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Published on 3/04/2020 1:45:35 PM | Source: Motilal Oswal Securities Ltd

Automobiles Sector Update by Motilal Oswal

Posted in Broking Firm Views - Sector Report| #Auto Ancillaries Sector #Sector Report #Motilal Oswal Financial Services Ltd

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Wholesales at 83.8k units (below est. 106k units)

Maruti Suzuki

Domestic sales down ~46% YoY

* Maruti Suzuki’s (MSIL) Mar’20 wholesales were below estimate, declining ~47% YoY to 83.8k units due to COVID-19 outbreak and lockdown of plants from 21st Mar’20.

* Domestic volumes declined ~46% YoY to 79k units (v/s est. 99.6k units).

* Mini segment volumes declined just 5% YoY to 16k units (v/s est. 19.5k units) while all other segment saw 40%+ decline.

* Export volumes were below est. at 4.7k units (v/s est. 6.4k units).

* We are now estimating FY21 volumes to decline ~2% YoY (v/s earlier est. 8.5% growth) due to the impact of COVID-19 related slowdown.

* We are lowering our EPS estimates for FY21/FY22 by ~24%/21% respectively to factor in for the impact of coronavirus on demand.

* The stock trades at 21.4x/15.8x FY21/FY22E earnings. Maintain Buy.

 

Mahindra & Mahindra

Wholesales down 75% YoY to ~21k units (v/s est. 43k units)

Tractors decline ~31% while UV sales skid ~87% YoY

* M&M tractor volumes declined ~31% YoY to ~13.6k units (v/s est. 17.3k units).

* UVs (incl. pick-ups) declined ~87% YoY to 6.9k units (v/s est. 22.4k units). Domestic passenger UVs declined ~88% YoY while the domestic pick-up segment was up ~90% YoY due to the BS6 transition and lockdown.

* 3W volumes declined ~94% YoY to 421 units.

* Commenting on the performance, Mr. Veejay Ram Nakra, Chief – Sales & Marketing of M&M’s Automotive Division said, “Our performance in March has been muted on account of the impact of the current lockdown related to COVID-19 and the disruption in our BS6 ramp-up plan. The latter was planned between February and March but was affected due to the challenges of supply of parts from global and local suppliers. We have been able to clear our BS6 inventory, but for fewer than 100 vehicles. However, there are many vehicles that are sold, but not yet registered because of RTO closure.”

* Commenting on the performance, Mr. Rajesh Jejurikar, President – FES Sector of M&M said, “The month was disrupted as business was hugely impacted by the lockdown just before the start of festive days in large parts of the country. In compliance with the regulations, the anticipated retail surge and billing totally stopped in all states. The central government has taken timely initiatives for the farming community in the form of specific relief packages. We hope this will help bring in momentum for tractor sales, after the lockdown ends.”

* We are lowering our EPS estimates for FY21/FY22 by ~%18 each to factor in for the impact of coronavirus on demand.

* The stock trades at 9x/8.1x FY21/FY22E consol. EPS. Maintain Buy.

 

Tata Motors

* Wholesales decline ~83% led by CVs CVs decline ~87% YoY while PVs decline ~68% YoY

* Tata Motors’ (TTMT) Mar’20 volumes declined ~83% YoY to ~12.9k units (v/s est. 26.7k units) led by ~87% YoY decline in total CV volumes to 7.1k units (v/s est. 18.1k units).

* M&HCV volumes declined ~85% YoY to 3.7k units (v/s est. 7.2k units), whereas LCV volumes declined 89% YoY to 3.4k units (v/s est. 10.9k units).

* PV segment sales declined 68% YoY to 5.7k units (v/s est. 8.6k units), car segment volumes declined ~71% YoY to 2.6k units (v/s est. 5.1k units) while UV volumes declined ~65% YoY to 3.2k units (v/s est. 3.4k units).

* Mr. Girish Wagh, President of TTMT’s Commercial Vehicles Business Unit said, "Retail was 16% higher than the off-take for the entire year. Domestic sales in Mar’20 stood at 5,336 units, deeply impacted by the COVID-19 lockdown as well as the planned transition to BS6. Retail sales were significantly ahead of wholesales (>300%). Almost all BS4 vehicles in the ecosystem have been retailed; however, some await registration which was halted due to the lockdown. This will be cleared in the window provided. Productionization of BS6 vehicles is on track and we have wholesaled the initial few BS6 vehicles. Our focus is to secure the extensive business continuity plan including ensuring full support to all our customers in need, particularly those who are transporting essential goods during this challenging period."

* According to Mr. Mayank Pareek, President of TTMT’s PV Business Unit said, "Vehicle sales were affected by the COVID-19 outbreak and the subsequent nationwide lockdown. However, customer response to our newly launched models - the Altroz and the refreshed BS6 range is encouraging. Our BS4 vehicle stock is near zero in the entire network. I would be handing over to Mr. Shailesh Chandra who I am sure will take the PV team and the business to the next level, by delivering an exciting customer experience and building on the strength of the NEW FOREVER product portfolio."

* We are lowering our EPS estimates for FY21/FY22 by ~94%/66% respectively to factor in for the impact of coronavirus on demand in India and JLR.

* The stock trades at 2.4x/2x FY21/FY22E EV/EBITDA. Maintain Buy.

 

Ashok Leyland

Wholesales decline 90% YoY MHCV sales down ~89% YoY

while LCVs decline ~94% YoY

* Ashok Leyland’s (AL) Mar’20 wholesale dispatches declined 90% to 2,179 units (v/s est. 7,285 units) *  M&HCV volumes, which accounted for 84% of total volumes in the month, declined ~89% YoY (+75% MoM) to 1,831 units (v/s our est. of 4,329 units).

* LCV volumes declined ~94% YoY to 348 units (v/s our est. of 2,956 units).

* We are lowering our EPS estimates for FY21/FY22 by ~38%/21% respectively to factor in for the impact of coronavirus on demand.

* The stock trades at 12.7x FY22E EPS and at 6.5x FY22E EV/EBITDA. Maintain Buy.

 

Eicher Motors

Royal Enfield wholesales decline 41%; VECV by ~83%

* Royal Enfield’s (RE) dispatches declined ~41% YoY to 35.8k units (v/s est. ~44k units).

* RE exports grew ~33% YoY to ~3.2k units.

* VECV Mar’20 volumes declined 83% YoY to ~1.5k units (v/s est. ~3.1k units).

* Domestic LMD declined ~82% while the HD segment declined ~84% YoY. Buses volume declined ~76% YoY.

* VECV exports declined 95% YoY to 67 units.

* We are lowering our EPS estimates for FY21/FY22 by ~15%/16% respectively to factor in for the impact of coronavirus on demand.

* The stock trades at 17.4x/13.8x FY21E/FY22E consol. EPS. Maintain Buy.

 

Hero MotoCorp

Wholesales decline 42% to ~335k units

Decline due to lockdown and BS6 transition

* Hero Motocorp’s (HMCL) Mar’20 volumes declined ~42% YoY to ~334.6k units (v/s est. 343k units). 

* Motorcycle wholesales declined ~ 43% YoY to ~305.8k units while scooter sales declined ~37% YoY to 28.7k units.

* Exports declined 34% to ~17.9k units.

* We are lowering our EPS estimates for FY21/FY22 by ~14% each respectively to factor in for the impact of coronavirus on demand.

* HMCL trades at 11.1x/10x FY21/FY22E EPS. Maintain Neutral.

 

Escorts

Domestic sales decline 54% YoY and ~37% MoM

* Escorts’ (ESC) total tractor dispatches in Mar’20 declined 54% YoY (-37% MoM) to ~5.4k units (v/s est. 9k units).

* Domestic sales declined 54% YoY (-35% MoM) to ~5.2k units.

* Exports too declined 54% YoY to 216 units.

* We are lowering our EPS estimates for FY21/FY22 by ~5%/3% respectively to factor in for the impact of coronavirus on demand.

* The stock trades at 11x/9x FY21/FY22E EPS. Maintain Neutral.

 

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