The Auto sector which saw a good recovery at the bourses recently on the back of strong sales numbers, appears to have lost its sheen, off late. Despite the fact that recent Q3FY10 numbers for most of the Auto companies have shown a robust performance on the back of low base effect, festival season and the stimulus packages announced by the Government, the auto stocks’ performance at the bourses was subdued. This could be attributed to the uncertainty over the interest rate policy by the RBI.
Now that RBI has hiked the rates in line with market expectation, the correction at the auto counters seems to have factored in the negatives.
Relative Performance of Auto Stocks with Sensex
| Company | Returns (%) | Returns (%) | P/E Ratio | 1 months | 1 year | Hero Honda | 12 | 79 | 15.18 | Bajaj Auto | 0.25 | 270 | 16.15 | TVS Motors | 13 | 332 | 19.69 | Maruti Suzuki | 11.48 | 158 | 18.78 | Mahindra & Mahindra | 4 | 276 | 15.3 | Auto Index | 5.84 | 184 | 19.46 | Sensex | 6 | 76 | 20.33 |
** As on 1st February, 2010
The Auto Story has been riding high on good earnings and healthy margins of around 20-22% in the Two Wheeler segment while the same for the Four Wheeler auto companies has been around 9-15% as per the recent Q3FY10 results.
| Comppany | Net sales( Rs. mln) | Net Sales % Y-o-Y change | EBIDTA ( Rs. mln) | EBIDTA % Y-o-Y change | Net Profit (Rs. mln) | Net Profit % Y-o-Y change | | Hero Honda | 38,144 | 33% | 6,609 | 59% | 5,358 | 78% | Bajaj Auto | 31,658 | 58% | 7,586 | ~177% | 4,751 | 186% | Maruti Suzuki | 73,338 | 61% | 1,022 | 282% | 688 | 224% | M&M | 44,971 | ~79 % | 6,695 | 263% | 4,137 | 202% | Tata Motors | 89,799 | 90.50% | 11,293 | 3328.30% | 4,244 | NA |
Riding high on volumes:
The Auto companies have been witnessing signs of economic recovery are quite evident from the growth in volumes for the Two wheeler’s, Passenger vehicles (PV), and Medium and Heavy vehicles (M&HV). The growth in the volumes is also pre-dominantly from the exports especially of two wheelers and passenger vehicles.
Volumes
| Company | Jan'10 | Jan'09 | %chg | | Maruti | 81,087 | 67005 | 21% | | Tata / Fiat | 28547 | 19911 | 43% | | M&M | 20332 | 13397 | 52% | | | | | | | Hero Honda | 3.89 Lakh | 3.25 lakh | 20% | | Bajaj Auto | 266018 | 132348 | 101% |
Key Triggers:
(Volumes mentioned are for the month of January 2010)
Hero Honda:
Its revenues grew 32.8% y-o-y to Rs. 38,144 million on the back of 29.6% y-o-y volume growth. However, realisations did not grow much during the quarter where as Total Operating income improved 32.8%. The company lost some market share to competition and plans to launch new models before the fiscal year end and the benefits of the same will be accrued only in the next financial year.
Bajaj Auto:
Strong sales of the Discover brand and robust performance on the exports front led to a 101% growth in Volumes in January. For Q3 FY2010, the company’s margins expanded to 22% on a y-o-y basis. Scalability is expected to stem from sales of Discover 100, Pulsar 135 and new launches over the next two quarters in addition to exports, Pulsar and 3W portfolio is expected to maintain growth rates.
Maruti Suzuki:
Domestic sales increase by 21% to 81,087 cars on a y-o-y basis. Strong demand for its A2 segment cars led to a 25% growth and helped the company to boost sales. Its sedan range grew 37% while sales of M800 declined 55%. The company has announced a capex of Rs 17 billion to add 0.25 million cars at its Manesar plant, which is expected to operate by April 2012. Going ahead, the company’s performance in terms of non-European markets needs to be monitored for scalability while a passenger car segment is expected to sustain the growth.
Tata Motors:
Tata Motors, posted a 43% jump in sales to 28,547 cars,. The company sold 4,001 Nanos and 11,448 Indicas. The Indigo sedan range grew 83% to 7,258 cars, the highest ever since its launch in 2002. EBITDA margin declined sequentially on account of higher raw material cost The operating income grew by 89% in Q3 FY 2010 to Rs 89,799 million on a low base fuelled by new vehicles introductions, stable growth in existing models, government stimulus and an overall economic recovery. Cost pressures are expected to continue going forward.
M&M:
Sales jumped by 52% to 20,332 units as demand for multi utility vehicle Bolero and pick-up trucks remained robust in rural markets. However, sales of Logan sedan dropped to 555 units in January as against 597 in January last year. For Q3 FY2010, EBITDA margins have declines sharply on account of unfavourable product mix . Higher depreciation and higher tax provisioning further impacted PAT, resulting in ~159% y-o-y growth in adjusted Net Profits. The company’s core business continues to grow and is expected to sustain performance. Launch of Scorpio pick-up in US shortly; awaiting regulatory approvals should be a good trigger for the stock, which otherwise has been subdued.
Notably, sales have improved against the backdrop of rate hikes by the Car makers. Consecutive positive growth numbers in the sales and operational efficiencies may see some sentiment improvement while any unexpected interest rate hikes could dampen the mood . Wait and Watch.
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