Recent discussions with experts suggest that BSIV emission norms are likely to be implemented on a nationwide ...
Recent discussions with experts suggest that BSIV emission norms are likely to be implemented on a nationwide basis from April 1, 2017. This is likely to result in a revenue jump in FY17 (pre-buying) and FY18 (richer product mix). Hence we raise our revenue estimates for FY17 by 7% and significantly in FY18. Also the auto industry has agreed to advance emission norms (BS V and VI) implementation a year ahead of schedule in 2019 and 2023, according to media reports.
Euro has depreciated 14% against the rupee versus the average rate for FY15. This is likely to result in the pre-tax margin expanding by 2% and subsequently earnings by 8% annually in FY16 and FY17.
However, some of our concerns remain. The company regularly faces trouble with its workforce and hence any advantage of operating leverage is likely to be negated by increasing wage costs. The presence of a large amount of cash will continue to dilute the returns for shareholders.
We increase our FY16 and FY17 earnings by 9-23%. We upgrade the stock to hold (with target price of R22,100 from underweight. Upside risks include faster-than-expected product development. Downside risks include a delay in the implementation of emission norms.