Auto: Full steam ahead

Auto sales numbers for almost all companies in October 2009, are in. With growth ranging between 15-60 % and teamed with impressive quarterly top line and bottom-line growth, the sector is a poster-child for the domestic growth potential.

It illustrates the buoyant consumption momentum in India, states an IIFL report, which comes in spite of an expected trickiness in rural demand due to sub-normal monsoons in areas and floods in others. The rich valuation for stocks in the sector shows that investors agree.

The growth is led by commercial vehicles (CV) which have delivered turnaround figures of nearly 60% y-o-y for medium and heavy CVs (M&HCV) and about 46% in the light CV (LCV) segment. Passenger vehicles (PV) continued their great run of the last couple of months and clocked in growth rates of over 20% over October 08 while two and three wheelers have grown over 16% y-o-y.

The quarterly results saw robust revenue growth across the sector especially on a sequential basis indicating a consumption recovery. Bottom-lines were helped by falling input costs which helped expand margins. With input cost hardening already evident, the sense is that margin expansion has peaked but the volume growth impetus has allowed analysts to key in earnings upgrades for most stocks. Sector stocks have performed in tandem and the BSE Auto index has moved up 45%from end- June 09 levels.

Tata Motors
Sales played a big catch up in October 2009 for Tata Motors, rising 34.4%, boosted mainly by CV sales at over 50%. The Ace and Magic continue to be big spinners for the company, while MHCV sales rose nearly 60%, indicating signs of industrial sector recovery. Car sales were up 20 % with the Nano selling 3018 units. This was a domestic story as exports dipped nearly 20% y-o-y.

Gross revenue for Q2FY10 saw a sequential turnaround, growing 25% q-o-q while they were up about 8% y-o-y to Rs 8538.6 crore.  Tighter rein on expenses and higher extraordinary realizations through sale of investments boosted reported post tax profits over 110% to Rs 729 crore. Operating margins, which rose 860 bps y-o-y to 11.5%, told the story.

The stock closed at 580.65 on 9th November, 09 on the BSE at a valuation of 151x FY10 and 22.5x FY11 consensus broker EPS estimates.

Ashok Leyland
The month saw a 57% y-o-y jump in sales, with total sales for FY10 to date still lagging FY09 sales by 30%. Truck sales grew by 76.4% y-o-y, while bus sales increased 24% over October 08 numbers. The growth outlook is bright as the company recently bagged orders for around 5,000 buses, of which 700 vehicles have been supplied with the remainder to be delivered in the second half of this fiscal.

Revenue growth this quarter was down 16% y-o-y to Rs 1577 crore which, however, translated to a sequential recovery of 73% over 1QFY10. Total expenditure was down 18% y-o-y, led by 33% lower input costs. Lower depreciation and tax outgo boosted reported profit after tax by 32% y-o-y to Rs 88.6 crore for the quarter.  Operating margins have moved up steadily  over the last four quarters except for Q1FY09 (when low revenues pushed margins as low as 1.2%) were up 300 bps y-o-y to 10.5%. The stock closed at Rs 52.8 on 9th November, 09 on the BSE at a valuation of 23.4x FY10 and 17.2x FY11 consensus broker EPS estimates.

Maruti Suzuki
It bucked the global downturn and showed an export led sales growth of 32.4% y-o-y in October 2009 indicating a sales growth of 24% for the half year. Exports grew 158% y-o-y in October 2009 and 125% in total sales in the first half of FY10 spurred by the success of A-star in Europe.

The company posted good returns this quarter with sales growing about 40%. Tighter inventory management and lower interest outflow helped boost bottom-line and reported PAT was up over 92% to Rs 570 crore. Operating margins were up 390 bps y-o-y to 10.2% this quarter. The stock closed at Rs 1485.40 on 9th November, 09 on the BSE at a valuation of 19.7x FY10 and 16.80x FY11 consensus broker EPS estimates.

M&M
Total sales growth clocked in at a healthy 24% in October 2009. The automotive segment saw the launch of a new LCV pick-up called Mahindra Gio. The y-o-y growth of 26% in this segment was supported mainly by the utility vehicle growth of 32% with the new Xylo gaining market share and the Scorpio and Bolero holding their own. Exports almost tripled this quarter over Q2 FY09 while three-wheeler sales grew 14% y-o-y. The lemon continues to be Logan where sales dipped over 60% y-o-y. Tractor sales grew by a respectable 21% with exports making a strong showing.

Revenues were up 31.5% in Q2FY10 to Rs 4930 crore compared to Q2FY09. Reported post tax profits increased to Rs 703 crore, up 185% y-o-y, boosted by about Rs 90 crore from income realized from stake sale in Mahindra Holidays and Resorts. Operating margin at 15% this quarter has moved up steadily since the beginning of FY10 and was up 330 bps over the quarter and showed a dramatic improvement of 1100 bps y-o-y. The stock closed at Rs 1003.50 on 9th November, 09on the BSE at a valuation of 1408x FY10 and 13.2x FY11 consensus broker EPS estimates.

Hero Honda
October 2009 saw near flat growth y-o-y while the first half saw sales tick upwards by nearly 20%. The second half of the year is big launch period for the company with six launches planned. It recently launched a new premium bike, the ZMR, Splendor+, and a refurbished Hunk.

Revenues were up 21% y-o-y to Rs 4300 crore. Reported profits after tax were up 95% y-o-y to Rs 597 crore and operating profit margins were up 500 bps to 16.9%. Sequentially, margins were up 120 bps in the quarter. The stock closed at Rs 1551.20 on 9th November, 09 on the BSE at a valuation of 15.7x FY10 and 14.1x FY11 consensus broker EPS estimates.

Bajaj Auto
Total vehicle sales grew 46% y-o-y in October 09, led by the great performance of its Pulsar and Discover brands brands. The motorcycle segment grew by over 52% while scooter sales dropped 82%. Three wheeler sales were up a robust 15% while exports as a whole increased by a slim 12%. The company launched the new Kawasaki Ninja 250R this month.

It posted great numbers this quarter with gross revenues were up 12 % and lower input costs helped keep expenses growth to less than 3%. Operating profits doubled over Q2FY09 to Rs 590 crore with margins up 930 bps to 20.1%. Reported profits were by a similar margin (118%) to Rs 402 crore. The stock closed at Rs 1470.40 on 9th November, 09 on the BSE at a valuation of 15.7x FY10 and 14x FY11 consensus broker EPS estimates.

TVS Motors
The company continues to struggle in its motorcycle segment where sales were down 4.6% y-o-y in October 2009. Total vehicle sales grew about 12% y-o-y led by scooter sales which were up 20% and moped sales, up about 35%. Exports dipped 27% y-o-y.

Revenue growth in Q2FY10 was 10% y-o-y to Rs 1115.41 crore. Reported profit doubled in this period to about Rs 25 crore. Operating Margins dipped 70 bps sequentially to 4.3%, the slimmest in the sector, while improving 120 bps over the previous year. The stock traded at Rs 59.20 on 9th November, 09 on the BSE at a valuation of 23.3x FY10 and 15.2x FY11 consensus broker EPS estimates.