Angel Broking earning estimates: During 3QFY2012, TTMT is likely to report robust ~ 34% yoy growths in net sales backed by strong volume growth (on the JLR as well as standalone level) and favorable currency movement, primarily on the JLR front. Adjusted net profit is, however, likely to report modest ~6% yoy growth mainly on account of margin pressures. AL is expected to post ~150% yoy growth in its adjusted net profit, largely due to low base and ~23% yoy growth in revenue.
Festive season fails to boost PV sales: The PV industry continues to face the brunt of fuel price hikes and increased interest rates as most buyers are waiting on the sidelines and are postponing their purchases. As a result, market conditions remained challenging, resulting in modest volume growth of 2.7% yoy YTD in FY2012. Noticeably, volumes in the domestic PC segment (~75% of PV sales) registered a decline of 3.5% yoy during the period. The arbitrage between petrol and diesel prices has increased significantly in recent times (currently at ~`24 against five-year historical average of ~`14), leading to a shift in consumer demand in favor of diesel cars. Thus, demand for petrol cars has been severely affected and is expected to have declined by ~11% in 1HFY2012 as against a strong 24% increase for diesel cars. We expect the demand environment to remain challenging in 2HFY2012 as well; however, the likely easing of interest rates from 1QFY2013 will lead to revival in demand. We remain positive on the long-term prospects of the PV sector and estimate the segment to register a CAGR of 10-12% over the next two years.
During 3QFY2012, MSIL's volume declined by 27.6% yoy (5% qoq), primarily led by the labor strike at its plants (Gurgaon and Manesar) in October 2011, resulting in a production loss of over 40,000 units. Consequently, MSIL's market share dropped significantly by ~775bp yoy to 41.4% in the PC market YTD in FY2012. We expect MSIL to report a ~68% yoy decline in its net profit during the quarter, led by lower production and adverse currency movement. However, we expect MSIL to regain some lost ground by the end of 4QFY2012, led by new product launches (Ertiga and compact Dzire) and normalization in production levels at its Manesar plant.
Two-wheeler sales volume remains strong: The two-wheeler segment sustained its strong performance, defying the economic slowdown, and registered 18% yoy growth YTD in FY2012. Two-wheeler sales continued to be benefitted by inadequate public transport system, rising income levels (particularly in rural areas) and strong replacement demand in urban markets. Domestic volumes grew by 16.1% yoy, while exports registered robust 31% yoy growth YTD in FY2012. The scooter and motorcycle segments maintained their strong growth traction, recording 25.1% and 17% yoy growth, respectively.
We expect two-wheeler majors to witness top-line growth of 17-18% yoy during 3QFY2012, largely backed by volume growth. Led by strong sales growth, HMCL continued to regain its market share, which now stands at 40.3% (39.2%) compared to 26.6% (26.1%) and 14.3% (15%) for BJAUT and TVSL, respectively. Going ahead, we expect two-wheeler sales to maintain their volume momentum and register a 12-14% CAGR in volumes over the next couple of years.
Auto ancillaries to track the auto sector: While the OE demand has witnessed a slowdown in 3QFY2012 on account of macro concerns like rising interest rates and slowdown in industrial activity, replacement sales have also seen weaker off-take due to general weakness in overall economic activity thereby negatively affecting ancillary manufacturers. We however, expect the demand scenario to improve in the OE as well as replacement segments from 1QFY2013 aided by likely easing of interest rates.
During 3QFY2012, we expect auto ancillary companies to report moderate growth in net profit on account of slowdown in domestic auto sales and operating margin pressures. We expect a sequential contraction in the operating margins of Bosch and FAG Bearings, mainly due to INR depreciation as imports form a substantial portion of raw-material costs for both the companies. Motherson Sumi (ex. Peguform) is likely to witness yet another challenging quarter as the company's new plants are still in the process of ramping up.
We expect Exide Industries to post improved performance sequentially; however, on a yoy basis, the company's results would be impacted due to increased competitive activity and slowdown in OE and replacement demand in the passenger vehicle segment. Apollo Tyres is likely to benefit from the strong performance of its European subsidiary, led by seasonal demand for winter tyres; domestic performance is expected to remain subdued due to sluggish demand for CV tyres in the OE and replacement segments. We expect Bharat Forge to report strong top-line growth driven by diversified business model (one-third of revenue from non-auto business); however, margins are expected to trend marginally lower due to cost pressures.
Outlook: Considering the near-term macroeconomic challenges, we expect the auto industry to register volume growth of 12-13% yoy for FY2012. However, we believe low penetration levels coupled with a healthy and sustainable economic environment and favorable demographics supported by increasing per capita income levels will drive long-term growth of the Indian auto industry. As such, we prefer stocks that have strong fundamentals, ability to deliver strong top-line performance and are available at attractive valuations. In the auto sector, we continue to prefer companies with a strong pricing power and high exposure to rural and exports markets. Among auto majors, we maintain our positive outlook on Mahindra and Mahindra and Ashok Leyland.
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