per a research report released by Emkay Global Financial Services the overall
revenue growth for companies (ex-Tata Motors) under coverage to remain flat YoY
in Q3FY22, as volume growth was affected by temporary chip shortages in PVs and
muted sentiments and a high base in 2-Wheelers/Tractors. In comparison, volume
growth was strong for CV firms due to better freight availability/rates.
CV industry volumes grew slightly by nearly 3% YoY. Emkay expects strong
revenue growth of 20-35% for OEMs such as Tata Motors-CV, Eicher Motors-Volvo
Eicher and Ashok Leyland. The research firm expects robust double-digit revenue
growth in CVs for the next two years, supported by improving macros, government
thrust on infra spending and recovery in replacement demand.
PV industry volumes declined by nearly 6% YoY, despite a large order-book,
owing to chip shortages. Emkay expects revenue growth of 1% for Maruti Suzuki,
21% for M&M auto division (total revenue growth of 12% for M&M) and 67%
for Tata Motors-Passenger Vehicles. Led by the pending order book and improving
chip supplies, it expects revenues to grow strongly over the next two years.
2-Wheeler industry volumes declined by nearly 24% YoY, owing to moderation in
sentiments as well as a high base last year. In comparison, exports saw nearly
1% YoY growth, despite the high base, driven by stable demand and steady forex
rates in key markets. Emkay expects 11% revenue growth for Eicher Motors-Royal
Enfield, 2% for Bajaj Auto and 1% for TVS Motors, and a 21% fall for Hero
MotoCorp. The momentum in exports is expected to be sustained. In comparison,
domestic demand may be impacted in the near term by the increase in Covid
cases. Emkay expects volume growth to turn positive from Q1FY23.
Tractor industry volumes fell nearly 15% YoY. In terms of revenue, Emkay
expects a 7% drop for Escorts and 2% for M&M’s farm division. Led by a high
base and lower government subsidy support, the volumes are expected to remain
under pressure in the near-term.
Motors is likely to register 2% YoY revenue growth, supported by a 45% jump in
India PV/CV divisions. In comparison, JLR revenue (GBP) should decline by 13%,
owing to chip shortages. EBITDA margins should contract by 700bps, owing to
lower margins in JLR and India divisions. Emkay expects strong revenue
performance ahead for both JLR and India PV/CV divisions, supported by improving
chip supplies and CV upcycle.
Bharat Forge should see robust revenue growth of 45% YoY, driven by a pickup in
the underlying CV and industrials segments. Companies that benefit from
replacement demand, such as Exide, Amara Raja Batteries and Apollo Tyres, may
see 7-18% revenue growth. Emkay expects Minda Industries to see 4% revenue
growth, aided by growth in alloy wheels/sensor categories and improving content
in other segments.
EBITDA margins (ex-Tata Motors) should contract 320bps vs. Q3FY21, affected by
commodity inflation and negative operating leverage. Regarding currency
movement YoY, INR depreciation against USD is positive for Bajaj Auto/TVS
Motor/Bharat Forge, JPY depreciation is positive for Maruti Suzuki/Hero MotoCorp,
and GBP appreciation against INR should support translation gains in JLR. In
comparison, Euro depreciation against INR should lead to translation losses for
Motherson Sumi and Apollo Tyres. Emkay has retained their positive view on the
auto sector, underpinned by expectations of a cyclical upturn in the next three
Global Financial Services is positive on Tata Motors (TP: Rs550), Ashok Leyland
(TP: Rs160), Maruti Suzuki (TP: Rs8,750) and TVS Motor (TP: Rs800). In
ancillaries, they are positive on MothesonSumi(TP: Rs300) and Bharat Forge (TP:
Rs950). The key downside risks: delay in economic recovery due to the third
Covid-19 wave, further increase in commodity prices and adverse currency
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