PINC Results Preview – Automobile Sector

Robust Volumes; Subdued Profitability

During Q4FY11, Indian automobile sector is expected to witness a moderation in the profitability. Volume growth in the industry remains strong with double digit increase in volumes across various sub-segments. However, due to increase in raw material prices, profitability of the industry is likely to be adversely impacted on a YoY basis. On a sequential basis, we estimate that companies will be able to protect their operating margins through pricing action and better volumes. In our coverage universe, we expect Bajaj Auto to report a 29% growth in profits followed by Mahindra & Mahindra with 17% increase. Maruti Suzuki and Hero Honda are estimated to continue with their declining trend in profitability and profits during this quarter also. However, Ashok Leyland will be able to increase its profits due to benefit accruing from ramp up at Pantnagar operations.

Ashok Leyland (AL): With a 61% QoQ and 15% YoY volume growth, we expect AL to improve its margin sequentially by 456bps to 12%. PAT is likely to increase by 10% to Rs2.5bn.

Bajaj Auto (BJAUT): BJAUT is estimated to maintain its operating margins above 20%. Reported PAT to grow by 29% to Rs6.8bn.

Hero Honda (HH): Higher raw material cost and increased advertising expenditure due to ICC Cricket World Cup will lead to 604bps dip in margins. PAT is expected to decline by 17% to Rs5bn.

Maruti Suzuki (MSIL): Despite strong volumes and lower employee expenses we expect MSIL's profitability to remain unimpressive due to higher discounting on the products. PAT is seen down by 14% to Rs5.7bn.

Mahindra & Mahindra (M&M): M&M is expected to maintain its profitability due to low competitive intensity in its various business segments. PAT to grow by 17% to Rs6.7bn.

TVS Motor (TVSL): Higher volumes will help the company in maintaining its margins. Adjusted PAT is seen up 25% to Rs601mn.

Source : Equity Bulls

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