Tag - transport

Auto demand picking up as the festive season nears – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.9%, higher than the previous close at 11,095. The top gainers for Nifty 50 were Reliance (+7.4%), Zee (+6.4%), and HDFC Bank (+3.8%) while the losing stocks were Tech M (-2.8%), BPCL (-2.5%), and IndusInd Bank (-2.0%). The sectoral gainers for the day were Media (+3.8%), Financial Service (+2.3%) and Pvt Bank (+2.0%) while the losers were IT (-0.9%) and PSU Bank (-0.02%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki; dated 04th August 2020 from CNBC TV18:

  • Auto sales in the month of July have seen a substantial improvement as compared to June and the demand is seen picking up ahead of the festive
  • Demand is beginning to pick up as the festival season is coming up. Maruti is gradually ramping up production but there are still problems as the factories are working at anywhere near 100% capacities. Safety regulations limit the capacity utilization. So with all of that, Maruti is trying to meet the demand and get up to last year without any forecast or guarantees of what is going to happen.
  • He highlighted that the number of enquiries was large and bookings were going along quite normally, compared to last year.
  • There is the pent-up demand from last year as there is some requirement of people to have mobility as the economy is opening up. However, he expects the situation for six months down to remain uncertain because of negative factors such as lower income levels of people caused by the shutdown in business activities.
  • Hospitality and travel businesses have closed down which were users of vehicles.
  • In terms of the cost of a vehicle in relation to per capita income, he believes that has gone up probably a little faster because of new regulations on safety and emissions.
  • The steel prices have never been on a straight line. There has been a period when steel prices have gone up sharply than they have flattened out and come down and then the cycle reverses. In the last two years, there were periods when steel prices were declining and they are benefited from that. Thus, he is not so worried about the increase in steel prices.
  • Talking on the personal mobility issue he said that the percentage of buying cars which are the smaller entry-level hatchbacks has gone up. The increase in the percentage of people wanting to buy small hatchbacks is an indicator that there is a requirement of people to have a small car for doing all kinds of things, going to school, going shopping and other forms of transport. So he thinks that there is some section of the consumers that needs to have personal transport instead of using shared transport or some other form of transport.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Maruti Suzuki India Ltd was ₹ 6,361/- as of 04-August-2020. It traded at 45x/27x the consensus EPS estimates of ₹ 141/239 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 5,698/- implies a PE multiple of 24x on FY22E EPS of ₹ 239/-.

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.”

Expect demand to pick up strongly by festive season: Vinod Dasari

Update on the Indian Equity Market:

On Tuesday, Nifty closed 3% lower at 8,981 after crude futures prices fell into the negative territory for the first time. The top gainers for Nifty 50 were Dr Reddy (+4.4%), Infratel (+2.9%) and Bharti Airtel (+2.2%) while the losing stocks for the day were IndusInd Bank (-12.3%), Bajaj Finance (-9.1%) and ICICI Bank (-8.7%). Pharma (+2.5%) was the only gainer among the sectoral indices for the day. The worst performing sectors were Pvt Bank (-5.9%), Bank (-5.4%) and Auto (-5.3%).

Edited excerpts of an interview with Mr Vinod Dasari, CEO of Royal Enfield.; dated 16th April 2020. The interview was published in The Economic Times.

  • Starting OEM factories are much easier. But there will be some deal of confusion as to which industries can start. Now there are companies in which they might have two or three plants but sometimes the plants are interrelated. So if one area cannot start but the other area is allowed to start, it could be a concern. For example, Tamil Nadu opens up but Maharashtra does not open up, the company will face supply issue which is from Pune.
  • There would be a little bit of a stuttered start but think within 10-15-day time, this will come to normal once the lockdowns are lifted.
  • According to him, the demand side will actually come back stronger for two reasons – Pent up demand and a likelihood that people will not want to travel in public transport increasing demand for cars and motorcycles.
  • April is a washout for the auto industry, May could see a good recovery month but at a slow pace. This quarter will have some impact because of the lockdown but after that, the recovery will be sharper than what people are saying.
  • For dealers, all the money that the company had with them as advance, has been returned by the company. The company has given all the warranty claims, keeping very little stocks with the dealers. Dealers carry less than 10 days’ worth of stock.
  • The company is not doing any retrenchment and pay cuts whether it is the temporary or permanent workforce. Thus, company is paying 100%.
  • The company has more than doubled its network in the last year to reach outside urban areas. This has given them good results. Thus, a combination of both the accessibility of the product and network as well as the aspirational aspect of Royal Enfield bikes will bode well for them.
  • Even in a downturn last year in their category, the company actually gained market share. For overall motorcycle, they still retained their market share despite a 15-20% downturn in the overall motorcycle market.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Eicher Motors Ltd was ₹ 13,502/- as of 21-April-2020. It traded at 18.1x/ 18.4x/ 14.8x the consensus EPS estimate of ₹ 745/ 735/ 914 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 18,679/- implies a PE multiple of 20.4x on FY22E EPS of ₹ 914/-.

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.”