Tag - passenger vehicles

Replacement Market has played well- CEAT

Update on the Indian Equity Market:
On Wednesday Nifty closed 0.3% higher at 11,917. Among the sectoral indices, Fin Services (+2.0%), Bank (+1.6%), and Private Bank (+1.5%) closed higher. IT (-1.3%), Pharma (-0.7%), and Auto (-0.3%) closed lower. Wipro (-7.1%), NTPC (-4.1%), and ONGC (-3.1%) closed on a negative note. Bajaj Finserv (+4.1%), SBILIFE (+3.4%), and Bajaj Finance (+2.8%) were among the top gainers.

Excerpts from an interview of Mr. Anant Goenka, MD & CEO, CEAT Ltd with ET NOW dated 12th October 2020:

● The demand for tyres has picked up faster than expectations.
● They operate in 3 markets- Replacement, Auto players, and Export.
● The replacement market has played very well and it leads the way, OEM’s has recently seen a pick up from August and September and reached pre-covid levels. The Export segment has also seen gradual growth.
● Amongst vehicle categories, the two-wheeler and tractor industry is showing the strongest demand followed by the passenger car segment.
● The Commercial Vehicle OEM segment has yet to show growth. The demand is slow over there.
● The rural sector has also shown a very strong demand for the company.
● The company is very well positioned at this point in time and had set up a fair amount of capacity.
● The company’s capacity is well utilized.
● The company had set a new facility in Nagpur for 2 Wheelers and the PV car facility in Chennai, and Truck facility in Halol is now ramping up. The company has invested around Rs 3,000 crore.
● The last six months were about managing supplies.
● Things are much clear for the company up to December, January onwards will have to see how things will pan out.
● The company is planning to reduce its cost by Rs 1000 mn.
● Speaking on the manufacturing front, he said India is in a strong position in the Auto Space. Within Type space, the industry is capable of manufacturing all kinds of tyres.
● On Export opportunities, he said the market has shown a linear growth. It is one big area where the Industry can take advantage of the current situation.
● The company is planning to de-risk the exposure towards China by focusing to have at least one domestic supplier for key raw materials.
Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of CEAT was ₹ 1,004/- as of 14-October-2020. It traded at 22x/ 15x/ 13x the consensus Earnings per share estimate of ₹ 46.6/65.5/79.0 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for CEAT is ₹ 967/- which implies a PE multiple of 12x on FY23E EPS of ₹79.0/-.
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.”

Tata Motors shifts focus to cars on weak demand for CVs

Update on the Indian Equity Market:

On Friday, NIFTY closed at 12,257 (+0.3% higher than the previous close). Among the stocks, Coal India (+3.3%), Infosys (+1.7%) and Ultratech Cement (+1.6%) were the gainers. Yes Bank (-5.0%), Zee Entertainment (-3.5%), and Indusind Bank (-1.2%) were the top losing stocks. Nifty Realty (+1.8%), Nifty Metal (+1.2%) and Nifty Auto (+0.8%) were the top sectoral gainers while Nifty Pvt Bank (-0.1%) was the only sectoral loser.

Excerpts from an interview with Mr Guenter Butschek, MD & CEO, Tata Motors Ltd published in Livemint on 10th January 2020:

  • Tata Motors Ltd (TML) is betting big on passenger vehicles (PVs) to lead its turnaround plans as it transitions to Bharat Stage-VI emission norms. The move to BS-VI will give the company ‘a much more powerful play’ in the domestic market during the next fiscal.
  • With the new range of products, including upgrades for BS-VI, Mr Butschek is confident that March 2020 would be the turning point. If this gets support from the tailwinds, TML will get back to the previous growth path.
  • Referring to TML’s new product pipeline, including the company’s ambitious electric vehicle plans, Mr Butschek said the company plans to unveil 26 products at next month’s Delhi Auto Expo in February, including the 14 new commercial and 12 new passenger vehicles. This would be the biggest display of new vehicles. TML also plan global unveils of four new vehicles.
  • Mr Butschek termed the transition to BS-VI as ‘the single biggest engineering and investment effort ever’ put in by TML. He said a team of 3,500 engineers worked on BS-VI projects, upgrading over 20 engine platforms, 100 lead vehicle models and 1,000 variants. TML invested more than ₹ 1,200 crore in FY19 and hired 500 additional engineers for the process.
  • According to him, TML’s turnaround story in PVs and CVs is inspiring in terms of cost reduction. The Company has been able to reduce their breakeven point during tough times which is clear proof that they have done their homework. They are done with their investments and now they need is the volumes.
  • One key step was to bring down product development costs in its common vehicle architecture, which would form the base for several upcoming models.
  • In PVs, it has developed flexible vehicle platforms, code-named Alpha and Omega, which would power up to 12-14 new nameplates in the near- to mid-term. The new premium hatchback Altroz is going to be the first model from its Alpha architecture. The two modular platforms will also power the range of electric cars planned by the Company.
  • Mr Butschek said that TML would remain cautiously optimistic while estimating that the market would recover by 2HFY21, once the BS-VI transition is behind.
  • TML is seeing marginal improvement in retails. While the market sales volumes were flat YoY in December, TML’s sees improvement in its performance comparing the previous months.
  • For CVs, revenue from which was over four times the revenue of PVs, Mr Butschek said absorption of excess freight-carrying capacity could take up to five years, thereby hampering demand from the truck fleet owners across the country. Introduced in July-August 2018, the new axle load norms raised the permissible gross vehicle weight (GVW) of over 16-ton heavy trucks by about 12-25%, thereby creating excess carrying capacity for fleet operators.
  • A good vehicle scrappage policy could help reviving the demand for CVs in the near term, said Butschek.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹ 196/- as on 10-January-20. It traded at 25x/ 12x/ 8x the consensus EPS of ₹ 7.5 / 15.6 / 22.9 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 187.5/- which implies a PE multiple of 8x on FY22E EPS of ₹ 23/-