Prabhudas Lilaadher expects automobile sector to post 2.9% revenue growth on weak volumes

1.
April 10, 2015 27
Jan‐Mar 2015 Earnings Preview
Rohan Korde
rohankorde@plindia.com
+91‐22‐6632 2235
Top picks
Ashok Leyland
Maruti Suzuki
Automobiles
Four‐wheelers led by M&HCVs offer higher growth trajectory ahead: We expect
better economic growth leading to increase in middle/high income households,
increase in salaries and job creation, expectation of a pick‐up in the infrastructure
activity, easing of the mining ban and latent demand due to purchase deferrals to
boost four‐wheeler sales. The highest growth rate is likely to be recorded in the
M&HCV segment, which is recovering from cyclical lows and hence is expected to get
a boost by a combination of low base, replacement demand and fleet augmentation
requirement over the next two years. Passenger vehicles should also put in a decent
show, but new model launches would be crucial for most players here. A pick‐up in
the M&HCV segment would be followed by a two‐quarter lag by the LCV segment.
On the other hand, post a decent run in the past year and half, motorcycle sales
have slackened on account of delayed rainfall impacting rural demand, scooters
eating into the urban demand, higher inventory levels for some players and exports
being volatile due to differing problems across geographies. Scooter sales are
expected to be healthy due to growing acceptability of gearless scooters, particularly
by women, rising urbanization and increasing proportion of working women. The
weak rural environment is also likely to result in subdued tractor sales till Q2FY16.
Volume growth in Q4 for our coverage universe:
Two & Three‐wheeler companies
Volume (units) Q4FY15 YoY gr. (%) QoQ gr. (%)
Total 3,057,801 ‐3.2 ‐9.5
Hero Motocorp 1,575,501 ‐0.9 ‐4.4
Bajaj Auto 782,669 ‐16.3 ‐20.5
TVS Motors 598,869 6.8 ‐8.3
Royal Enfield 90,502 40.8 10.1
Atul Auto 10,260 6.3 ‐13.2
Source: SIAM Data, PL Research
Four‐wheeler companies
Volume (units) Q4FY15 YoY gr. (%) QoQ gr. (%)
Total 812,661 0.0 4.2
Tata Motors (Standalone) 139,270 4.3 10.3
Jaguar Land Rover 119,703 ‐1.0 ‐2.0
Maruti Suzuki 346,712 6.7 7.0
M&M 161,786 ‐18.1 ‐6.5
Ashok Leyland 34,170 31.4 34.5
VECV 11,020 12.3 19.6
Source: SIAM Data, PL Research

2.
April 10, 2015 28
Jan‐Mar 2015 Earnings Preview
If we consider the Q4FY15 performance, the trend was marginally negative for both
two‐wheelers and four‐wheelers, but there were few bright spots. The best
performers were Royal Enfield (up 40.8% YoY) and Ashok Leyland (up 31.4% YoY).
Among the others, Volvo‐Eicher CV put up a decent performance, with volumes up
12.3% YoY during the quarter. The other companies had an average quarter like
Maruti Suzuki (up 6.7% YoY), Atul Auto (up 6.3% YoY) and Tata Motors’ standalone
operations (up 4.3% YoY). HMCL recorded a slight 0.9% YoY dip in volumes in Q4 and
a similar 1% decline is expected for JLR. The weakest performers were Bajaj Auto
(down 16.3% YoY) and M&M (lower 18.1% YoY). M&M’s Tractor sales continued
their downward trajectory, which continues to hamper the company’s performance.
M&M’s Tractor and Automotive division volumes were lower at 30.3% YoY and
13.4% YoY in Q4, respectively.
Coverage universe performance in Q4: Auto companies under our coverage are
likely to post 2.9% YoY revenue growth, as volumes have been under pressure for
most segments. With lower YoY EBITDA margin for two‐wheeler companies and a
contra scenario for most domestic four‐wheeler company operations (excluding
M&M), EBITDA margin for our universe’s domestic operations would be higher YoY.
If we include JLR, the EBITDA margin is likely to decline 25bps YoY. Profit for the
coverage universe is likely to grow by 0.9%, led by Ashok Leyland and MSIL. Bajaj
Auto and M&M are expected to report the highest decline in profit at 17.5% and
19.8%, respectively.
Ashok Leyland: With recovery in CV demand expected to continue, AL will be a big
beneficiary. CV demand is expected to be driven by the anticipated recovery in capex
and investment cycle in India, thereby, driving up AL’s volumes. A lower base would
also help towards ensuring a higher growth rate. With an improving balance sheet
position and likely benefits of operating leverage ahead, we rate AL a ‘BUY’. We
value AL at 17.5xFY17e Mar’17e EPS at Rs88/share. At our TP, AL would trade at an
EV/EBITDA of 15.6x/11.3x FY16/17e.
Maruti Suzuki: With a steady improvement in the economic environment over the
next 16‐18 months, demand for PVs (and in particular for the new launches) would
be healthy over the medium term. As a market leader, MSIL would be a key
beneficiary. We expect market share gains to continue in the PV space for the
company with new launches, while operating leverage benefits would result in
EBITDA margin improvement of 260bps over FY14‐17e. We maintain a BUY with a
target price of Rs4,214. At our TP, MSIL would trade at an EV/EBITDA of ~11xFY17e.
We continue to maintain MSIL among our top picks and reiterate that the company
is among the best plays on recovery in the macroeconomic situation.

3.
April 10, 2015 29
Jan‐Mar 2015 Earnings Preview
Stock Performance
1M 3M 6M 12M 1M 3M 6M 12M
Ashok Leyland 1.2 28.4 71.0 210.9 0.6 23.3 61.2 183.8
Atul Auto (0.5) (12.5) 60.8 220.4 (1.1) (17.6) 51.0 193.3
Bajaj Auto (1.4) (11.7) (10.8) 3.8 (2.0) (16.8) (20.6) (23.3)
Eicher Motors 1.8 10.1 44.0 156.5 1.2 4.9 34.2 129.3
Hero Motocorp (1.3) (13.6) (9.1) 17.1 (1.9) (18.8) (18.9) (10.1)
Mahindra & Mahindra 4.8 3.9 (2.3) 26.1 4.2 (1.3) (12.1) (1.1)
Maruti Suzuki 0.5 5.7 23.6 87.1 (0.0) 0.5 13.8 59.9
Tata Motors 1.5 8.9 15.4 32.0 0.9 3.7 5.6 4.9
TVS Motors (12.9) (13.3) 14.7 172.2 (13.5) (18.5) 4.8 145.1
Absolute Relative to Sensex
Source: Bloomberg, PL Research
Summary Financials ‐ Quarterly (Rs m)
Companies Q4FY15E Q4FY14 YoY gr. (%) Q3FY15 QoQ gr. (%) 12MFY15E 12MFY14 YoY gr. (%)
Sales 47,655 30,768 54.9 33,610 41.8 138,220 99,434 39.0
EBITDA 4,749 1,839 158.2 2,381 99.4 10,635 1,666 538.5
Margins (%) 10.0 6.0 399 bps 7.1 288 bps 7.7 1.7 602 bps
PAT 1,799 249 622.4 321 460.7 1,873 (4,257) (144.0)
Sales 1,227 1,126 9.0 1,393 (11.9) 4,930 4,301 14.6
EBITDA 141 118 19.7 177 (20.2) 571 454 25.8
Margins (%) 11.5 10.5 103 bps 12.7 (118)bps 11.6 10.6 103 bps
PAT 94 84 10.8 113 (17.2) 392 298 31.6
Sales 44,180 49,323 (10.4) 56,572 (21.9) 212,907 201,495 5.7
EBITDA 7,975 9,684 (17.6) 11,478 (30.5) 41,319 41,826 (1.2)
Margins (%) 18.1 19.6 (158)bps 20.3 (224)bps 19.4 20.8 (135)bps
PAT 6,300 7,639 (17.5) 8,612 (26.8) 30,993 32,961 (6.0)
Sales 24,703 19,242 28.4 22,938 7.7 87,383 67,571 29.3
EBITDA 3,290 2,220 48.2 3,031 8.6 11,148 6,605 68.8
Margins (%) 13.3 11.5 178 bps 13.2 10 bps 12.8 9.8 298 bps
PAT 1,987 1,391 42.8 1,538 29.2 6,154 3,413 80.3
Sales 65,933 65,130 1.2 68,393 (3.6) 273,848 252,755 8.3
EBITDA 8,222 8,942 (8.0) 8,218 0.0 35,260 35,401 (0.4)
Margins (%) 12.5 13.7 (126)bps 12.0 45 bps 12.9 14.0 (113)bps
PAT 6,106 5,544 10.1 5,830 4.7 25,197 21,091 19.5
Sales 95,816 110,007 (12.9) 95,828 (0.0) 389,700 405,085 (3.8)
EBITDA 9,661 9,066 6.6 9,942 (2.8) 42,390 47,212 (10.2)
Margins (%) 10.1 8.2 184 bps 10.4 (29)bps 10.9 11.7 (78)bps
PAT 6,347 7,913 (19.8) 3,435 84.8 31,358 37,061 (15.4)
Mahindra &
Mahindra
Ashok Leyland
Atul Auto
Bajaj Auto
Eicher Motors
Hero Motocorp
Source: Company Data, PL Research

4.
April 10, 2015 30
Jan‐Mar 2015 Earnings Preview
Summary Financials ‐ Quarterly (Rs m)
Companies Q4FY15E Q4FY14 YoY gr. (%) Q3FY15 QoQ gr. (%) 12MFY15E 12MFY14 YoY gr. (%)
Sales 134,432 122,444 9.8 125,758 6.9 496,923 438,437 13.3
EBITDA 17,496 14,603 19.8 15,926 9.9 61,912 52,046 19.0
Margins (%) 13.0 11.9 109 bps 12.7 35 bps 12.5 11.9 59 bps
PAT 9,714 8,000 21.4 8,022 21.1 33,984 28,917 17.5
Sales 666,415 653,171 2.0 699,733 (4.8) 2,618,618 2,328,337 12.5
EBITDA 104,402 107,764 (3.1) 110,856 (5.8) 435,758 374,029 16.5
Margins (%) 15.7 16.5 (83)bps 15.8 (18)bps 16.6 16.1 58 bps
PAT 38,220 39,183 (2.5) 35,807 6.7 164,252 149,764 9.7
Sales 23,950 21,557 11.1 26,529 (9.7) 100,364 79,619 26.1
EBITDA 1,538 1,387 10.9 1,602 (4.0) 6,079 4,781 27.2
Margins (%) 6.4 6.4 (1)bps 6.0 38 bps 6.1 6.0 5 bps
PAT 852 762 11.9 902 (5.5) 3,425 2,615 31.0
Maruti Suzuki
Tata Motors
TVS Motors
Source: Company Data, PL Research
Consolidated Sectoral Data
Quarterly Table (Rs m)
Jan‐Mar'15 Jan‐Mar'14 YoY gr. (%) Oct‐Dec'14 QoQ gr. (%)
Net Sales 1,104,311 1,072,768 2.9 1,130,752 (2.3)
EBITDA 157,474 155,621 1.2 163,612 (3.8)
Margin (%) 14.3 14.5 (25)bps 14.5 (21)bps
PAT (Excl. Ex Items) 71,418 70,767 0.9 64,579 10.6
Note: Revenue, EBITDA and PAT numbers are arrived by totaling corresponding numbers of all companies under our coverage in this
sector.
Key Figures (Rs m)
2015E 2016E 2017E
Net Sales 4,322,893 5,114,751 6,027,298
Growth (%) 11.5 18.3 17.8
EBITDA 645,073 766,376 937,421
Margin (%) 14.9 15.0 15.6
PAT 297,628 393,453 480,426
Growth (%) 9.5 32.2 22.1
PE (x) 18.8 14.2 11.6

5.
Jan‐Mar 2015 Earnings Preview
April 10, 2015 134
Prabhudas Lilladher Pvt. Ltd.
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Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
44.6%
39.1%
16.3%
0.0%
0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
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