Tag - electric vehicles

Semiconductor shortage to persist – Motherson Sumi

Update on Indian Equity Market:
On Thursday, markets ended on a high with Nifty closing 110 points higher to close at 17,630. INDUSINDBK (+7.3%), ITC (+6.6%), and SBI (+4.5%) were the top gainers on the index while GRASIM (-1.8%), BHARTIARTL (-1.3%), and TCS (-1.3%) were the top losers for the day. Among the sectoral indices PSU BANK (+5.4%), PRIVATE BANK (+2.7%), and BANK (+2.2%) were the top gainers, while MEDIA (-1.7%), METALS (-0.6%), and IT (-0.6%) were laggards.

Excerpts of the Interview with Mr VC Sehgal, Chairman of Motherson Sumi with CNBCTV18, dated 15th September 2021:

A lot of struggling semiconductors manufacturers are coming back on stream. However, with the uncertainty and guidance from manufacturers, the company expects this issue to persist beyond Q2CY22.
The sophistication required and the manufacturing processes of these semiconductor chips are extremely complex, the current structural barriers faced by these manufacturers can’t be removed overnight.
Demand has picked up for the entire sector, however, there’s a rise in inventory for OEMs as manufacturers wait for semiconductors to be supplied to complete the production and deliver the automobiles.
OEMs like Motherson Sumi are agnostic towards the engine that is fitted into the automobile, whether EV or ICE. However, the shift towards EV is value accretive for the company.
PLI scheme is more focused on technology transfer and development than actual production, however, these schemes coupled with the EV push by the government will result in robust demand for OEMs.
Raw Material price hikes and other margin pressures are a function of cycles and thus the company is not planning to take any aggressive steps to counter it. Right now the focus is only on delivering on the pent-up demand as fast as possible.

Asset Multiplier Comments:
Semiconductor shortage is an issue that’s going to persist for the upcoming quarters and is universal. The Auto and Ancillary Sector has to bear the brunt until things get better.
Motherson Sumi by the virtue of its product portfolio is indifferent to the ICE/EV competition, thus it is better placed for robust growth ahead once the supply side issues subside.

Consensus Estimates (Source: market screener website):
The closing price of Motherson Sumi was ₹224/- as of 16-September-2021. It traded at 32x/20x/17x the EPS estimate of ₹ 7/₹ 11/₹ 13 for FY22E/23E/24E
The consensus price target is ₹ 256/- which trades at 19x the EPS estimate for FY24E of ₹13/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

No Plans to enter EV Segment in the short term: Maruti Suzuki

 

Update on Indian Equity Market:

On Wednesday, markets ended flat with Nifty closing 10 points lower to close at 16,634.  EICHERMOT (3.7%), HDFCLIFE (2.6%), HINDALCO (2.4%) were the top gainers on the index while BAJAJFINSV(-2.9%), TITAN (-2.2%) and MARUTI (-1.3%) were the top losers for the day. Among the sectoral indices,  OIL & GAS (1.1%), IT (0.7%) and FMCG (06%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

 

Excerpts of the Address by RC Bhargava, Chairman, Maruti Suzuki at 40th AGM dated 24th August 2021:

 

  • The Company will not enter electric vehicles in the short term and will enter “only when it is feasible” to sell reasonable numbers. The sales volume of existing EV (Electric Vehicle) Players is not significant enough to threaten Maruti’s Market Share.
  • The company is a market leader in ICE (Internal Combustion Engine). It has plans to be a market leader in EVs as well but the company feels, the conditions for EV penetration in India are not adequate yet.
  • The company’s short term focus is on Hybrid CNG to manage the headwinds raised by rising fuel prices until EVs reach their inflexion point.
  • The company plans to launch an SUV in this high growth segment with the aim to capture more market share in this highly competitive field consisting of a lot of players.
  •  The company is currently facing production issues due to semiconductor shortages. This is expected to continue till the end of FY22. There’s a significant reduction in production, however, no major operational loss is evident.  
  • The Company’s planned Capex is Rs. 45 bn but the company expects there will be a significant deviation in actuals by the end of the year.
  • There’s very low penetration per capita when it comes to the passenger vehicles segment. He feels that in order for India to be fully developed, India should not be pressured to meet its carbon emission reduction norms.

 

Asset Multiplier Comments:

 

  • Maruti Suzuki has a great brand presence across all segments in the Indian markets. With its cautious stance on EV, it risks losing out on market share to more aggressive EV players like Tata Motors.
  • ICE Vehicles are not still being phased out at a very rapid pace and a complete transition to EV is still a long way off. Till then Maruti Suzuki will likely continue to enjoy its position as the market leader.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Maruti Suzuki was ₹6711/- as of 25-August-2021.  It traded at 36x/24x /19x the EPS estimate of ₹189/₹ 279/₹ 351  for FY22E/23E/24E.
  • The consensus price target is ₹ 7912/- which will put it at 23x the EPS estimate for FY24E of ₹ 351/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

2 Wheeler EV Segment at a growth inflexion point: Hero Electric

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 46 points to close at 16,569. EICHERMOT (+2.7%), ULTRACEMCO (+2.4%) BAJFINANCE (+2.1%) were the top gainers on the index while KOTAKBANK (-2.3%),HINDALCO (-2.3%) and ICICIBANK (-2.0%) were the top losers for the day. Among the sectoral indices,  FMCG (0.7%), CONSUMER DURABLES (0.6%) and PSU BANK (0.3%) were the top gainers, while PRIVATE BANK (-0.9%), METAL (-0.8%) and REALTY(-0.8%) were the top losers.

Excerpts of an interview with Mr Naveen Munjal, MD, Hero Electric on ET Now dated 17th August 2021:

  • Electric 2 Wheelers are the most lucrative segment in the EV Industry due to a lot of factors such as fewer infrastructure demands, simpler charging requirements, and ride distances.
  • The biggest tailwind for this segment is government support, FAME II ratings, state-specific concessions, and production-linked incentive schemes for EV Manufacturers.
  • The Total Cost of Ownership gap between ICE and EV is increasing daily due to the rise in fuel prices. Hence, the company expects demand to shift to EVs in the upcoming years to the point it’ll be 20% or a 4 billion unit segment in the next 5 years.
  • The consumer sentiment is shifting towards Electric Mobility not just in urban areas. The penetration is increasing in tier-3, tier-4, and some rural areas as well, so the sales would only go northwards from hereon.
  • The range is adequate for regular usage and for heavy usage the company offers multiple batteries as a backup. Most customers charge their bikes at home. However, the range anxiety can be addressed by installing charging stations, in which the company is investing heavily.
  • The company has also trained 6,000 mechanics and plans to train another 25,000 to solve any potential issues that may arise due to EV Malfunctions thereby creating an entire ecosystem.
  • India is leapfrogging technologies to have the most upgraded know-how as compared to other countries who took the traditional approach of innovating through the years, which is why the performance of Indian EV 2 Wheelers is best in class.
  • R&D that is being done is immense. So the vehicles in the future are going to be far better than what they are at this point. This range of vehicles is already better than what was three or five years back. This demonstrates the huge improvement in technology,

Asset Multiplier Comments:

  • Electric Vehicles are a thing of the future due to the headwinds faced by ICE Vehicles, the transition has already begun and India stands to be one of the biggest EV markets in the upcoming decade.
  • There are no pureplay EV Manufacturers that are listed on the bourses. However many 2 Wheeler Manufacturers are planning their foray into this segment. It should be noted that Hero Electric and Hero Motorcorp are two legally distinct entities with no connection to each other.
  • Hero Motorcorp has its own plans to manufacture Electric 2 Wheelers as it wants to expand into this lucrative growth-driven segment.

Consensus Estimates (Source: market screener website): 

  • The closing price of Hero Motorcorp was ₹2763/- as of 18-August-2021.  It traded at 17x/14x /12x the EPS estimate of ₹167/₹ 201/₹ 225 for FY22E/23E/24E.
  • The consensus price target is ₹ 3235/- which trades at 14x the EPS estimate for FY24E of ₹ 225/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Three-box framework for SUV-focus in EV space – M&M

Update on the Indian Equity Market:
On Monday, Nifty closed in the red at 14,930 (-0.7%), recovering from the day’s low due to a rebound in the metals and technology stocks. JSWSTEEL (+2.4%), TECHM (2.4%), and TATASTEEL (+2.3%) led the index gainers while DIVISLAB (-2.9%), BAJAJFINSV (-2.7%), and GAIL (-2.6%) led the laggards. Among the sectoral indices, METAL (+1.0%), IT (+0.6%), and PSU BANK (+0.2%) were the only gainers while MEDIA (-1.4%), PHARMA (-1.3%), and FINANCIAL SERVICES (-1.2%) led the laggards.

Mahindra & Mahindra (M&M) recently reorganized its EV (Electric Vehicle) strategy by setting up 2 new verticals, one for last-mile mobility, and the other for EV tech center. Mr. Rajesh Jejurikar, ED- Auto and Farm Sectors, M&M explained the rationale behind this strategy on CNBC TV-18 on 12th March 2021. Here are the excerpts of the interview:

  • To undertake a comprehensive look at the future, M&M has deployed a three-box framework. This framework suggests different businesses need different kind of attention and focus depending on company strategy and goals. Box 1 is the one that has the ability to scale up/Box 2 and 3 are more mid-long-term focus and need more technology and know-how.
  • According to M&M, Last mile mobility is a box 1 business, which has a ready customer market today and they have to drive growth and penetration. Their box 2 business is the SUV focus IC-derived electric vehicles, and box 3 is EV which is preparing M&M’s strategy for the longer term.
  • They have created a strong talent pool with good products at Mahindra Electric, which will help them in the future as well.
  • They want to be SUV-focused in EV space as well. Currently, there are no plans of manufacturing EVs in shared mobility space (Sedans and hatchbacks).
  • They believe the EV market penetration to be much higher by 2025-30, hence the need for a comprehensive SUV EV portfolio. They hope to have an electric variant for all price points they operate in.
  • The level of readiness should be for 50-80% conversion in FY2025-30. The extent of conversion is very hard to predict at this stage so they are not setting any targets per se.
  • They will launch eKUV100 and eXUV300 between CY21-CY22.
  • The last-mile mobility segment is at an inflection point and the pace of sales should pick up significantly. The goods carrier segment is completely ready and a committed sales team and channel will help drive sales for this segment. The PV (Passenger Vehicle) was also ready but the slowdown due to Covid-19 has hampered the sales and M&M expects sales to pick up in 2HCY21.
  • For last-mile mobility, export is a huge opportunity. M&M is already getting leads for alliances and partnerships in different markets across the world. Some of their key customers in the B2B segment are planning to take M&M products in their global ecosystem. While these deals will take some time to fructify, the initial response has been good.
  • When M&M canceled their JV with Ford, the rationale was the money saved from JV will be put into the EV business. Rs 30,000 mn has been set aside for creating a strong EV portfolio.

Asset Multiplier Comments

  • With the Covid-19 outbreak, the personal mobility demand has increased. Though Gen Z and millennials would prefer EVs for personal mobility, the success of EVs would largely depend on increasing penetration and availability of the infrastructure, which is currently lacking.
  • M&M has been stressing on reducing investments in non-profitable subsidiaries and focusing on the core business. This three-box framework for EV vertical is a step in the right direction.

Consensus Estimate: (Source: market screener and tickr websites)

  • The closing price of M&M was ₹ 846/- as of 15-March-2021. It traded at 31x/ 21x/ 18x the consensus earnings estimate of ₹ 27.4/ 41.1/ 46.8 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 959 implies a PE multiple of 20x on FY23E EPS of ₹ 46.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Reducing non-core debt to pare debt: Tata Motors

Update on the Indian Equity Market:

After a week-long rally, investors booked profits which led to a fall of 52 points in Nifty to close at 12,087. This follows the weak Asian markets following the rising death toll from a virus spreading from China. Apart from result season, there was no major catalyst to move the markets on Friday. Within the sectoral indices, Media (1.7%), Pharma (0.6%) and IT (0.5%) closed the day higher while REALTY (-1.8%), AUTO (-1.0%) and PVT BANKS (-0.5%) were the highest losers. Among the index stocks, ZEEL (5.5%), NTPC (3.2%) and COALINDIA (2.8%) led the gainers whereas EICHERMOT (-3.1%), TATAMOTORS (-3.0%) and INDUSINDBK (-2.7%) brought the index lower.

Reducing non-core debt to pare debt: Tata Motors

Excerpts from an interview with Mr Guenter Butschek, MD & CEO – Tata Motors published in Livemint on 7th February 2020.

  • Mr Butschek said that the company has invested sufficiently in its product library that includes common vehicle architectures, powertrains, transmissions, and other shared technologies to reduce overall product development cost.
  • He is confident that in the coming two years, the company will see strong growth as far as modularity is concerned across commercial and passenger vehicles. He said that the company has done homework on its turnaround plans, investing in new technology platforms such as CESS (connected, electric, shared and safe mobility) and tapping into the Tata Group companies’ strengths to build an electric vehicle (EV) ecosystem.
  • Referring to the company’s efforts to strengthen its financials, he said Tata Motors has turned cash accretive despite the collapse of the medium and heavy commercial vehicle (MHCV) segment, which contributes 47% of total commercial vehicle revenue that accounts for 65% of total domestic revenue.
  • The product portfolio of company is much better than what it was when the economic slowdown began two years ago. He is confident that once the economy revives, the significantly upgraded products would do much better in terms of cost-based contribution to company’s margin base.
  • Butschek said that customers would take a while to absorb the higher cost of purchases under BS-VI emission norms, which would entail a product price increase of 10-15%.
  • The company had ₹ 233,365 mn worth of debt in its India business as of 30th September 2019. The consolidated debt including Jaguar Land Rover (JLR) stood at ₹954,650 mn. He said that the company is planning to reduce non-core assets to reduce the debt.
  • The company is focusing on reducing costs, including material costs and working to enhance productivity.
  • As part of its turnaround plan, Tata Motors plans to launch 12-14 passenger vehicles over the next three to five years, besides at least four new electric vehicles over the next 18-24 months.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹5/- as of 07-February-2020. It traded at 109x/ 11x/ 7x the consensus earnings estimate of ₹1.6/ 15.4/ 24.7 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 201 /- implies a PE multiple of 8x on FY22E EPS of ₹ 24.7 /-

In 2-3 years, Bharat Forge will not look like a forging company.

Update on  Indian Equity Market:

On Wednesday, NIFTY was up 0.4% to close at 11,472 level. The top performers that aided the positive movement in the index were BPCL (+4.3%), Bajaj Finance (+3.8%) and Zee (+3.7%). Hero (-2.8%), Vedanta (-2.5%) and Hindalco (-2.4%) were the worst-performing NIFTY stocks. Among the sectoral indices, NIFTY IT (+1.0%), NIFTY MEDIA (+0.8%) and NIFTY REALTY (+0.8%) were the top gainers. NIFTY PSU BANK (-0.8%), NIFTY METAL (-0.5%) and NIFTY AUTO (-0.2%) were the top losers.

In 2-3 years, Bharat Forge will not look like a forging company.

Excerpts of an interview with Mr Baba Kalyani, Chairman and MD, Bharat Forge. The interview was published in Mint dated 15th October 2019.

  • There is some order coming back into the auto industry with retail demand beginning to increase and production being curtailed to get the inventory down. It will take a little while before the order is restored completely and growth will come after that. It will take a couple of months for the inventory to get to a proper level.
  • The largest slowdown is in domestic medium and heavy market with month on month declines of 40-50%. The industry has never seen this kind of slowdown.
  •  Among the international markets, North America and Europe are going at reasonable levels. There is some pick up happening in Brazil. The problem is in the Indian vehicle market which needs to get sorted out.
  • Bharat Forge is doing reasonably well in the railways’ segment. It is a niche market that is not high in volume. Bharat Forge has 4 customers which are the major OEMs. Along with crankshafts, the company is starting to move towards turbochargers, connecting rods. They are trying to enlarge the business by enlarging the product mix. 
  • In the aerospace segment, Bharat forge has consciously decided to move to high-value niche products. The company manufactures critical components such as turbine blades, shafts, and landing gears. They are not into the high volume structure side of the business as it has too many participants and the margins are not great.
  • It takes a long time to become a supplier in the critical components such as the turbine blades or rotating shafts. These are very critical and safety components that cannot be failing. Bharat Forge has been successful in becoming a supplier of these components and the management hopes to start seeing better volumes.
  • The current downturn, although painful, is helping the company to reshape and restructure itself from a product, process, and technology point of view. 
  • In the next 2-3 years, Bharat Forge will not be seen as a forging company. It will become a technology company.  The company is doing a lot of things in the electric vehicle space and other technology spaces. They have developed a promising new technology space using their nanotechnology expertise of converting waste to wealth. 

Consensus Estimate (Source: market screener website)

  • The stock price was ₹ 428/- as of close of 16-10-19 and traded at 20x/ 18x/ 16x the consensus EPS for FY20E / 21E / 22E EPS of ₹ 21.4 /23.5 /26.5 respectively.
  • Consensus target price of ₹ 444/- implies a PE multiple of 17x on FY22E EPS of ₹ 26.5/-.