Auto

18 Mar

Reorganization of verticals will help the company reduce costs: Minda Industries

Update on Indian Equity Market:

Markets continued to feel the pressure of rising bond yields as Nifty fell 163 points to 14,558.  Within the index, ITC (4.0%), BAJAJAUTO (2.9%) and HINDALCO (1.9%) were few of the gainers while HCL TECH (-3.5%), INFY (-3.3%) and DIVISLAB (-3.0%) led the losers. Among the sectoral indices, only FMCG (0.1%), and METAL (0.04%) managed to close in green while IT (-3.1%), PHARMA (-2.3%) and PSU BANK (-2.0%) led the losers.

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries (MINDAIND) with CNBC -TV18 dated 17th March 2021:

  • Minda Industries has re-aligned its business verticals as the auto ancillary company is focusing on the centralization of operations of the company. The centralization theme will help cross-sale of products in the export market.
  • The company plans to have an increased focus on exports. Towards that goal, the company has set up a dedicated marketing office in Japan.
  • The objective of this move was to keep the fixed costs at the same level while increasing the sales. The company wanted to get synergies of scale to improve margins. The second objective was, some of the functions like marketing, commercial, were not reaping benefits of scale due to de-centralization.
  • The company now will have the ability to negotiate better prices with vendors. The company is confident of positive operating leverage at play in the medium term. This along with improved revenues will yield benefits for the company.

Asset Multiplier Comments:

  • The aim for the restructuring of an organization is a long-term process. If executed as per expectation, the company may see increased growth rates in revenues over a few years.
  • The objective of centralization is to keep fixed costs at similar levels to benefit from positive operating leverage. The company may witness improvement in profitability margins as a result of this move. 

Consensus Estimates (Source: market screener):

  • The closing price of MINDAIND was ₹ 551/- as of 18-March-2021.  It traded at 95x/ 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.”

By Auto Ancillary, Minda Industries , , 0 Comments Read more...
15 Mar

Three-box framework for SUV-focus in EV space – M&M

Update on the Indian Equity Market:
On Monday, Nifty closed in the red at 14,930 (-0.7%), recovering from the day’s low due to a rebound in the metals and technology stocks. JSWSTEEL (+2.4%), TECHM (2.4%), and TATASTEEL (+2.3%) led the index gainers while DIVISLAB (-2.9%), BAJAJFINSV (-2.7%), and GAIL (-2.6%) led the laggards. Among the sectoral indices, METAL (+1.0%), IT (+0.6%), and PSU BANK (+0.2%) were the only gainers while MEDIA (-1.4%), PHARMA (-1.3%), and FINANCIAL SERVICES (-1.2%) led the laggards.

Mahindra & Mahindra (M&M) recently reorganized its EV (Electric Vehicle) strategy by setting up 2 new verticals, one for last-mile mobility, and the other for EV tech center. Mr. Rajesh Jejurikar, ED- Auto and Farm Sectors, M&M explained the rationale behind this strategy on CNBC TV-18 on 12th March 2021. Here are the excerpts of the interview:

  • To undertake a comprehensive look at the future, M&M has deployed a three-box framework. This framework suggests different businesses need different kind of attention and focus depending on company strategy and goals. Box 1 is the one that has the ability to scale up/Box 2 and 3 are more mid-long-term focus and need more technology and know-how.
  • According to M&M, Last mile mobility is a box 1 business, which has a ready customer market today and they have to drive growth and penetration. Their box 2 business is the SUV focus IC-derived electric vehicles, and box 3 is EV which is preparing M&M’s strategy for the longer term.
  • They have created a strong talent pool with good products at Mahindra Electric, which will help them in the future as well.
  • They want to be SUV-focused in EV space as well. Currently, there are no plans of manufacturing EVs in shared mobility space (Sedans and hatchbacks).
  • They believe the EV market penetration to be much higher by 2025-30, hence the need for a comprehensive SUV EV portfolio. They hope to have an electric variant for all price points they operate in.
  • The level of readiness should be for 50-80% conversion in FY2025-30. The extent of conversion is very hard to predict at this stage so they are not setting any targets per se.
  • They will launch eKUV100 and eXUV300 between CY21-CY22.
  • The last-mile mobility segment is at an inflection point and the pace of sales should pick up significantly. The goods carrier segment is completely ready and a committed sales team and channel will help drive sales for this segment. The PV (Passenger Vehicle) was also ready but the slowdown due to Covid-19 has hampered the sales and M&M expects sales to pick up in 2HCY21.
  • For last-mile mobility, export is a huge opportunity. M&M is already getting leads for alliances and partnerships in different markets across the world. Some of their key customers in the B2B segment are planning to take M&M products in their global ecosystem. While these deals will take some time to fructify, the initial response has been good.
  • When M&M canceled their JV with Ford, the rationale was the money saved from JV will be put into the EV business. Rs 30,000 mn has been set aside for creating a strong EV portfolio.

Asset Multiplier Comments

  • With the Covid-19 outbreak, the personal mobility demand has increased. Though Gen Z and millennials would prefer EVs for personal mobility, the success of EVs would largely depend on increasing penetration and availability of the infrastructure, which is currently lacking.
  • M&M has been stressing on reducing investments in non-profitable subsidiaries and focusing on the core business. This three-box framework for EV vertical is a step in the right direction.

Consensus Estimate: (Source: market screener and tickr websites)

  • The closing price of M&M was ₹ 846/- as of 15-March-2021. It traded at 31x/ 21x/ 18x the consensus earnings estimate of ₹ 27.4/ 41.1/ 46.8 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 959 implies a PE multiple of 20x on FY23E EPS of ₹ 46.8/-.

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, Mahindra & Mahindra , , 0 Comments Read more...
02 Mar

Expect 400,000 + volumes in March 2021– Bajaj Auto

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed 1.1% higher at 14,919. Within NIFTY50, TATAMOTORS (+5.1%), M&M(+4.6%), and WIPRO(+4.5%) were the top gainers, while ONGC (-2.6%), HDFC(-1.2%), and DRREDDY (-1.1%) were the top losing stocks. Among the sectoral indices, AUTO (+3.2%), IT (+3.0%), and FMCG (+1.4%)were the top gainerswhile PSU BANK (-0.2%) was the only sector to end with losses.

 

Expect 400,000 + volumes in March 2021– Bajaj Auto

 

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto, aired on CNBC-TV18 on 1st March 2021:

  • Bajaj Auto reported total wholesale volumes of 375,017 units for February 2021, a growth of 6% YoY. According to Mr. Sharma, there was a shortfall in the volumes due to several factors.
  • Domestic 2-wheeler retails were higher than wholesale as Bajaj Auto was deliberately clearing stock. February onward, Bajaj Auto has started to focus aggressively on the entry-level segment.
  • The 2nd big shortfall was in exports, as there was a big spill over due to shipping container schedule. Bajaj Auto also lost some volumes in premium segment in domestic as well as exports market.
  • As all the above factors go away, Mr. Sharma expects monthly volumes to again go beyond 400,000 units in March 2021.
  • A 4% hit from raw material inflation is expected in 4QFY21. Bajaj Auto’s response to this will be after a very careful view of the fragile demand recovery.
  • Sharma estimates that the domestic 2-wheeler industry retails had a YoY decline in February 2021.Bajaj Auto saw a YoY retail growth. But a decline in retail volumes is not a good sign for the industry.
  • Bajaj Auto has taken a price hike in 3QFY21, but that has not impacted the customers significantly. The strategy is to increase the prices and simultaneously improve the product proposition for the customer. Further hikes will have to be taken in fragments, and cannot be taken at once.
  • Bajaj Auto is seeing a steady increase in 3-wheeler sales which is an important segment for the company. This is the tipping point for Bajaj to reach out to the customer with innovative financing schemes.
  • As Bajaj Auto was gaining market share in above 125 cc segment, they were losing in the below 125 cc segment. To address this, Bajaj Auto has now taken some initiatives which will help them grow both the segments. But for the industry, the below 125 cc segment has suffered.

 

Asset Multiplier Comments:

  • For the month of February 2021, Hero Motocorp has reported domestic 2-wheeler wholesales of 484,433 units, a growth of 0.8% YoY. For the same period, TVS Motors has reported 195,145 units, a growth of 15% YoY. Against this, Bajaj Auto’ s domestic 2-wheeler segment reported 1% YoY growth.
  • For domestic 3-wheelers in February 2021, Bajaj Auto reported a 27% YoY decline in wholesales while TVS Motors reported a 24% YoY decline.
  • Sales in the 3-wheeler segment saw steeper declines since the covid-19 pandemic on account of lower mobility. Several banks and NBFCs had taken a very cautious approach to auto lending. As 3-wheelers are predominantly purchased through loans, low finance availability put a roadblock in 3-wheeler volume recovery.

 

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

  • The closing price of BAJAJ-AUTO was ₹ 3,950as of 2-March-2021. It traded at 25x/ 20x/ 18x the consensus EPS estimate of ₹ 158/193/221 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 3,950/- implies a PE multiple of 18x on FY23E EPS of ₹221/-.

 

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 Bajaj Auto , , 0 Comments Read more...
25 Feb

The next 2-3 years will be very good for the CV segment: Eicher Motors

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 15,097 (+0.77%). Top gainers in NIFTY50 were Coal India (+8.6%), UPL (+7.3%), and Adani Ports (+5.9%). The top losers were ICICI Bank (-1.9%), Nestle (-1.4%), and Divis Labs (-1.4%). The top sectoral gainers were METAL (+3.9%), REALTY (+1.7%), and MEDIA (+1.3%) and sectoral losers were FMCG (-0.3%) and FIN SERVICES (-0.2%).

Excerpts of an interview with Mr Vinod Aggarwal, MD & CEO, Eicher Motors (EICHERMOT) with CNBC -TV18 dated 24th February 2021

  • Tata Motors, addressing auto analysts, gave very positive comments on the commercial vehicle (CV) industry saying it is likely to grow 36-38 per cent in FY22 and Mr Aggarwal, Eicher motors analyzed the demand trends.
  • This year first half was a washout. Based on this low base, there will be good growth next year.
  • Growth will be better than FY20 and it should be somewhere between FY19 and FY20. They are expecting the industry to do much better in FY22.
  • They are already at pre-COVID levels as far as the truck industry is concerned. Buses are down but hopefully, schools will be opening soon so next year it will be much better
  • He expects replacements to be very strong in the CV industry. Within two years, the company should reach its earlier peak ofFY19 or even cross that.
  • He expects that for the CV industry, the next two-three years will be very good because they have a lot of pent-up replacement demand.
  • The sentiment is positive. Since the economic sentiment is positive, people have started replacing their old trucks.
  • Electronic control units (ECU) shortage is one of the major supply constraints. They are trying to cope up and manage the situation.
  • The transport industry runs on economic growth therefore diesel price increase might increase freight levels and increase inflationary pressures.
  • Tippers performance is back to peak levels now and they have grown more than 20%.

 

Asset Multiplier comments:

  • Overall Industry growth is picking up in the January-March period for the two-wheeler industry, which has witnessed a recovery in the festive period from COVID-19 induced disruptions.
  • As economies start gaining momentum, the Indian CV industry is also picking up demand faster. January-March volumes are better than pre-covid levels.
  • Eicher Motors is targeting export markets and aiming at new product launches in the coming two years. ‘Make you own’ initiative which allows customers to customize the bikes is also gaining momentum especially in millennials.

 

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

  • The closing price of EICHERMOT was ₹ 2,554/- as of 25-February-2021.  It traded at 48x/ 30x/ 24x the consensus earnings estimate of ₹ 52.8/ 85.1/ 106 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 2,773/- which trades at 26x the earnings estimate for FY23E of ₹ 106/-

 

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, Eicher Motors 0 Comments Read more...
11 Feb

Have very low inventory at dealerships Maruti Suzuki

Update on Indian Equity Market:

The markets closed the weekly expiry day on a positive note as Nifty ended the day 0.5% higher at 15,179. Within the index, HINDALCO (5.4%), RELIANCE (4.2%), and ADANIPORTS (2.6%) were the highest gainers while EICHERMOT (-3.0%), TITAN (-2.5%), and LT (-1.4%) were the laggards. Among the sectoral indices, FMCG (0.8%), METAL (0.8%), and IT (0.6%) led the gainers while PSU BANK (-1.3%), AUTO (-0.5%), and REALITY (-0.3%) were the losing sectors.

Excerpts of an interview with Mr. Shashank Srivastava, Executive Director, Marketing & Sales- Maruti Suzuki India Ltd (Maruti) with CNBC TV18 dated 11th February 2021:

  • Mr. Srivastava mentioned that the Vaahan data comes with a lag. In October-November, it was said that the dealers are carrying very high inventories based on the Vaahan data which on the ground was incorrect.
  • The states like Telangana and Andhra Pradesh, which contribute about 12% to the sales are not part of Vaahan numbers. About 14% of the RTOs (Regional Transport Office) are not part of the data issued by Vaahan.
  • The company is currently not facing any difficulty caused by a global shortage of semiconductor chips. Production was normal in January and continues to be so in February.
  • The auto sales recovery has continued. The company is now only 15% below last year’s volume levels. The same number was -78% and -34% during 1QFY21 and 1HFY21 respectively.
  • The company has kept very low inventory levels at dealerships. He said that the company needs to undertake extra production to fill the inventory levels.
  • Price rise in precious metals leading to input cost inflation for the auto sector. He mentioned that one has to take a hit on the bottom-line to protect the top-line.

Consensus Estimate: (Source: market screener)
•The closing price of Maruti was ₹ 7,665/- as of 11-February-2021. It traded at 49x/ 31x/ 24x the consensus earnings estimate of ₹ 156/ 245/ 313 for FY21E/FY22E/23E respectively.
• The consensus price target of ₹ 7,620/- implied a PE multiple 24x of FY23E EPS estimate of ₹313/-.

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, Maruti Suzuki , 0 Comments Read more...
13 Jan

Expect reasonable revenue growth for the industry in FY21– M&M

Update on the Indian Equity Market:
On Wednesday, Nifty ended flat at 14,565 while PSU banks outperformed. The top gainers for Nifty 50 were M&M (+5.7%), SBI (+4.6%), and Adani Ports (+4.4%) while the losing stocks for the day were Bajaj Finance (-2.9%), Shree Cement (-2.8%), and HDFC (-2.8%). Top gaining sectors were PSU bank (+3.3%), Auto (+0.9%), and Bank (+0.7%) while Pharma (-0.9%), Financial Service (-0.6%), and Realty (-0.3%) were the losing sectors.

Edited excerpts of an interview with Mr Pawan Goenka, MD & CEO, Mahindra & Mahindra (M&M); dated 12th January 2021 from Economic times:

The demand is now no longer a pent-up demand, it is a structural demand that is coming back.

With the new product launches, all companies have plans for 2021. Many of the companies had held back on product launches and that is certainly going to spur demand now. On top of that, if the government comes in with some kind of stimulus to grow the auto demand, then the demand will really take off and will lead to a great year.
The Heavy Commercial Vehicle (HCV) industry which was lagging for the last several months has started showing signs of revival. There was good growth in November and December. Once HCV is also on the growth path, the auto industry overall should look pretty good in FY22E.

Mr Goenka said GST rate cuts may not be possible because of the need for tax revenues in these difficult times, but GST rates should be simplified. There are eight or nine different GST rates. He hopes that the government will just keep two rates – 28% and 43% and not have all of these different rates. Right now, a rate reduction is not expected. When the economy is fully back on track, the government could reconsider rate reduction.
The massive cost cuts in 1Q & 2Q for the Company is not cost cutting but removing the fat. That is where a lot of the cost reduction has happened in terms of travel. Use of digital media for meetings has resulted in a significant reduction in cost in 1Q & 2Q FY21 and this will never come back. Maybe travel will go up somewhat but probably 75-80% will continue. The reductions have happened in events, inventory costs and communication costs. These will not come back to earlier levels, according to Mr Goenka. He said that more than half of the reduction is for good and continue to aid in the Company’s bottom line.

In the auto industry, this year there has not been any significant price cut or increased incentives given to propel demand.

Compliance with BS-VI emission norms has led to prices going up, therefore per unit revenue has gone up which will lead to a top-line increase for the Company. Given that volumes are also going up and the Company does not expect 2021 to be any worse than 2020 there will be a revenue growth for most companies. There are some companies that will do better, some will not and competition will continue. But overall for the industry, he sees reasonable revenue growth in 2021E.

Many companies have not passed on the full BS-VI cost increase yet and as the companies become more comfortable with the continued volume or continued demand, the gap in the BS-VI cost increase will get passed on during this year.

The big thing looming ahead of the industry is the commodity price increase, which will also lead to a price increase. That is not desirable if the auto industry were to pass on all the cost increases, then there could be a significant increase in prices. So commodity price increases are a matter of concern right now for the auto industry.

Most companies are coming back to their core where they have a right to win and have strength in India and globally and this is automatically leading to capital allocation which is going more towards the core.
The Company is going to be working on multiple platforms for personal mobility.

The overall positive sentiment in the rural area, in the agriculture area, somewhat tempered because of the farm agitation right now but that will be soon resolved. Mr Goenka remains very bullish on the Agri sector and on the overall rural demand coming from the income of the Agri sector for durables that are sold in rural areas.
M&M is one of those who had very robust demand this year. As a result, a marginal increase in prices is possible and usually in January every year, prices have increased. So M&M has announced a 2% price increase. It should not be a dampener on demand.

A partial increase is very much doable for most companies. Companies will have to do it because nobody can absorb the kind of commodity price increases that we are seeing and one will have to simply get used to it. Not only auto but the effect of commodity price rise will also be felt by users of almost all sort of durable goods.

The auto industry overall has gone through some very difficult times because of the investments in BS-VI which led to increasing in costs, most of which could not be passed on. The cost reduction that happened during Covid outbreak has come to the rescue and therefore most companies have managed to maintain their profit margin.

On an average, before Covid, in the passenger vehicle segment, a 30-35 days’ inventory was considered to be good. Now, most companies are saying 30-35 days is too high and they need to learn to work with 20-25 days of inventories.

If all companies bring down the inventory level to 20-25 days and also do very good inventory control in their plants and to the suppliers, the auto industry could take out as much as Rs 50,000 crore from the working capital. This is a learning from Covid that will help the industry reduce working capital and improve the balance sheet of almost all the companies.

Consensus Estimate: (Source: market screener website)
The closing price of M&M was Rs 838/- as of 13-January-2021. It traded at 31x/ 22x/ 20x the consensus EPS estimate of Rs 27.3/37.4/42.0 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of Rs 762/- implies a PE multiple of 18x on FY23E EPS of Rs 42.0/-.

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 Mahindra & Mahindra , , , , , 0 Comments Read more...
08 Jan

A long way for us to reach volume levels of FY19 – Maruti Suzuki

Update on Indian equity market:
Another day, another all-time high! Indian markets were in full swing today as Nifty50 closed 209 points higher at 14,346. Within the index, MARUTI (5.8%), TECHM (5.8%), and WIPRO (5.7%) led the gainers while HINDALCO (-1.6%), TATASTEEL (-1.2%), and INDUSINDBK (-1.1%) were the highest losers. Among the sectoral indices, IT (3.8%), AUTO (3.6%), and MEDIA (3.3%) led the gainers while METAL (-0.6%) and PSU BANK (-0.5%) were the only losing sectors.
Excerpts of an interview with Mr. Shashank Srivastava, Executive Director, Maruti Suzuki India Ltd (Maruti) published on Economic Times dated 7th January 2021:
On the retail side, the demand has been pretty good but not at the levels seen the year before last. This year is a unique year. This December is different from the earlier Decembers because the availability of vehicle stock across the industry has been a constraint for retail for the month.
In terms of vehicle availability, the company has been working at peak production for the last couple of months and still the stocks are low.
There is definitely a bounce-back in the last couple of months, but if the April to December cumulative figure is compared to that of last year’s, there is an 18% YoY decline. Last year itself was 17-18% less than the previous year. If compared to the same period two years ago, this year is almost 33% down.
In the previous five years (2015-2020), the CAGR growth in industry volumes is just 1.6-1.7% compared to 5.9% during 2010-2015 and 12.9% during 2005-2010.
The big reason for the slowdown in growth is that the cost of acquisition has gone up for various reasons. One is because taxation has gone up substantially. Extremely high road taxes along with an increase in insurance taxes increased the cost of acquisition for vehicles. Another factor is a shift from BS-IV to BS-VI norms which increased the cost of owning a vehicle substantially.
Just like BS-VI, two major regulations are coming up in near future; the CAFÉ 2 which is applicable from 22nd April 2021, and BS-VI phase II, RDE which will start from April 2023. This will result in a further increase in the cost of ownership.
In the entry SUV space, Vitara Brezza continues to be the leader. For the mid SUV, the company has S-Cross which was launched recently with a 1.5-liter BS-IV petrol engine. The company has a weaker spot in the upper SUV space.
Consensus Estimate: (Source: market screener and investing.com websites)
The closing price of Maruti was ₹ 8004/- as of 8-Jan-2021. It traded at 53x/ 32x/ 26x the consensus EPS estimate of ₹ 152/ 248/ 311 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 7,670/- implies a P/E multiple of 25x on FY23E EPS of ₹ 311.
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, Maruti Suzuki , , 0 Comments Read more...
06 Jan

Passing on the rising input prices to customers – Ashok Leyland

Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 14,146 (-0.4%). Top gainers in NIFTY50 were Powergrid (+4.4%), Hindalco (+3.7%), and GAIL (+3.6%). The top losers were ITC (-3.0%), Reliance (-2.6%), and Axis bank (-1.9%). The top sectoral gainers were METAL (+1.3%), REALTY (+0.7%), and MEDIA (+0.2%) and the sectoral losers were IT (-1.4%), FMCG (-1.1%), and AUTO (-0.4%).

Excerpts of an interview with Mr. Anuj Kathuria, COO – Ashok Leyland with CNBC TV18 dated 5th January 2021:
• The industry remains under pressure owing to the rising input prices which have forced companies to pass them on to customers.
• The pressure that the industry is getting is from the input material. So everybody would like to pass it on to the customers, and Ashok Leyland is also doing the same.
• Month after month they are seeing the subsequent month is giving a better result. So December was no different, in fact, in December their sales have gone up, the total industry volume (TIV) has gone up.
• They saw the demand continued to come from the intermediate commercial vehicle (ICVs) and the tippers. They definitely feel that quarter 3 for them was a good quarter.
• For tippers, the demand is coming from the infra projects that are getting mobilized. A lot of road construction activity has started and that is not something which is pent-up demand, this is going to be led by the further projects getting mobilized, and that will continue in my view to be very robust even in Q4.
• The long haul segment will definitely be better, but to what extent that they will have to wait and watch
• FY22, as compared to FY21, will definitely be a growth year, but again, they are talking about a lower base in FY21. In FY22, the overall demand should be much better than what they have seen in FY21.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of ASHOKLEY was ₹ 105/- as of 6th January 2021. It traded at -121x/ 41x/ 21x the consensus earnings estimate of ₹ -0.9/ 2.6/ 4.9 for FY21E/FY22E/23E respectively.
• The Consensus price target of AHOKLEY was ₹ 92/- as of 6th January 2021. It trades at 19x of FY23E EPS estimate of ₹4.9.
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.”

By Ashok Leyland, Auto 0 Comments Read more...
29 Dec

Seeing a sharp fall in demand after Nov; will invest Rs 650 cr in a new plant at Chakan, says Bajaj Auto.

Update on the Indian Equity Market:
On Monday, Nifty ended 0.9% higher at 13,873 supported by the metal & financial stocks. The top gainers for Nifty 50 were JSW Steel (+5.8%), Tata Motors (+5.6%), and SBI (+3.3%) while the losing stocks for the day HUL (-0.5%), Sun Pharma (-0.5%), and Cipla (-0.4%). Top gaining sectors were PSU Bank (+2.7%), Realty (+2.6%), and Metal (+2.6%) while Pharma (-0.3%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Rajiv Bajaj, MD, Bajaj Auto dated 24th December 2020 from CNBCTV18:

The demand in the auto sector is back to last year levels which are not a good sign. Mr Bajaj also sees a sharp fall in demand after November although he expects December 2020 sales to be slightly higher on YoY.
Things have panned out as Mr Bajaj thought they would which is that there has been a demand peak as is the case every year around the festive time.

According to him, what the company has recorded in October and November has been good because of the festive season. In December last year, the company did a total of 335,000 units roughly between domestic and exports. He thinks the Company will be a little ahead of that in December 2020.

According to him, on the domestic front, the Company will be on par with last year for motorcycles. The Company has almost doubled the EBITDA of the domestic motorcycle portfolio, which has been positive for them.

Bajaj Auto has a 90% market share in the three-wheeler market primarily in major metros.

In terms of exports, Mr Bajaj mentioned that the reason the overall numbers will be in-line with or a bit better than last year is that exports have been going like gangbusters. Demand seen is good.

On the product front, the Company has a huge task before them for the next 24 months which is
a) to renew their entire motorcycle portfolio especially on the premium brands,
b) There is a humongous amount of work to do on the EV front.

On the market front, Bajaj Auto has to continue to push to improve domestic share and having consistently now been at over 200,000 units exported every month their next goal has to be to move from 2 million exports to 3 million exports on an annual basis. For that, they need to successfully and effectively enter the Brazilian market.

Talking about the new manufacturing facility at Chakan, he said that the Company has signed up for a second plant in Chakan. The new plant was in the works for some time. This is for the expansion in premium motorcycles KTM Husqvarna, and the introduction of Triumph. Bajaj Auto may also expand the electric vehicle portfolio in the new facility.

The Company will be building this plant for a total capacity of a million units to start with. They have estimated an investment of about Rs 650 crore and perhaps the employment of a little over 2,000 people.
On the partnership front, the Company’s goal with KTM Husqvarna is to almost double the business soon.

In terms of production-linked incentive (PLI), Mr Bajaj said that it would be very beneficial to a company like Bajaj Auto. From the Merchandise Exports from India Scheme (MEIS), the Company had a benefit of 2% on exports.

Consensus Estimate: (Source: market screener website)
The closing price of Bajaj Auto Ltd was ₹ 3,420/- as of 28-December-2020. It traded at 22.8x/ 18.8x/16.5x the consensus EPS estimate of ₹ 149/180/206 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 3,316/- implies a PE multiple of 16.1x on FY23E EPS of ₹ 206/.

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 Bajaj Auto 0 Comments Read more...
22 Dec

Expecting highest numbers in 3QFY21 – Escorts

Update on the Indian Equity market:
On Monday, the Indian equity markets witnessed the biggest single-day decline in seven months as investors were worried due to the spread of a new strain of the Covid-19 in parts of the UK. The Nifty50 ended the day at 13,328 (-3.1%). While none of the sectoral indices ended with gains, PSU BANK (-6.9%), MEDIA (-6.2%), and METAL (-5.5%) led the losers. Among the Nifty50, none of the stocks ended in the green, and TATAMOTORS (-9.5%), ONGC (-9.4%), and GAIL (-8.4%) led those that ended in the red.

Excerpts of an interview of Mr. Bharat Madan, Group CFO, Escorts with CNBC TV18 on 18th December 2020:
• In the last 2months, demand was quite good due to the festive season in October and November. In October, the industry growth was close to 7-8 percent and in November the growth was much higher. He expects channel filing to happen in December. Though the retail numbers may not be as strong as in the festive months, he expects this quarter to deliver one of the highest numbers the industry would have ever done.
• Talking about guidance for FY21E, he said the overall industry growth in 8months of FY21E is about 15% and expects mid-teens growth for the company.
• There were some supply issues due to the farm protests but the company has been able to manage the supply.
• The demand for their products comes majorly from the states of UP, Bihar, Rajasthan, Maharashtra, Telangana and Andhra Pradesh. He doesn’t foresee any major demand problems due to the ongoing farm protests.
• In Punjab and Haryana, farmers shift to tractors with higher horsepower (HP) but the volumes are stagnant.
• Talking about input prices, Escorts has taken a price increase after the festive season to pass on the inflation. There could be another price increase in the next quarter. Despite passing on the increased raw material price to consumers, this still impacts margins.
• Supplies from Kubota joint venture (JV) have begun, and he expects export orders to pick up.
• The target for exports for FY21E is 4000-4500 tractors but there are some challenges from container supplies causing delays in orders.
• He expects margins in 3QFY21 to be at the same level as 2QFY21. The impact of cost increases will get neutralized due to the operating leverage from higher volumes.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of ESCORTS was ₹ 1,242/- as of 21-December-2020. It traded at 19x/ 17x/ 15x the consensus earnings estimate of ₹ 66/ 74/ 85 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1,257 implies a PE multiple of 15x on FY23E EPS of ₹ 85/-.

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 Escorts 0 Comments Read more...