong after a good Rabi season and a favorable monsoon outlook.
  • Demand is expected to grow for the next 6 months on account of expansion in South India.
  • Rising Covid-19 cases has not yet impacted demand but remain a concern. However, it is not expected to hamper any supply-side considerations.

Asset Multiplier Comments:

  • The Company is witnessing a strong demand on account of economic recovery and the company is poised to continue this upward trajectory for the upcoming 2 quarters.
  • Overall, the outlook for the auto industry is favorable and the effect of supply chain issues seems to be muted so there’s scope for sustained growth.

Consensus Estimates (Source: market screener website):

  • The closing price of ESCORTS was ₹ 1,223/- as of 06-April-2021.  It traded at 15x/ 13x the consensus EPS estimate of ₹ 84/ 94 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 1470/- which trades at 16x the EPS estimate for FY23E of ₹ 94/-

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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31 Mar

Current capacities fully utilized, need expansion to meet demand: Minda Industries

Update on Indian Equity Market:

After a blockbuster start of a 3-day week, markets traded lower to end the last day of FY21 as Nifty closed the day 154 points lower at 14,691.  Within the index, TATASTEEL (2.3%), GRASIM (2.3%), and UPL (1.9%) were few of the gainers while HDFC (-3.9%), HDFCBANK (-3.8%), and FMCG (1.0%) led the winners while FIN SERVICES (-2.0%), PVT BANK (-1.9%), and BANK (-1.7%) led the losers. 

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries Ltd (MINDAIND) with CNBC -TV18 dated 30th March 2021:

  • The board of MINDAIND has approved the company’s expansion into four-wheel lighting business and four-wheel alloy wheel businesses due to an improved market scenario and increased demand.
  • In the Bawal plant of Haryana, the current capacity of 120,000 wheels/ month will be increased to 180,000 wheels/ month. This will be a part of the brownfield expansion.
  • The second plant aiming at the production of lighting is a Greenfield expansion plan.  Both the plants are expected to commission the production in FY22E.
  • The company is already running its alloy wheel business beyond its current capacity. The company is making sure that surplus capacity is available considering the additional orders received by the company. The aftermarket sales are having a positive momentum further creating demand for the alloy wheel segment.
  • Current sales in the lighting business are around Rs 4bn odd a year. The new orders received by the company are for more than Rs 2bn a year leading to the creation of a new plant.
  • The financing for both projects will be from internal accruals. The company might need a little bit of debt depending upon the funding requirement.

Asset Multiplier Comments:

  • The decision to expand the lighting and alloy business paints a healthy picture about the order book of the company for at least the next 24 months. The Company is expected to witness above-average growth due to pent-up orders.
  • The company is currently running the business at full capacity utilization. As a result, the growth in fundamentals till the commissioning of the new plant might not represent the true state of demand for the company.

Consensus Estimates (Source: market screener website):

  • The closing price of MINDAIND was ₹ 540/- as of 31-March-2021.  It traded at 94x/ 41x/ 29x the consensus EPS estimate of ₹ 5.8/ 13.5/ 18.9 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 535/- which trades at 28x the EPS estimate for FY23E of ₹ 18.9/-

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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22 Mar

The rise in raw material cost may hit margins – Bajaj Auto

Update on the Indian Equity Market:

On Monday, Nifty closed in the red at 14,736 (-0.05%). Among the sectoral indices, Realty (+2.70%), FMCG (+1.70%), and IT (+1.85%) closed higher. PVT Bank (-1.70%), Bank (-1.63%), and Financial Services (-1.15%) closed in the red. Adani Ports (+5.17%), Britannia (+2.63%), and TCS (+2.58%) were the top gainers. Indusind Bank (-4.19%), Power Grid (-3.17%), and ICICI Bank (-2.20%) were among the top losers.

Excerpts from an interview of Mr Soumen Ray, CFO, Bajaj Auto with CNBC-TV18 dated 19th March 2021:

  • Speaking on the new dividend distribution policy, Mr Soumen Ray says, The Company will give up to 90% pay-out provided that the company has surplus funds in tune of Rs 150 bn or more.
  • He says, It also depends on Capex plans. The company is having surplus cash of Rs 180 bn.
  • The average annual Capex is around Rs2.5- 3bn and the company is using its assets effectively. The company is planning to put 1 factory in Chakan and cost is near $100mn.
  • The earlier policy was a 50% dividend pay-out.
  • On EV space, he says, The Company has strong EV plans but Capex required for EVs doesn’t need a large amount of money. It is important to sell the vehicle initially with lower profit and later scale-up that segment.
  • The EBITDA space of Bajaj Auto gives adequate ammunition to sell EV’s initially at not a great profit and later scale it up.
  • Speaking about raw material costs, he says, between Q4FY21E and 1QFY22E the industry will see a significant rise in raw material prices. This will lead to a hit on margins.
  • To avoid a dip in consumer sentiment the company will gradually increase its product prices.
  • Speaking on the Export market, he says, the demand continues to be healthy and INR has not depreciated as compared to other countries. The price of oil going up is positive for some African, and Latin American markets.
  • The container issue has improved from what it was in December 2020.
  • The company is giving discounts to some segments.

 

Asset Multiplier comments:

  • We believe the increase in dividend payout ratio will result in an effective capital allocation thereby improving the return of equity ratio (ROE).
  • We believe the gradual rise in product prices to offset higher raw material cost, high fuel prices, and rising cases of covid-19 might impact the near-term demand of 2 wheelers in the domestic market.

 

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

  • The closing price of Bajaj Auto was ₹ 3,667 as of 22-March-2021.  It traded at 23x/19x/17x the consensus Earnings per share estimate of ₹ 158/193/221 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 3,976/- which implies a PE multiple of 18x on FY23E EPS of 221/-.
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