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01 Jun

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

 

Update on the Indian Equity Market:

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

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

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

 

Asset Multiplier Comments

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

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

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

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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02 May

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

 

 

Update on the Indian Equity Market:

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

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

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

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

Asset Multiplier Comments:

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

Consensus Estimate: (Source: Marketscreener website)

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

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...
04 Jan

Production levels improving gradually – Maruti Suzuki

Update on the Indian Equity Market:

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

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

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

Asset Multiplier Comments

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

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

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

 

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

 

 

 

By Maruti Suzuki , , 0 Comments Read more...
25 Aug

No Plans to enter EV Segment in the short term: Maruti Suzuki

 

Update on Indian Equity Market:

On Wednesday, markets ended flat with Nifty closing 10 points lower to close at 16,634.  EICHERMOT (3.7%), HDFCLIFE (2.6%), HINDALCO (2.4%) were the top gainers on the index while BAJAJFINSV(-2.9%), TITAN (-2.2%) and MARUTI (-1.3%) were the top losers for the day. Among the sectoral indices,  OIL & GAS (1.1%), IT (0.7%) and FMCG (06%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

 

Excerpts of the Address by RC Bhargava, Chairman, Maruti Suzuki at 40th AGM dated 24th August 2021:

 

  • The Company will not enter electric vehicles in the short term and will enter “only when it is feasible” to sell reasonable numbers. The sales volume of existing EV (Electric Vehicle) Players is not significant enough to threaten Maruti’s Market Share.
  • The company is a market leader in ICE (Internal Combustion Engine). It has plans to be a market leader in EVs as well but the company feels, the conditions for EV penetration in India are not adequate yet.
  • The company’s short term focus is on Hybrid CNG to manage the headwinds raised by rising fuel prices until EVs reach their inflexion point.
  • The company plans to launch an SUV in this high growth segment with the aim to capture more market share in this highly competitive field consisting of a lot of players.
  •  The company is currently facing production issues due to semiconductor shortages. This is expected to continue till the end of FY22. There’s a significant reduction in production, however, no major operational loss is evident.  
  • The Company’s planned Capex is Rs. 45 bn but the company expects there will be a significant deviation in actuals by the end of the year.
  • There’s very low penetration per capita when it comes to the passenger vehicles segment. He feels that in order for India to be fully developed, India should not be pressured to meet its carbon emission reduction norms.

 

Asset Multiplier Comments:

 

  • Maruti Suzuki has a great brand presence across all segments in the Indian markets. With its cautious stance on EV, it risks losing out on market share to more aggressive EV players like Tata Motors.
  • ICE Vehicles are not still being phased out at a very rapid pace and a complete transition to EV is still a long way off. Till then Maruti Suzuki will likely continue to enjoy its position as the market leader.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Maruti Suzuki was ₹6711/- as of 25-August-2021.  It traded at 36x/24x /19x the EPS estimate of ₹189/₹ 279/₹ 351  for FY22E/23E/24E.
  • The consensus price target is ₹ 7912/- which will put it at 23x the EPS estimate for FY24E of ₹ 351/-

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 Maruti Suzuki , , 0 Comments Read more...
18 Aug

2 Wheeler EV Segment at a growth inflexion point: Hero Electric

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 46 points to close at 16,569. EICHERMOT (+2.7%), ULTRACEMCO (+2.4%) BAJFINANCE (+2.1%) were the top gainers on the index while KOTAKBANK (-2.3%),HINDALCO (-2.3%) and ICICIBANK (-2.0%) were the top losers for the day. Among the sectoral indices,  FMCG (0.7%), CONSUMER DURABLES (0.6%) and PSU BANK (0.3%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

Excerpts of an interview with Mr Naveen Munjal, MD, Hero Electric on ET Now dated 17th August 2021:

  • Electric 2 Wheelers are the most lucrative segment in the EV Industry due to a lot of factors such as fewer infrastructure demands, simpler charging requirements, and ride distances.
  • The biggest tailwind for this segment is government support, FAME II ratings, state-specific concessions, and production-linked incentive schemes for EV Manufacturers.
  • The Total Cost of Ownership gap between ICE and EV is increasing daily due to the rise in fuel prices. Hence, the company expects demand to shift to EVs in the upcoming years to the point it’ll be 20% or a 4 billion unit segment in the next 5 years.
  • The consumer sentiment is shifting towards Electric Mobility not just in urban areas. The penetration is increasing in tier-3, tier-4, and some rural areas as well, so the sales would only go northwards from hereon.
  • The range is adequate for regular usage and for heavy usage the company offers multiple batteries as a backup. Most customers charge their bikes at home. However, the range anxiety can be addressed by installing charging stations, in which the company is investing heavily.
  • The company has also trained 6,000 mechanics and plans to train another 25,000 to solve any potential issues that may arise due to EV Malfunctions thereby creating an entire ecosystem.
  • India is leapfrogging technologies to have the most upgraded know-how as compared to other countries who took the traditional approach of innovating through the years, which is why the performance of Indian EV 2 Wheelers is best in class.
  • R&D that is being done is immense. So the vehicles in the future are going to be far better than what they are at this point. This range of vehicles is already better than what was three or five years back. This demonstrates the huge improvement in technology,

Asset Multiplier Comments:

  • Electric Vehicles are a thing of the future due to the headwinds faced by ICE Vehicles, the transition has already begun and India stands to be one of the biggest EV markets in the upcoming decade.
  • There are no pureplay EV Manufacturers that are listed on the bourses. However many 2 Wheeler Manufacturers are planning their foray into this segment. It should be noted that Hero Electric and Hero Motorcorp are two legally distinct entities with no connection to each other.
  • Hero Motorcorp has its own plans to manufacture Electric 2 Wheelers as it wants to expand into this lucrative growth-driven segment.

Consensus Estimates (Source: market screener website): 

  • The closing price of Hero Motorcorp was ₹2763/- as of 18-August-2021.  It traded at 17x/14x /12x the EPS estimate of ₹167/₹ 201/₹ 225 for FY22E/23E/24E.
  • The consensus price target is ₹ 3235/- which trades at 14x the EPS estimate for FY24E of ₹ 225/-.

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 Hero Motocorp , , , 0 Comments Read more...
16 Aug

Production loss to be minimal despite semi-conductor Shortage: Bharat Forge

 

Update on Indian Equity Market:

On Monday, markets ended higher with Nifty closing 34 points higher to close at 16,130, TATASTEEL(3.7%), BAJFINANCE (3.4%) M&M (2.4%) were the top gainers on the index while MARUTI (-2.6%),SHREECEM (-2.3%) and EICHERMOT (-2.3%) were the top losers for the day. Among the sectoral indices,  METAL  (1.5%), OIL & GAS (0.9%) and  FINANCIAL SERVICES (0.4%) were the top gainers, while MEDIA (-1.4%),  PSU BANK (-1%) and AUTO (-0.9%) were the top losers.

 

Excerpts of an interview with Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 13th August 2021:

 

  • Despite mounting input cost inflation, Company managed to expand its margins by 100 bps sequentially and posted robust growth on both Revenue and Net profit Fronts in Q1FY22
  • Semi-Conductor shortage is a universal phenomenon that’s affecting industries and businesses across the world. In the case of OEMs, most of them have taken adequate steps to address this issue. 
  • In the short term, everyone is suffering some loss in production, however, the company expects no adverse impact on production in the medium-long term. The company reiterated that the situation was outside the control of anyone and its a matter of when and not if the issue will be resolved,
  • He stated that the industry has resorted to rationing of semiconductors to produce higher-value products. This will impact the supply in the short term. 
  • A lot of Passenger vehicle manufacturers have resorted to reducing the production of lower end passenger cars against higher value cars that offer better realisations.
  • Cost Reduction was the company’s important priority in the past 2 years and the company has optimised costs through downsizing, IoT and WC Management, to produce the best margins this company has seen.
  • The company has a strong balance sheet and healthy cash balance, the company plans to take forward its growth through inorganic acquisitions aimed at future technologies like e-mobility, renewables etc as the company gears itself for the future.

 

Asset Multiplier Comments:

 

  • The Semi-Conductor shortage will be dealt with sooner rather than later, barring any major disruptions, OEM and the entire Auto and Ancillary sector is recovering well.
  • Bharat Forge has managed to improve its margins and its plans to grow across all segments through strategic investments as it gets ready for the future are on the right track.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Bharat Forge was ₹803/- as of 16-August-2021.  It traded at 45x/29x /26x the EPS estimate of ₹18/₹ 28/₹ 31 for FY22E/23E/24E.
  • The consensus price target is ₹ 900/- which trades at 30x the EPS estimate for FY24E of ₹ 31/-

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 Bharat Forge , , , 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...
15 Oct

Replacement Market has played well- CEAT

Update on the Indian Equity Market:
On Wednesday Nifty closed 0.3% higher at 11,917. Among the sectoral indices, Fin Services (+2.0%), Bank (+1.6%), and Private Bank (+1.5%) closed higher. IT (-1.3%), Pharma (-0.7%), and Auto (-0.3%) closed lower. Wipro (-7.1%), NTPC (-4.1%), and ONGC (-3.1%) closed on a negative note. Bajaj Finserv (+4.1%), SBILIFE (+3.4%), and Bajaj Finance (+2.8%) were among the top gainers.

Excerpts from an interview of Mr. Anant Goenka, MD & CEO, CEAT Ltd with ET NOW dated 12th October 2020:

● The demand for tyres has picked up faster than expectations.
● They operate in 3 markets- Replacement, Auto players, and Export.
● The replacement market has played very well and it leads the way, OEM’s has recently seen a pick up from August and September and reached pre-covid levels. The Export segment has also seen gradual growth.
● Amongst vehicle categories, the two-wheeler and tractor industry is showing the strongest demand followed by the passenger car segment.
● The Commercial Vehicle OEM segment has yet to show growth. The demand is slow over there.
● The rural sector has also shown a very strong demand for the company.
● The company is very well positioned at this point in time and had set up a fair amount of capacity.
● The company’s capacity is well utilized.
● The company had set a new facility in Nagpur for 2 Wheelers and the PV car facility in Chennai, and Truck facility in Halol is now ramping up. The company has invested around Rs 3,000 crore.
● The last six months were about managing supplies.
● Things are much clear for the company up to December, January onwards will have to see how things will pan out.
● The company is planning to reduce its cost by Rs 1000 mn.
● Speaking on the manufacturing front, he said India is in a strong position in the Auto Space. Within Type space, the industry is capable of manufacturing all kinds of tyres.
● On Export opportunities, he said the market has shown a linear growth. It is one big area where the Industry can take advantage of the current situation.
● The company is planning to de-risk the exposure towards China by focusing to have at least one domestic supplier for key raw materials.
Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of CEAT was ₹ 1,004/- as of 14-October-2020. It traded at 22x/ 15x/ 13x the consensus Earnings per share estimate of ₹ 46.6/65.5/79.0 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for CEAT is ₹ 967/- which implies a PE multiple of 12x on FY23E EPS of ₹79.0/-.
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.”

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13 Jan

Tata Motors shifts focus to cars on weak demand for CVs

Update on the Indian Equity Market:

On Friday, NIFTY closed at 12,257 (+0.3% higher than the previous close). Among the stocks, Coal India (+3.3%), Infosys (+1.7%) and Ultratech Cement (+1.6%) were the gainers. Yes Bank (-5.0%), Zee Entertainment (-3.5%), and Indusind Bank (-1.2%) were the top losing stocks. Nifty Realty (+1.8%), Nifty Metal (+1.2%) and Nifty Auto (+0.8%) were the top sectoral gainers while Nifty Pvt Bank (-0.1%) was the only sectoral loser.

Excerpts from an interview with Mr Guenter Butschek, MD & CEO, Tata Motors Ltd published in Livemint on 10th January 2020:

  • Tata Motors Ltd (TML) is betting big on passenger vehicles (PVs) to lead its turnaround plans as it transitions to Bharat Stage-VI emission norms. The move to BS-VI will give the company ‘a much more powerful play’ in the domestic market during the next fiscal.
  • With the new range of products, including upgrades for BS-VI, Mr Butschek is confident that March 2020 would be the turning point. If this gets support from the tailwinds, TML will get back to the previous growth path.
  • Referring to TML’s new product pipeline, including the company’s ambitious electric vehicle plans, Mr Butschek said the company plans to unveil 26 products at next month’s Delhi Auto Expo in February, including the 14 new commercial and 12 new passenger vehicles. This would be the biggest display of new vehicles. TML also plan global unveils of four new vehicles.
  • Mr Butschek termed the transition to BS-VI as ‘the single biggest engineering and investment effort ever’ put in by TML. He said a team of 3,500 engineers worked on BS-VI projects, upgrading over 20 engine platforms, 100 lead vehicle models and 1,000 variants. TML invested more than ₹ 1,200 crore in FY19 and hired 500 additional engineers for the process.
  • According to him, TML’s turnaround story in PVs and CVs is inspiring in terms of cost reduction. The Company has been able to reduce their breakeven point during tough times which is clear proof that they have done their homework. They are done with their investments and now they need is the volumes.
  • One key step was to bring down product development costs in its common vehicle architecture, which would form the base for several upcoming models.
  • In PVs, it has developed flexible vehicle platforms, code-named Alpha and Omega, which would power up to 12-14 new nameplates in the near- to mid-term. The new premium hatchback Altroz is going to be the first model from its Alpha architecture. The two modular platforms will also power the range of electric cars planned by the Company.
  • Mr Butschek said that TML would remain cautiously optimistic while estimating that the market would recover by 2HFY21, once the BS-VI transition is behind.
  • TML is seeing marginal improvement in retails. While the market sales volumes were flat YoY in December, TML’s sees improvement in its performance comparing the previous months.
  • For CVs, revenue from which was over four times the revenue of PVs, Mr Butschek said absorption of excess freight-carrying capacity could take up to five years, thereby hampering demand from the truck fleet owners across the country. Introduced in July-August 2018, the new axle load norms raised the permissible gross vehicle weight (GVW) of over 16-ton heavy trucks by about 12-25%, thereby creating excess carrying capacity for fleet operators.
  • A good vehicle scrappage policy could help reviving the demand for CVs in the near term, said Butschek.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹ 196/- as on 10-January-20. It traded at 25x/ 12x/ 8x the consensus EPS of ₹ 7.5 / 15.6 / 22.9 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 187.5/- which implies a PE multiple of 8x on FY22E EPS of ₹ 23/-
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