Tag - Auto industry

Growth opportunities ahead across all segments – Bharat Forge

Update on Indian Equity Market:

On Wednesday, markets ended lower with Nifty closing 105 points to close at 15,635. PowerGrid (3.9%), SBILIFE (1.8%), and NTPC (1.6%) were the top gainers on the index while TATA MOTORS (-2.6%), ADANIPORTS (-2.4%), SHREECEM (-2.0%) were the top losers for the day. Among the sectoral indices,  MEDIA (-2.1%),  REALTY (-1.7%), and AUTO (-1.3%) were the top losers, and there were no Sectoral gainers.

 

Excerpts of an interview with Mr. Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 7th June 2021 :

 

  • Greenshoots have been seen in recovery over Q4FY21 despite lockdown, the industry is coming back to pre-covid levels but the management expects another quarter for things to fully recover.
  • Oxygen shortage affected steel supply due to the 2nd COVID wave in Q4, but significant recovery has been seen. The semiconductor supply shortage is still an issue but there’s no reduction in demand for chassis and powertrains.
  • Exports have seen tremendous growth across all segments over FY19 levels, and the company is benefiting from shifting from traditional supply chains in East Asia to India and the rest of the world.
  • There is a huge Commodity Upcycle, especially in metals. However, the company is poised to directly pass on the hikes to its customers.
  • The Company is expanding its capacities in the renewables sector, in order to reduce its reliance on Oil and Gas and focus on sustainable growth ahead.

 

Asset Multiplier Comments:

  • Bharat Forge like most Industrial manufacturing has already seen the worst of its days due to the pandemic, and recovery seems to be well on track.
  • Increased Government Expenditure, Focus on Atmanirbhar Bharat will help the company’s topline across all verticals in years ahead.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Bharat Forge was ₹757/- as of 09-June-2021.  It traded at 42x/ 30x the consensus EPS estimate of ₹ 18/ 25/-  for FY22E/23E respectively.
  • The consensus price target is ₹ 800/- which trades at 32x the EPS estimate for FY23E of ₹ 25/-.

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.”

Current capacities fully utilized, need expansion to meet demand: Minda Industries

Update on Indian Equity Market:

After a blockbuster start of a 3-day week, markets traded lower to end the last day of FY21 as Nifty closed the day 154 points lower at 14,691.  Within the index, TATASTEEL (2.3%), GRASIM (2.3%), and UPL (1.9%) were few of the gainers while HDFC (-3.9%), HDFCBANK (-3.8%), and FMCG (1.0%) led the winners while FIN SERVICES (-2.0%), PVT BANK (-1.9%), and BANK (-1.7%) led the losers. 

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries Ltd (MINDAIND) with CNBC -TV18 dated 30th March 2021:

  • The board of MINDAIND has approved the company’s expansion into four-wheel lighting business and four-wheel alloy wheel businesses due to an improved market scenario and increased demand.
  • In the Bawal plant of Haryana, the current capacity of 120,000 wheels/ month will be increased to 180,000 wheels/ month. This will be a part of the brownfield expansion.
  • The second plant aiming at the production of lighting is a Greenfield expansion plan.  Both the plants are expected to commission the production in FY22E.
  • The company is already running its alloy wheel business beyond its current capacity. The company is making sure that surplus capacity is available considering the additional orders received by the company. The aftermarket sales are having a positive momentum further creating demand for the alloy wheel segment.
  • Current sales in the lighting business are around Rs 4bn odd a year. The new orders received by the company are for more than Rs 2bn a year leading to the creation of a new plant.
  • The financing for both projects will be from internal accruals. The company might need a little bit of debt depending upon the funding requirement.

Asset Multiplier Comments:

  • The decision to expand the lighting and alloy business paints a healthy picture about the order book of the company for at least the next 24 months. The Company is expected to witness above-average growth due to pent-up orders.
  • The company is currently running the business at full capacity utilization. As a result, the growth in fundamentals till the commissioning of the new plant might not represent the true state of demand for the company.

Consensus Estimates (Source: market screener website):

  • The closing price of MINDAIND was ₹ 540/- as of 31-March-2021.  It traded at 94x/ 41x/ 29x the consensus EPS estimate of ₹ 5.8/ 13.5/ 18.9 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 535/- which trades at 28x the EPS estimate for FY23E of ₹ 18.9/-

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.”

A long way for us to reach volume levels of FY19 – Maruti Suzuki

Update on Indian equity market:
Another day, another all-time high! Indian markets were in full swing today as Nifty50 closed 209 points higher at 14,346. Within the index, MARUTI (5.8%), TECHM (5.8%), and WIPRO (5.7%) led the gainers while HINDALCO (-1.6%), TATASTEEL (-1.2%), and INDUSINDBK (-1.1%) were the highest losers. Among the sectoral indices, IT (3.8%), AUTO (3.6%), and MEDIA (3.3%) led the gainers while METAL (-0.6%) and PSU BANK (-0.5%) were the only losing sectors.
Excerpts of an interview with Mr. Shashank Srivastava, Executive Director, Maruti Suzuki India Ltd (Maruti) published on Economic Times dated 7th January 2021:
On the retail side, the demand has been pretty good but not at the levels seen the year before last. This year is a unique year. This December is different from the earlier Decembers because the availability of vehicle stock across the industry has been a constraint for retail for the month.
In terms of vehicle availability, the company has been working at peak production for the last couple of months and still the stocks are low.
There is definitely a bounce-back in the last couple of months, but if the April to December cumulative figure is compared to that of last year’s, there is an 18% YoY decline. Last year itself was 17-18% less than the previous year. If compared to the same period two years ago, this year is almost 33% down.
In the previous five years (2015-2020), the CAGR growth in industry volumes is just 1.6-1.7% compared to 5.9% during 2010-2015 and 12.9% during 2005-2010.
The big reason for the slowdown in growth is that the cost of acquisition has gone up for various reasons. One is because taxation has gone up substantially. Extremely high road taxes along with an increase in insurance taxes increased the cost of acquisition for vehicles. Another factor is a shift from BS-IV to BS-VI norms which increased the cost of owning a vehicle substantially.
Just like BS-VI, two major regulations are coming up in near future; the CAFÉ 2 which is applicable from 22nd April 2021, and BS-VI phase II, RDE which will start from April 2023. This will result in a further increase in the cost of ownership.
In the entry SUV space, Vitara Brezza continues to be the leader. For the mid SUV, the company has S-Cross which was launched recently with a 1.5-liter BS-IV petrol engine. The company has a weaker spot in the upper SUV space.
Consensus Estimate: (Source: market screener and investing.com websites)
The closing price of Maruti was ₹ 8004/- as of 8-Jan-2021. It traded at 53x/ 32x/ 26x the consensus EPS estimate of ₹ 152/ 248/ 311 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 7,670/- implies a P/E multiple of 25x on FY23E EPS of ₹ 311.
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.”