Maruti Suzuki, Mahindra to Bajaj Auto, Hero, here is how Diwali shoppers lit their fires

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Published: October 16, 2017 3:01:18 AM

Hero Motor: double digit growth but scooters continue to disappoint Hero has reported 11% y-o-y volume growth in Q2, which has historically been its strongest quarter. Higher growth has been primarily driven by motorcycles even as scooter volumes declined in July and August and continue to be an area of concern.

While volumes were robust, margin performance will be key to watch out for in results, particularly for TVS.

Reported volume growth has been strong across auto OEMs in Q2FY18. While Q2 tends to be seasonally strong, early festive season this year and GST re-stocking in July are also likely to have helped. Due to higher revenue, margins also tend to be better in Q2, which should support earnings particularly on q-o-q basis. Given volume numbers are already known, margin performance remains key to watch out for in results, perhaps more so for TVS. Hero Motor: double digit growth but scooters continue to disappoint Hero has reported 11% y-o-y volume growth in Q2, which has historically been its strongest quarter. Higher growth has been primarily driven by motorcycles even as scooter volumes declined in July and August and continue to be an area of concern. Higher revenue base in Q2 should also support margins — we expect 17.4% Ebitda margin vs. 16.8% in Q1.

Bajaj Auto: green shoots

After a disastrous Q1, when domestic 2-w sales declined 22% y-o-y and 3-w sales declined 8% y-o-y, Bajaj has reported some recovery in Q2 with 1% and 14% growth in the two segments, respectively. The worst seems to be over for 2-w exports as well with 7% growth in FY18 YTD and 20% growth in September vs. 16% decline in FY17. However, we note that management had indicated GST related de-stocking impact of 50k units at the end of Q1 — adjusting this from Q2 numbers, domestic 2-w sales in Q2 would have declined by 7% and remain an area of concern. We expect 20% Ebitda margin in Q2FY18 vs. 17.2% in Q1FY18 but still believe the company will miss its full year margin guidance of 19.5-20% as Q2 tends to be seasonally stronger.

Eicher Motors: growth high but decelerating

Eicher’s domestic volume growth at 22% y-o-y in Q2 remains the highest amongst listed OEMs but continues to decelerate despite declining waiting periods. As a result, we believe underlying demand growth is lower and reported sales growth will fall to 15% by FY19 once the waiting period goes away completely. Additional capacity from the Vallam plant, commissioned in August, is likely to expedite the process. We also expect the pace of margin expansion to be slower than in the past — we build 32.5% Ebitda margin for Q2FY18 vs. 31.3% in Q2FY17.

TVS Motor: strong volumes, but will it deliver on margins?

TVS has reported strong 16% volume growth in Q2 helped particularly by scooters and 3-w even as motorcycles have disappointed somewhat. As usual, the key to look out for will be its performance on margins — Q2 is seasonally strong; in addition we expect reported Ebitda margin to benefit from Rs 100m of government grant moving to revenue vs. other income pre-GST.

Maruti Suzuki: strong volume growth + mix improvement continues

Maruti’s high 18% volume growth in Q2 has been particularly skewed towards the compact and UV segments with these growing at 34% and 28% y-o-y respectively. This should continue to drive strong mix improvement reflecting in 24% revenue growth and 15.5/12.4% Ebitda/Ebit margin in the quarter. Commentary on ramp-up of Gujarat plant will be key to look out for.

M&M: strong growth across key segments

M&M has reported strong volume growth in Q2 across key segments including tractors, LCV < 3.5 T and UVs while 3-w and automotive exports have lagged. We expect the strong volume growth to drive margin expansion both on a y-o-y and q-o-q basis. Reported net profit will also benefit from `3 bn dividend inflow from Tech Mahindra and M&M Financial Services during the quarter.

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