Q1FY22 Auto Sector Preview
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India Equity Institutional Research II Q1FY22 Earning Preview II 20th July 2021 Page 1
Auto & Ancillary Sector
Q1FY22 Auto Sector
Preview
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 www.krchoksey.com
th
20 July 2021
is also available on Bloomberg KRCS
Thomson Reuters, Factset and Capital IQIndia Equity Institutional Research II Q1FY22 Earning Preview II 20th July 2021 Page 2
Auto & Ancillary Sector Strong recovery on cards
MARKET DATA
Close 1D (%) 1M (%) YTD (%)
Nifty 50 15,632 (0.8) (0.7) 11.5
Sensex 52,199 (0.7) (0.7) 9.0
Nifty Auto Index 10,222 (0.9) (1.7) 10.2
USD/INR 74.7 (0.4) 0.4 2.1
COVERAGE STOCKS
Current Price Target Price* Upside Market Cap. Fwd PE
Company Recommendation*
(INR) (INR) (%) (INR mn) 2022E (x)
Tata Motors 302 394 30.5% 1,032,948 NA BUY
Maruti Suzuki 7,233 8,000 10.6% 2,181,018 46.6 ACCUMULATE
Bajaj Auto 3,905 4,352 11.4% 1,131,136 23.7 ACCUMULATE
Ashok Leyland 123 135 9.8% 361,804 57.5 ACCUMULATE
Balkrishna Industries 2,319 2,455 5.9% 449,578 31.9 ACCUMULATE
Minda Industries Ltd. 719 687 -4.5%** 196,333 50.8 ACCUMULATE
Eicher Motors 2,555 UR UR 699,328 38.2 UR
Bharat Forge 799 UR UR 370,180 71.6 UR
Sundram Fasteners Ltd 771 815 5.7% 162,009 31.9 HOLD
Endurance Technology Ltd 1,617 UR UR 228,999 24.2 UR
Minda Corporation Ltd. 134 143 6.7% 31,690 18.7 ACCUMULATE
*Note: Target price and recommendation will be reviewed post detailed Q1FY22 result analysis and conference call of the said companies. UR implies that Target Price and Recommendation are unrated
**Shares of Minda Industries has achieved our Target Price and will be reviewed after detailed analysis of Q1FY22 results. Source: Bloomberg, Data as of 20th July 2021.
SECTOR OVERVIEW
Robust volume, lower discounts to boost auto firms top-line and bottom-line in Q1FY22: The auto sector should see robust
revenue growth in Q1FY22 led by strong volume growth, recovery in overall demand, and low base effect owing to economic
slowdown, however, we expect sequential de-growth due to state-specific lockdowns. After months-long factory closure, lay-offs
and slump in car sales during the month of April and May, the fall in vehicle sales were significant in Q1FY22 sequentially, however,
the performance differed across segment. Rural and semi-urban demand remained robust supported by higher Kharif crop, better
cash flows and good rabi sowing that ultimately drove strong demand for tractors, 2-wheelers, and entry level cars. Sales of Maruti
Suzuki jumped 362% YoY and declined 28% QoQ to 353,614 units majorly due to a stronger preference for personal vehicles instead
of public or shared mobility. In the two-wheeler pack, Bajaj Auto and Eicher Motors reported 125% YoY and 116% YoY pick-up in
volume at 899,305 units and 129,446 units, respectively, in Q1 driven by resilient rural demand. Total top-line and bottom-line
growth for the auto ancillary pack is expected at a moderate level. All the companies under our coverage has increased the prices
ranging from 3-5% of their selected variants amid rise in raw material cost.
For Q1, higher commodity prices may impact margin expansion: The quarter saw the average price of key commodities increase
faster, the sharp rise in raw material prices has elevated the input cost of the auto companies, while on the other hand the shortage
of semi-conductor chips has also impacted the input prices adversely.
OEMs are restoring of supply chain issues: The state-specific lockdowns has disrupted the supply chain during the quarter which
has impacted the productions of OEM. However, from the month of June we note gradual improvement in supply chain resulting in
increase in plant utilization by end of Q1. Correspondingly, the utilization level at auto ancillary players like Minda, Balkrishna are
back to ~75% vs below 30% in H1FY21. Increased utilization across OEMs and ancillary players will drive robust earning rebound.
Sector Valuation: Currently, auto stocks are trading between mean PE levels and +1 standard deviation above mean as the NIFTY
Auto index is up by 10.2% YTD. For the auto sector, the 5 years average P/E stands at 74x. Stock specific valuation discount will
continue for all the auto stocks under coverage, especially Maruti Suzuki, Eicher Motor on back of its dominant market position and
expected recovery in passenger segment and two wheelers' segments, respectively. Maruti, Bajaj Auto and Tata Motors (largely on
valuation ~36/68/114% discount to sector’s 5 years average P/E) are our top picks in auto segment whereas Minda Industries and
Sundaram Fasteners are preferred pick in auto ancillary segment.
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQIndia Equity Institutional Research II Q1FY22 Earning Preview II 20th July 2021 Page 3
Auto & Ancillary Sector
Exhibit.1: Quarterly result expectation for auto and auto ancillary companies under coverage
INR Million Q1FY22E Q1FY21A YoY Q4FY21A QoQ Remarks
Maruti Suzuki
We expect revenue will see sharp recovery of ~340% YoY on the
Sales 181,783 41,106 342% 240,345 -24% back of volume growth of 362% YoY at 353,614 units while average
selling prices are expected to rise by about 3-4% YoY due to rise in
EBITDA 12,725 (8,179) -256% 19,779 -36% product prices, better product mix and lower discounts offered
during the quarter. We expect the company to report positive
EBITDA and PAT, however, the pressure may mount on margins
Net Profit 8,180 (2,683) -405% 12,411 -34%
due to rising inflation trends in the input costs.
EBITDA
7.00% -19.90% 2,690bps 8.23% (123bps) Key Parameters: (1) Demand dynamics for PV, both domestic and
Margin (%)
exports (2) Product plans for EV segment and new model launches
NPM (%) 4.50% -6.53% 1,103bps 5.16% (66bps) (3) Inventory channel status (4) Cost cutting initiatives (5) Market
response to BS-VI compliant vehicles.
Bajaj Auto
Sales 74,620 30,792 142.3% 85,961 -13.2% We expect the revenue to increase by ~142% YoY on the back of
growth in the sales volume by 127% YoY and favorable volume mix.
With lower share of premium motorcycles and 3W, we foresee
EBITDA 10,447 4,081 156.0% 15,216 -31.3% margins to be under pressure due to recent spike in the raw
material prices, Bajaj Auto has also increased the prices of its
selected variants.
Net Profit 10,820 5,276 105.1% 15,510 -30.2%
Key Parameters: (1) Due to coronavirus pandemic, management
EBITDA
14.0% 13.3% 75bps 17.7% (370bps) view on 2W/3W demand environment in both domestic and
Margin (%)
exports market (2) Cues on average price realization
(Domestic/Exports) (3) New product development / traction for
NPM (%) 14.5% 17.1% (263bps) 18.0% (354bps) new launches (4) product mix
Tata Motors
Tata Motors Q1 volume sales was up by 358% YoY and down by
Sales 557,025 319,831 74.2% 886,279 -37.2%
40% QoQ. During the quarter, the CV segment has witnessed
growth on the back of improved consumer sentiments, and higher
infrastructure demand. While the PV business witnessed strong
EBITDA 61,273 6,356 864.1% 127,448 -51.9%
growth on a low base with robust demand for personal mobility
and new launches driving demand. We expect revenue to grow at
74% YoY and -37% QoQ, while EBITDA margins to be around 11% and
Net Profit (15,318) (84,380) -81.8% (76,054) -79.9%
PAT margins to be around 2.8%.
EBITDA Key Parameters: (1) View on demand environment across
11.0% 2.0% 901bps 14.4% (338bps)
Margin (%) segments (PV/CV) in both domestic and overseas market (2) Cues
on average prices (3) Traction for new product launches (4)
Inventory channel status (5) Forex impact (6) Project charge+
NPM (%) -2.8% -26.4% 2,363bps -8.6% 583bps
impact on margin.
Eicher Motors
Sales 18,108 8,182 121.3% 29,403 -38.4% Eicher Motors reported Q1FY22 volumes of Royal Enfield to the
tune of 129,446 units (+118% YoY), Accordingly, we expect revenue
EBITDA 3,622 38 NM 6,344 -42.9% to increase by ~121% YoY on the back of revival in domestic demand
in this quarter. EBITDA is forecasted to marginally grow by 20%
YoY; however, we expect some pressure on margins due rise in
Net Profit 2,716 (552) NM 5,261 -48.4% raw material prices.
EBITDA Key Parameters: (1) Demand environment for 2-wheelers (2) Cues
20.0% 0.5% 1,954bps 21.6% (158bps)
Margin (%) on average price realization (3)New product development/
traction for recent product launches (4) Inventory channel status
NPM (%) 15.0% -6.7% 2,174bps 17.9% (289bps) (5) New format stores update
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQIndia Equity Institutional Research II Q1FY22 Earning Preview II 20th July 2021 Page 4
Auto & Ancillary Sector
Exhibit.1: Quarterly result expectation for auto and auto ancillary companies under coverage
INR Million Q1FY22E Q1FY21A YoY Q4FY21A QoQ Remarks
Balkrishna Industries
Sales 12,254 9,426 30.0% 17,535 -30.1%
We expect revenue to improve 30% YoY (down 30% QoQ).
Increase in raw material prices expected to put pressure on
EBITDA 3,186 2,404 32.5% 5,505 -42.1% margins. EBITDA is forecasted to improve by ~32% YoY whereas
down by ~42% QoQ, while PAT is expected to improve by 86%
YoY on the back of better capacity utilization.
Net Profit 2,451 1,316 86.3% 3,800 -35.5%
Key Parameters: (1) View on demand environment for OTR tyres
EBITDA
26.0% 25.5% 49bps 31.4% (539bps) and Europe market (2) Cues on average price realization (3)
Margin (%)
Capacity utilization levels (4) Inventory channel status (5) Forex
impact (6) Performance of agri sector (7) Cost cutting initiatives.
NPM (%) 20.0% 14.0% 604bps 21.7% (167bps)
Bharat Forge
Sales 12,927 11,542 12.0% 20,828 -37.9% We expect revenue improvement of 12% YoY on the back of
strong domestic and global demand for commercial vehicles
EBITDA 2,198 (141) -1659.3% 4,258 -48.4% and Oil & gas industry. EBITDA & PAT expected to increase on
YoY basis but may contract on QoQ basis.
Net Profit 1,034 (1,273) -181.2% 2,086 -50.4%
Key Parameters: (1) View on demand environment for CV and PV
EBITDA (2) Cues on average price realization (3) Change in business mix
17.0% -1.2% 1,822bps 20.4% (344bps) towards non-auto space like defense and aerospace and
Margin (%)
reduction in CV exposure (4) Inventory channel status (5) Status
NPM (%) 8.0% -11.0% 1,903bps 10.0% (202bps) of Aluminum casting plant in Germany (6) Order Book Size.
Minda Industries
Sales 16,787 4,171 302% 22,383 -25% For Q1FY22, we expect revenue to increase by 302% on YoY basis
due to lower revenue of Q1FY21. Additionally, YoY increase in
revenue was supported by Harita Seating merger. EBITDA
EBIDTA 2,033 -715 -384% 3,016 -33%
margin is expected to decline by 136 bps sequentially due to
expected increase in raw material costs. We expect PAT of INR
Net Profit 599 -1,187 -150% 1,424 -58% 599 Mn and Net Profit margin of 3.6% for the quarter.
EBITDA Key Parameters: a) Product Expansion b) Segment Growth c)
12.1% -3.2% 1530 bps 13.5% -136 bps
margin (%) Electrifications d) Power management Controllers e) Plastic
products and Aluminium die-casting f) Emergence of New
NPM (%) 3.6% -5.3% 887 bps 6.4% -279 bps Ecosystem g) Embracing Disruption
Sundram Fasteners Ltd.
Sales 7,925 3,732 241.13% 12,731 -37.75%
For Q1FY22, we expect Sundram Fasteners to report revenue of
EBIDTA 1,360 151 800.66% 2,368 -42.57%
INR 7925 Mn down by ~38% QoQ on account of stricter
lockdown restrictions imposed during the quarter. We expect
Net Profit 840 -267 -414.61% 1,408 -40.34% sequential decrease in overall operational leverage and
accordingly SFL to report EBITDA of INR 1360 Mn (~38% QoQ
EBIDTA decrease). We expect SFL to report profit of INR 870 Mn and net
17.16% 4.05% 1311 bps 18.60% -144 bps
Margin (%) profit margin of 10.6% for Q1FY22.
NPM (%) 10.60% -7.15% 1775 bps 11.06% -46 bps
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQIndia Equity Institutional Research II Q1FY22 Earning Preview II 20th July 2021 Page 5
Auto & Ancillary Sector
Exhibit.1: Quarterly result expectation for auto and auto ancillary companies under coverage
INR Million Q1FY22E Q1FY21A YoY Q4FY21A QoQ Remarks
Endurance Technologies Ltd
Sales 16,427 6,031 20.15% 21,329 -22.98%
For Q1FY22, Endurance Technologies Ltd revenue is expected to
EBITDA 2,474 427 32.01% 3,322 -25.53% decline by ~23% QoQ due to decrease in production by OEMs &
lockdown restrictions in various states during the quarter. We
Net Profit 1,111 -249 36.38% 1,874 -40.73% expect steep decline in absolute EBITDA to INR 2474 Mn (-25.5%
QoQ) due to increase in raw material prices, while EBITDA
EBITDA margin is expected to decrease to 15.1%. We expect net profit of
15.06% 7.08% 798 bps 15.58% -52 bps
Margin (%) INR 1111 Mn lower by ~41% QoQ for Q1FY22.
NPM (%) 6.76% -4.13% 1089 bps 8.79% -202 bps
Minda Corporation Ltd
Sales 7,147 1,780 301.6% 7,941 -10.0%
Revenue is expected to improve by 302% YoY on account of
EBITDA 786 -203 486.9% 890 -11.6% degrowth in Q1FY21 revenue due to COVID-19 impact. Our
EBITDA estimate grew by -11.65% QoQ (487% YoY) to INR 786.2
Net Profit 352 -363 196.9% 546 -35.5% mn on the back of introduction of EV products and improved
realisations of BS-VI implementation kit value. EBITDA margins
EBITDA are expected to weakened by 21bps QoQ to 11.0% led by higher
Margin (%)
11.0% -11.4% 2242 bps 11.2% -21 bps RM costs. We expect Adj PAT to decline by 35.5% QoQ to INR 352
mn and Net profit margin of 4.9% for the quarter.
NPM (%) 4.9% -20.4% 2535 bps 6.9% -194 bps
Ashok Leyland
Sales 29,568 6,509 354.3% 70,005 -57.8%
EBITDA -773 -3,332 76.8% 5,342 Revenue is expected to decrease by ~58% QoQ on the back of
-114.5%
lower volumes; Total volumes declined by 59% QoQ due to
Net Profit -2,370 -3,871 38.8% 2,038 -216.3% lockdown restrictions across states and reduced economic
activities. MH&HCV volumes were down by 66% QoQ, while LCV
EBITDA volumes de-grew by 50%. Trickle down impact of lower sales to
Margin (%)
-2.6% -51.2% 4858 bps 7.6% -1024 bps
result in losses at operating and bottom-line level.
NPM (%) -8.0% -59.5% 5146 bps 2.9% -1093 bps
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQIndia Equity Institutional Research II Q1FY22 Earning Preview II 20th July 2021 Page 6
Auto & Ancillary Sector
Rating Legend (Expected over a 12-month period)
Our Rating Upside
Buy More than 15%
Accumulate 5% – 15%
Hold 0 – 5%
Reduce -5% – 0
Sell Less than – 5%
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ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
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