Tag - M&HCV

Industry to see a spike in NPA’s in Q3 – Sundaram Finance

Update on the Indian Equity Market:
On Monday Nifty closed 0.2% lower at 11,440. Among the sectoral indices Bank (-1.8%), PVT Bank (-1.5%), and FIN Services (-1.7%) closed lower. IT (+4.4%), Realty (+3.7%), and Media (+1.5%) closed higher. Bharti Airtel (-3.8%), Bajaj Finance (-3.2%), and BPCL (-3.2%) closed on a Negative note. HCL Tech (+10.6%), TCS (+4.9%), and Wipro (+4.5%) were among the top gainers.

Excerpts from an interview of Mr. TT Srinivasaraghavan, MD, Sundaram Finance with ET NOW dated 14th September 2020:

• Mr Srinivasaraghavan said the situation is better and the negativism has started to lift.
• The company continues to focus on prudence and in terms of protecting asset quality.
• The moratorium has ended 10 days ago and now the company is moving into real world.
• He says, the next 4 months ending December are going to be curtail from an asset quality portfolio preservation perspective.
• The growth is coming back is selected few segments, the disbursals in August 20 were 70% of August 19 and September20 is looking similar side or little more.
• The rural and infrastructure segments are showing signs of growth.
• For Commercial Vehicles the first 5 months was a no show and an estimate of the company says that some growth will be seen in Q4FY21E.
• Given current situation he said the current portfolio will be skewed away from Medium and Heavy commercial vehicles.
• The company is well capitalized and there is no need to raise capital.
• On the NPA front, he said that it’s too early to spot a trend but people have started to repay and collections have started to flow in.
• He says, In Q3 the industry will see a spike in NPA’s.
Consensus Estimate: (Source: market screener and Investing.com websites)
• The closing price of Sundaram Finance was ₹ 1,335/- as of 14-September-2020. It traded at 28x/ 19x/ 21x the consensus Earnings per share estimate of ₹ 47.8/70.5/63.5 for FY21E/ FY22E/ FY23E respectively.

• The consensus average target price for Sundaram Finance is ₹ 1,423/- which implies a PE multiple of 22x on FY23E EPS of ₹63.5/-.
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.”

Ashok Leyland bets big on modular platform, says it will reduce the cost of ownership for customers

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally lower at 11,813. The top sectoral gainers were Realty (+1.0%), IT (+0.8%) and Metal (+0.2%). The worst sectoral performers were Pharma (-2.2%), Auto (-0.7%) and Media (-0.6%). The top gaining stocks for Nifty50 were TCS (+2.3%), JSW Steel (+1.6%) and Tata Steel (1.5%) while the losers were Dr Reddy (-2.7%), Sun Pharma (-2.6%) and Hindalco (-2.6%).

Excerpts from an interview with Mr Anuj Kathuria, Chief Operating Officer (COO) – Ashok Leyland aired on CNBC18 TV on 22nd February 2020:

  • After unveiling tractor-trailer in 46-tonne category range, Hinduja Group flagship Ashok Leyland COO said modular platform range will reduce the cost of ownership for customers and the company is offering few vehicles to select customers.
  • Mr Kathuria said that the modular platform is going to have an entire range of vehicles starting from the 16-tonne right up to the 55-tonne. The platform allows the customers to configure the vehicles as per their applications and business requirements. It naturally would help them get a superior total cost of ownership and total cost of operations. It reduces the number of parts that are required to build vehicles. It inherently ensures better aftermarket support.
  • He added that the modular platform vehicles are BS-VI compliant. The technology used on BS-VI is mid-NOx technology that ensures the operating cost or the fuel efficiency or the fluid efficiency is best-in-class.
  • About the transition from BS-IV to BS-VI, he said that the offerings that Ashok Leyland can make to the customer are many more. They increase multi-fold but definitely there will be certain sweet spots in the configurations. However, if tomorrow a customer comes up with a new application and new requirement, it can be configured very quickly, most of the configurations are being homologated, so the time to market would be significantly different on this platform.
  • According to him, the Medium and Heavy Commercial Vehicle (M&HCV) growth is linked to the economic growth of the country.
  • The decline in demand for M&HCVs has been up to 45%. From his point of view, this decline is a combination of the cyclicality as well as certain structural changes that happened. Thus, the CV (Commercial Vehicle) industry will have to wait and watch the axle load norms that brought in excess capacity overnight of almost 20-25%. This would take some more time to be absorbed by the industry.

Consensus Estimate: (Source: market screener website)

The closing price of Ashok Leyland Ltd. was ₹ 81/- as of 25-February-2020.  It traded at 43x/27x/17x the consensus earnings estimate of ₹ 2.0/ 3.2/ 5.0 for FY20E/ FY21E/ FY22E respectively.