Auto

25 Sep

We have increased market share, exceeded pre-Covid levels – Tata Motors

Update on the Indian Equity Market:
On Thursday, NIFTY was down 326 pts (-2.9%) at 10,806.
Among the sectoral indices, METAL (-4.2%), IT (-4.2%), and PSU BANK (-3.9%) were the top losers and there were no gainers.
Among the stocks, INFRATEL (+2.9%), ZEEL (+0.9%), and HUL (+0.3%) were the top gainers. INDUSINDBK (-7.5%), TATAMOTORS (-6.6%), and BAJFINANCE (-6.6%) were the top losers.

We have increased market share, exceeded pre-Covid levels – Tata Motors

Edited excerpts of an interview with Mr. Vivek Srivatsa, Head, Marketing – Passenger Cars, Tata Motors with The Hindu dated 12th September 2020:

‘Onam has performed very well overall for the industry and particularly for us at Tata Motors.’
We had pretty robust growth both in terms of first-time car buyers from smaller towns but also upgraders and probably people getting their second car into the household in the bigger towns, says Mr. Vivek Srivatsa, Tata Motors.

• When asked about the targets for festive season he informed that fortunately ever since the unlock has begun around the middle of June, there has been a consistent increase in demand for passenger cars and it has sustained pretty well through the last four months. The first indicator of festival season is how Onam performs. It has traditionally been the first festival across the country and this year Onam has performed very well overall for the industry and particularly for Tata Motors.
• Tata Motors had sustained demand across all five products. It launched a completely new range of five BS-VI ready products in January and fortunately have demand for all five so much so that most of the production is being lapped up. Considering the farmers community has been blessed with a good monsoon, agricultural production seems to be going really strong, the harvest season is performing well. Now on the back of these factors, he is expecting a fairly good festival season.
• His comments on current dealer inventory levels in the channel and timely delivery: For Tata Motors, dealership inventory is a shade below what the company would like it to be at an ideal level. Company is trying to ramp up production and take care of their bookings. As a result, customers are having to wait a little longer than they would like. All three plants are accelerating the factory forward kind of transportation to the dealers as much as possible, getting into daily work management to produce and dispatch the cars as early as possible.
• Tata Motors is ramping up processes and operations to ensure that customers get the deliveries on their favored time in terms of auspicious days or in terms of specific days they would like to get it. Tata Motors have a pretty good mechanism of informing the expected date of delivery at our dealerships. Customers are informed well in advance of when they can expect their cars.
• When asked which are the key geographies they are focusing on and demand scenario from metros, tier I, tier II and rural areas he replied that traction seems to be pretty consistent across both tier I, tier II and smaller markets. The good indicator would be Kerala with Onam as a base case. Pretty robust growth was seen both in terms of first-time car buyers from smaller towns but also upgraders and probably people getting their second car into the household in the bigger towns. Tata Motors have a fairly spread product range right from hatchback which traditionally is called the entry hatch and Tiago going up to a mid-SUV of the Harrier, a pretty wide price band. It would not be an accurate parameter to gouge where the demand is coming from. But looking at the flow of bookings, demand is fairly uniform across the different town classes.
• However, in terms of offers, company have made a slight differentiation between a bigger town and a smaller town. It was seen that post the pandemic, there has been a huge demand uptick for personal transportation owing to the safety that is involved and by and large people are looking at ease of entry into car ownership and hence marketing has largely revolved around two areas. One is to assure the customers that it is very safe to actually visit showrooms and experience test drives. Second, in terms of ownership, company’s focus has been largely on making ownership accessible and very aggressive EMI offers, finance options, ease of finance availability have been the focus.
• When asked about sales reaching pre covid levels he stated that overall, industry is on par with pre-Covid levels but specifically for Tata Motors, they are happy that they have exceeded pre-Covid levels. This is quite visible by company’s market share increase. Tata Motors have grown their market share substantially compared to pre-Covid levels. Demand is continuing to be strong and it is to some extent, exceeding supply in the ensuing period. In terms of customer behavior, there’s quite a lot of change. There is increased focus on safety. Most of cars are four star or five stars rated in the global end cap rating scale. Customers have really shown preference for their range right from Tiago, Tigor, compact SUV the Nexon as well as latest premium hatch the Altroz.
• He said that the other area of difference being that he sees a lot of family involvement in car purchase now and hence the design appeal is becoming stronger. It is more of a unified purchase decision today than it was earlier and inputs from women are higher than ever and hence we see a strong orientation towards appealing design and also comfort features are coming very strongly to the fore. Premium Altroz is hugely lagged because of the 90-degree opening doors that it provides and the flat floor. These are features that customers are quite fascinated by. So, there is a slight change in customer behaviour with far more orientation towards safety and design.

Consensus Estimate: (Source: market screener website)

• The closing price of TATAMOTORS was ₹ 123/- as of 24-Sep-2020. It traded at 14x/7x the consensus EPS estimate of ₹ 9.4/18.4 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 129/- implies a PE multiple of 7x on FY23E EPS of ₹ 18.4/-

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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04 Sep

Plants running at 100% capacity- M&M

Update on the Indian Equity Market:
On Thursday Nifty closed -0.1% lower at 11,527. Among the sectoral indices Bank (-1.4%), PVT Bank (-1.4%), FIN Services (-1.0%) closed lower. IT (+1.50%), Pharma (+0.9%) and FMCG (+0.8%) closed higher. ICICI Bank (-2.1%), Bharti Airtel (-1.9%) and Axis Bank (-1.9%) closed on a Negative note. Infratel (+10.9%), GRASIM (+7.2%) and Titan (+5.9%) were among the top gainers.
Excerpts from an interview of Mr. Hemant Sikka, President Farm Equipment Sector, M&M with CNBC-TV18 dated 2nd September 2020:
• Tractor sales were up 65% YoY, M&M remains positive because of good harvest and bountiful monsoon.
• The production started from mid-May and now plants are running at 100% capacity.
• The demand is robust throughout the country. The kharif sowing is going well which gives a confidence to farmers.
• The domestic market grew by 69% in August 20.
• On Finance, the availability is better compare to 3-4 months back. Initially finance was an issue as offices were not open, it was difficult for people to reach offices.
• The improvement in financing is seen from middle of June. The collection is also good as farmers have a better cash flow.
• Mr. Sikka said that for the next 3 months the company is expecting a full blast of production.
• The stock is at historic low levels.
• The challenges on supply side had eased out. All suppliers have ramped up their production.
• A good festive season is expected as supply chains are coming back on track and all factories running.
Consensus Estimate: (Source: market screener and Investing.com websites)
• The closing price of M&M was ₹ 642/- as of 03-September-2020. It traded at 25x/ 18x/ 16x the consensus Earnings per share estimate of ₹ 26.1/35.7/41.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus average target price for M&M is ₹ 585/- which implies a PE multiple of 14x on FY23E EPS of ₹41.1/-.
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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07 Aug

Tractor demand will continue to remain buoyant – M&M

Update on the Indian Equity Market:
On Thursday, NIFTY ended up 99 pts (+0.89%) at 11,200.
Among the sectoral indices, IT (+1.8%), FMCG (+1.4%) and METAL (+1.4%) were top gainers while PSUBANK (-0.32%) was the only loser.
Among the stocks, TATASTEEL (+3.8%), INFY (+2.9%) and GAIL (+2.6%) were the top gainers. EICHERMOT (-1.3%), SHREECEM (-1.2%) and ADANIPORTS (-0.9%) were the top losers.

Tractor demand will continue to remain buoyant – M&M

Edited excerpts of an interview with Mr. Hemant Sikka, President, Farm Equipment Sector (FES), Mahindra & Mahindra Ltd with Business Standard dated 5th August 2020:

Hemant Sikka commented that the company noticed a turnaround in tractor business in December. Things were going very well.

• Comments on key factors driving sales: This is the peak season for tractors. The strong demand momentum continued, aided by positive sentiments due to good cash flows to farmers, higher kharif sowing, a timely and normal monsoon cumulatively across June and July, and continued higher rural spending by the government. While it is too early to share target figures for the entire year, it is expected that this demand will continue to remain buoyant in the coming months.
• He informed that 75% of the tractor sales are on finance, M&M have aligned finances very well starting in May itself building out further in June and July. In addition to land preparation, tractors provide machine power for performing various farm applications and can be used to pull a variety of farm equipment, while also relieving the burden on farm labor and improving farmer’s livelihood.
• When asked about the supply chain constraints he replied that with tractor capacity at nearly 95%, some localized lockdowns enforced in certain cities are hampering the ramp-up of the supply chain, thus affecting production at OEMs. More than 90% of the dealers have started.
• When asked about the Capex plans, he said that K2 is a large investment, and K2 will be over by the end of FY21, some will be before FY22. (Under K2 project, the company is creating a new platform on which a new range of tractors, developed in collaboration with Mitsubishi of Japan, to further strengthen its position, both in the domestic).
• The company also made engine investments in the recent past. Investment in Swaraj tractor was also made by M&M. He further added that they are not compromising with the products for the future. It’s just that the company is completing a peak of Capex in this Capex cycle.
• While FES has a strong tractor portfolio, M&M is building technology skill sets beyond it and working on introducing a range of farm machinery, with the idea of taking technologies used in large landholding farms around the world and making them affordable and accessible to small landholding farmers. This is based on having established three global technology Centers of Excellence in Japan, Finland & Turkey, through acquisitions made over the last couple of years, from new products will be launched in FY21.
• Simultaneously, M&M is also focusing and developing Farming as a Service vertical (FaaS), which will focus on giving farmers advisory and precision farming technologies to help our farmers increase their productivity and get more output from their efforts.

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

• The closing price of M&M was ₹ 610/- as of 06-Aug-2020. It traded at 24x/18x/16x the consensus earnings estimate of ₹ 25.7/34.0/39.5 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 585/- implies a PE multiple of 15x on FY23E EPS of ₹ 39.5/-

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 Mahindra & Mahindra 0 Comments Read more...
05 Aug

Auto demand picking up as the festive season nears – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.9%, higher than the previous close at 11,095. The top gainers for Nifty 50 were Reliance (+7.4%), Zee (+6.4%), and HDFC Bank (+3.8%) while the losing stocks were Tech M (-2.8%), BPCL (-2.5%), and IndusInd Bank (-2.0%). The sectoral gainers for the day were Media (+3.8%), Financial Service (+2.3%) and Pvt Bank (+2.0%) while the losers were IT (-0.9%) and PSU Bank (-0.02%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki; dated 04th August 2020 from CNBC TV18:

  • Auto sales in the month of July have seen a substantial improvement as compared to June and the demand is seen picking up ahead of the festive
  • Demand is beginning to pick up as the festival season is coming up. Maruti is gradually ramping up production but there are still problems as the factories are working at anywhere near 100% capacities. Safety regulations limit the capacity utilization. So with all of that, Maruti is trying to meet the demand and get up to last year without any forecast or guarantees of what is going to happen.
  • He highlighted that the number of enquiries was large and bookings were going along quite normally, compared to last year.
  • There is the pent-up demand from last year as there is some requirement of people to have mobility as the economy is opening up. However, he expects the situation for six months down to remain uncertain because of negative factors such as lower income levels of people caused by the shutdown in business activities.
  • Hospitality and travel businesses have closed down which were users of vehicles.
  • In terms of the cost of a vehicle in relation to per capita income, he believes that has gone up probably a little faster because of new regulations on safety and emissions.
  • The steel prices have never been on a straight line. There has been a period when steel prices have gone up sharply than they have flattened out and come down and then the cycle reverses. In the last two years, there were periods when steel prices were declining and they are benefited from that. Thus, he is not so worried about the increase in steel prices.
  • Talking on the personal mobility issue he said that the percentage of buying cars which are the smaller entry-level hatchbacks has gone up. The increase in the percentage of people wanting to buy small hatchbacks is an indicator that there is a requirement of people to have a small car for doing all kinds of things, going to school, going shopping and other forms of transport. So he thinks that there is some section of the consumers that needs to have personal transport instead of using shared transport or some other form of transport.

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

  • The closing price of Maruti Suzuki India Ltd was ₹ 6,361/- as of 04-August-2020. It traded at 45x/27x the consensus EPS estimates of ₹ 141/239 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 5,698/- implies a PE multiple of 24x on FY22E EPS of ₹ 239/-.

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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13 Jul

Corporate rejig plan will take care of long-term requirements – Motherson Sumi

Update on the Indian Equity Market:
On Friday, Nifty ended -0.4% lower at 10,768. The top gainers for Nifty 50 were Reliance (+3.1%),
HUL (+2.5%), and Sun Pharma (+2.3%) while the losing stocks were Axis Bank (-3.2%), GAIL (-2.8%)
and ICICI Bank (-2.8%). Sectoral gainers for the day were Pharma (+0.9%), Realty (+0.7%) and FMCG
(+0.5%) while the losers were PSU Bank (-2.7%), Pvt Bank (-2.4%) and Bank (-2.2%).

Edited excerpts of an interview with Mr GN Guaba, CFO, Motherson Sumi Systems Ltd (MSSL); dated 07th July 2020 from Economic Times:

  • The Motherson Group last week announced a major rejig in its corporate structure, deciding to demerge its domestic wiring business into a separate listed entity.
  • As per the scheme, MSSL will first demerge the domestic wiring harness business and will get it listed separately. The second stage of the restructuring involves merging the principal holding company Samvardhana Motherson International Ltd (SAMIL) into the MSSL.
  • From the shareholders perspective, for every one share held by them of the MSSL pre-demerger, they will be allotted one new share of the demerged entity.
  • The proposed reorganisation will simplify the Group structure and protect the interest of all shareholders. It will give a fillip to the company’s M&A strategy.
  • MSSL’s partner Sumitomo had been for long keen to have a shareholding in the business which is purely focussed on Indian customers. MSSL was also looking to simplify the structure for the last eight years. They had looked at various alternatives, but could not pursue it on account of changing laws and regulations. 
  • On January 30 2020, the Company decided to have two separate listed companies as they thought this was the best way to protect the interest of all stakeholders including the minority shareholders.  
  • The contribution from the wiring harness business was at Rs 39 billion in FY20 and Rs 44.8 billion in FY19. The business constitutes 5-6 % of the total turnover.
  • MSSL is a leading manufacturer, supplying wiring harness to almost every OEM, including in all categories, CVs, bikes, trucks, passenger cars, etc. They are not chasing market share, since that proposition may compromise the bottom line. Sumitomo’s technical assistance and strategic guidance auger well for the wiring harness business in future. The idea is to clearly focus on the growing trends in the domestic market.
  • MSSL sees this restructuring to be EPS accretive in the first year of the merger’s scheme itself which is FY22E. From the semi-merger point of view, the substantial part of valuation is derived from MSSL itself; this ensures that they have protected the interests of the minority shareholders. This would be as a win-win situation for all.
  • The rejig process is likely to take 12 months or so. Based on the feedback from the Company’s bankers, restructuring will be completed by June 2021; the listing and trading of both the demerged entity as well as the SAMIL are likely to take place from July 2021.
  • The proposed restructuring scheme is a big step taken by MSSL Group. Thus, it will take care of their future long-term requirements.

Consensus Estimate: (Source: market screener website)

  • The closing price of Motherson Sumi System Ltd was ₹ 96/- as of 10-July-2020. It is trading at 41x/17x the consensus EPS estimate of ₹ 2.4/5.7 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 111/- implies a PE multiple of 19.5x on FY22E 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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10 Jul

Aim to go back to 20%-22% ROE- Mahindra & Mahindra

Update on the Indian Equity Market:

 

On Thursday, Nifty closed 1.0% higher at 10,755. Within NIFTY50, HINDALCO (+6.6%), HDFC (+4.3%), and SBIN (+4.1%) were the top gainers, while INFRATEL (-1.9%), COALINDIA (-1.5%) and TECHM (-1.2%) were the top losers. Among the sectoral indices, METAL (+1.9%), FIN SERVICE (+1.6%), and BANK(+1.4%) gained the most.  FMCG(-0.3%) was the only sector to close in red.

 

Aim to go back to 20%-22% ROE- Mahindra & Mahindra

 

Excerpts of an interview with Mr. Anish Shah, Joint MD–Mahindra & Mahindra published on ET Auto dated 7thJuly2020:

  • M&M’s loss making subsidiaries had a difficult couple of years. M&M is now looking to take direct action.
  • The loss-making subsidiaries are being evaluated and categorized into 3 groups – Category A: companies with clear path to 18% Return on Equity (ROE). Category B: companies with unclear path to profitability but can deliver quantified strategic benefit, and Category C: Calls for a possible exit through alliance or sale as it does not fit into A or B.
  • This review of subsidiaries will be carried out every 6 months to ensure businesses are on track and milestones are being achieved.
  • Over the last 4 years, profits of M&M were being eroded by the loss-making subsidiaries- 1% in FY17, 12% in FY18 because of international subsidiaries, 25% in FY19, and over 1.7% in FY20.
  • 2 years ago, M&M management started ‘challenge round’ where as Head of Group Strategy, Mr. Anish Shah was asked to challenge all proposals and recommend to the board whether to invest or not. In the process, tough calls have been taken on two-wheeler business, Baby Oye, and Mom and Me among others.
  • In 4QFY20, M&M took a call to stop further investments in SsangYong and Gen Z. Almost 60% of losses came from SsangYong and Gen Z.
  • By the end of this FY21E, the remaining loss making subsidiaries will be addressed and shut down in absence of a clear path. Entering into FY22, a lot of these problems will be history.
  • M&M aims to have a simpler structure going forward. While the focus is looking at the loss making subsidiaries and getting them back on track, M&M does not want to change the spirit of entrepreneurship.
  • Multiple reasons led to the losses in last 2 years. The environment is one reason and excess confidence in some business is the other. Essentially, there will be a higher financial discipline that will come in.
  • M&M’s share price, as of high of August 2018, had a 31% annualized growth rate over a period of 17 years. The factors that drove this return were, – earnings-per-share growth of 34%, cash generation of Rs 23 bn per year on an annualized basis and annual return on equity of 22%. In order to get back to that kind of performance, M&M will have to get back to 20%-22% RoE and 30%-plus growth rate in cash generation.
  • M&M’s ROE in the last few years has gone down from 20% to 12%. In stage 1, by fixing loss making subsidiaries M&M should be back to 18% ROE. In the next stage, taking a look at 0-10% ROE businesses and fixing them, should mean going back to 20-22% of ROE.
  • M&M’s preference is to have a solid and conservative business over a rapidly growing risky business. M&M Finance’s business is strong and M&M is putting in capital to ensure that in any scenario, if things get much worse, there is no impact on the business. Mahindra Finance has always raised capital before it is needed, so they didn’t wait until the capital was needed. There were some analyst concerns regarding the capital issue but M&M is confident that M&M Finance should have a very high degree of subscription.
  • M&M aims to be the gateway to the largest and fastest growing themes in India and hospitality is one of them. M&M has a timeshare model and a long-term bond with the consumers. As a result, M&M expects that it’s hospitality business may not be impacted much. Post the COVID-19 crisis, M&M’s hospitality business can grow much faster.
  • As for Meru, M&M is looking at it closely to see what the real path to profitability is. M&M does not have a definitive answer to that yet.

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

  • The closing price of M&M was ₹ 563/- as of 09-July-2020. It traded at 22.1x/ 16.7x the consensus EPS estimate of ₹ 25.5/ 33.7for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 556/- implies a PE multiple of 16.5x on FY22E EPS of ₹ 33.7/-.

 

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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06 Jul

Resurgence of demand across India, exports to take a little longer – Bajaj Auto

Update on the Indian Equity Market:

On Friday, the Indian market ended higher, making it the third straight week to end with gains. The Indian government’s approval of the acquisition of missiles, ammunition, and weapon systems worth Rs 38,900 crores led to the rally in defense stocks’ shares. Nifty ended 0.5% higher at 10,607. EICHERMOT (+4.2%), ADANIPORTS (4.1%), and BHARTIARTL (+4.1%) were the top gainers, while JSWSTEEL (-1.8%), TATASTEEL (-1.8%), and INDUSINDBK (-1.5%) were the top losers. Among the sectoral indices, IT (+1.1%), REALTY (+1.0%) and AUTO (+0.9%) ended in the green, while PSU BANK (-0.9%), PRIVATE BANK (-0.5%) and BANK (-0.5%) ended in the red.

Mr. Rakesh Sharma, Director, Bajaj Auto discussed the June auto sales data with CNBC TV18 on July 2nd, 2020. Here are the edited excerpts of the interview:

  • A lot of pent-up demand was witnessed in the past month wherever the dealer network was opening up.
  • In the last couple of weeks, they have noticed even spread of resurgence in demand. Initially, it was thought to be a semi-urban, and rural area phenomenon. Now, it is the urban areas that are responding and coming back extremely well.
  • There is optimism in the rural areas driven by the agricultural sector. In the urban areas, there is a revaluation of the mode of transport and a lot of the urban areas are driven by the need to adopt a safer mode of transport. In the last 10-15 days, demand has returned on both, the urban and rural sectors. Bajaj Auto is hopeful that this will continue into the next quarter.
  • Talking about production, he said there was a little bit of turbulence towards the end of June. Otherwise, production including their vendors and plants is completely geared up. In the niche areas of high-end bikes and electric scooters, their response rate was lower. Overall, they have responded to 90-95 percent of the market demand.
  • Had the logistical disturbances not existed in the last days of June, they could have catered to about 100 percent of the demand, except for the niche products.
  • The June story is a ramp-up story of the vendors, of the plant and of the dealers. Bajaj Auto has been able to increase their market share and share of exports. It can be said the June story is not so much of the demand coming up but the supply side coming up to speed to a very different situation.
  • Taking into consideration the fact that more Covid cases could break out, in the dealerships, and at the back end, Bajaj Auto is much better prepared and would not face any restraining issue going forward.
  • At the Aurangabad pant, there have been 40 cases and 3 casualties and there is no escalation. There is a constant effort for testing and contact testing. Production had gone way down to ensure rigorous contact testing, reporting, and sanitization. Now, production is back to normal, people are reporting to work.
  • Moving to exports, Africa has come back well and running at about 80 percent levels. ASEAN is slightly behind, at about 65 – 70 percent. Latin America is a bit of a concern as the recovery is only at 50 percent level. From shipment point, the return to normalcy will most likely be by August or September, as in transit stocks in exports are much higher and have to be calibrated with the low demand of the first quarter. Now that calibration is continuing to occur and is expected to be completed by August and expect to see some kind of normalcy in shipments coming back.

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

  • The closing price of Bajaj Auto was ₹ 2,935 on 03-07-2020. It traded at 20x/ 17x/ 15x the consensus EPS estimate of ₹ 147/175/198 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 2,774/- implies a PE multiple of 14x on FY23E EPS of ₹ 198/-.

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 Jun

We import as there is little choice, should be self-reliant – Maruti Suzuki

Update on the Indian Equity Market:

On Monday, NIFTY ended down 71 pts (-0.7%) at 10,312 amid weak global cues.
Among the sectoral indices, FMCG (+0.7%) was the only gainer while REALTY (-3.6%), PSU BANK (-3.3%) and METAL (-2.6%) were among the top losers.
Among the stocks, BRITANNIA (+2.1%), HDFCBANK (+1.8%) and CIPLA (+1.4%) were the top gainers. COALINDIA (-5.0%), AXISBANK (-4.7%) and TECHM (-3.2%) were the top losers.

We import as there is little choice, should be self-reliant – Maruti Suzuki

Edited excerpts of an interview with Mr. R C Bhargava, Chairman, Maruti Suzuki with Business Standard dated 28th June, 2020:

• The answer to calls for boycotting Chinese imports lies in making Indian manufacturing much more competitive, deeper and widespread, but people should remember that shunning products from the neighboring country may lead to them paying more for goods.
• While stating that importing continuously for long period is not really in anybody’s commercial interest, he also asserted that certain products continue to be imported as there is little choice in the matter due to their non-availability in India, or because of quality and pricing issues.
• Everybody knows that importing products over time actually becomes more and more expensive as the rupee gets weaker. If you were importing something 10 years ago, the same product today will cost 60-70 % higher. So it is not really in anybody’s commercial interest to continue to import, you import because you really have little choice in the matter.
• The answer to the sentiments which are being expressed is to make Indian manufacturing much more competitive, much deeper, and much more widespread. What the Prime Minister has said about ‘Atmanirbhar’ means exactly that. If you start making more products in India at competitive prices, people will not import those products.
• Asked if companies, including those in the automotive sector, need to worry in the wake of rising voices against Chinese imports following Indo-China border clashes in Ladakh, Mr. Bhargava commented that this is a natural reaction to what has happened on the border. We had this happen with Pakistan also. It doesn’t become policy. He thinks the policymakers think carefully before they make or unmake a policy. They don’t react to popular sentiments.
• Explaining why industries in India import, he said that the reason why anybody imports is that either the product is not made in India, not available or what is made in India is not at the right quality or the product made in India is too expensive.
• He also underlined the need to understand whether stopping import will hurt or benefit India. If it is non-essential products it will not hurt us, but if it is essential then stopping imports is going to hurt us much more than it will hurt China. We need to see what the import is, what does it do to our whole industry, whether stopping imports is going to hurt us or benefit us.
• When asked if importing from China is inevitable under the current circumstances, Mr. Bhargava stated that it is inevitable unless we can find alternative sources of imports and which do not raise the prices to a level that consumers will get hurt.
• We should remember that consumers ultimately pays the price of imports, the same people who are asking for a boycott have to remember that in some cases it may lead to them being asked to pay more for the same product and asked are they ready for that.
• He also called for a comprehensive understanding of the circumstances and taking informed decisions on the pros and cons of importing from China before being swayed by sentiments.
• In case of stopping imports from China consumers will not get a car if a car has 2 per cent Chinese imports. He asked that if we stop that 2 per cent and stop making the car, who will it hurt, India or otherwise, how many jobs will Indians lose, how many people will lose a living, how much taxes will be lost.
• Commenting on instances of consumers cancelling bookings of vehicles from a Chinese auto firm, he said that it is the expression of a sentiment and he understands popular sentiment.

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

• The closing price of Maruti was ₹ 5,701/- as of 29-Jun-20. It traded at 39x/25x the consensus EPS estimate of ₹ 147/231 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 5,519/- implies a PE multiple of 24x on FY22E EPS of ₹ 231/-.

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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26 Jun

Focus on cash conservation & tightening capital allocation – M&M

Update on the Indian Equity Market:

Markets remained muted amid monthly F&O expiry as Nifty closed the day 0.2% lower at 10,289. The top gainers for Nifty 50 were ITC (+5.6%), HEROMOTOCO (+2.9%) and BAJFINANCE (+1.9%) while the losing stocks for the day ASIANPAINT (-3.1%), HINDALCO (-2.3%) and IOC (-2.1%). The gaining sectors for the day were FMCG (+2.3%), PHARMA (+0.8%) and BANK (+0.4%) whereas IT (-1.2%), REALTY (-1.0%) and METAL (-0.6%) were the losing sectors for the day.

Edited excerpts of an interview with Mr Pawan Goenka, Managing Director, Mahindra & Mahindra Ltd (M&M); dated 15th June 2020 from CNBC TV-18:

  • Mr Goenka said that the board took a decision that the Company needs to be much tighter on  capital allocation and prioritize where they want to put the money.
  • M&M is looking at all the subsidiaries right now to see whether they will be turning around profitable in the next two years. The company will take the decision in the coming few months about its subsidiaries.
  • Speaking about Peugeot Motorcycles, he said it was hit due to the pandemic. As per the plan, it could have been profitable during this year. However, due to COVID-19, the factories in China are down for quite some time. The company has lost the full peak season in Europe. The management will take the decision on the future of Peugeot motorcycles after reviewing its future.
  • Mahindra Electric turned EBITDA positive in FY20 and the company is on the way to become profit positive or cash-flow positive in the coming quarters.
  • He is confident about the strength of the balance sheet to fight the pandemic. The company holds a fairly strong cash position with more than Rs 100,000 mn cash on its balance sheet.
  • In the near term, the company’s primary objective is to find a third party investor in Korean manufacturer SsangYong as it is in need of cash for survival. 
  • The company reported a consolidated net loss of Rs 32,550 mn during the 4QFY20 due to the COVID-19. In the tough economic period, the company is looking to focus on capital allocation strategies.

Consensus Estimate: (Source: market screener, investing website)

  • The closing price of M&M Ltd was ₹507/- as of 25-June-2020. It traded at 20x/ 15x the consensus EPS estimate of ₹ 25.3/ 33.6 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 558/- implies a PE multiple of 17x on FY22E EPS of ₹ 33.6/-.

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.”

 

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11 Jun

Expect supply shortage in June-July– Maruti Suzuki

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,116. Within NIFTY50, INDUSINDBK (+10.0%), HINDALCO (+3.1%), and AXISBANK (+2.8%) were the top gainers, while HEROMOTOCO (-3.5%), GAIL (-2.9%) and COALINDIA (-2.4%) were the top losers. Among the sectoral indices, PSU BANK (+3.5%), PVT BANK (+2.1%), and Realty (+1.9%) gained the most.  The losing sectors were AUTO (-1.1%), METAL (-0.6%), and MEDIA (-0.3%).

 

Expect supply shortage in June-July– Maruti Suzuki

 

Excerpts of an interview with Mr.R C Bhargava, Chairman–Maruti Suzuki published in Business Standard dated 10th June 2020:

  • Maruti will not be able to assemble more than 30-40 % of normal levels of production in June. So there will be no issue in selling what is produced as he expects demand will be higher than supply in June and July.
  • Maruti depends on 370-380 vendors and tier 2 and tier 3 suppliers in order to assemble cars. The supply chain is impacted if the vendors are facing issues in terms of labor, logistics, or are still in restricted zones. If the suppliers cannot produce the required components, Maruti cannot assemble cars.
  • Due to this supply issue and demand being higher than supply, Mr. Bhargava does not expect that Maruti will have to sell its cars at a discount.
  • However, Mr. Bhargava is not certain of the trend post-July and if the current demand scenario is only due to some pent-up demand from the lockdown period.
  • As per the Society of Indian Automobile Manufacturers (SIAM) data for the month of May, the volumes saw an 88% decline. Mr. Bhargava believes that the sales will go up gradually.

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

  • The closing price of MARUTIwas ₹ 5,686/- as of 10-June-2020. It traded at 38.4x/ 24.6x the consensus EPS estimate of ₹ 148/ 231 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 5,564/- implies a PE multiple of 24.1x on FY22E EPS of ₹ 231.

 

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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