“Sequential Recovery Witnessed in Passenger vehicles & 2-Wheeler segment”
Auto Sector: Focus Stocks Maruti Suzuki/Tata Motors/ Bajaj Auto/Eicher Motors
Q1FY21 Post Earnings Review
18th August 2020 Table of Contents
1 Q1FY21 Earnings Summary – Key Takeaways 4
2 Earnings Review: Result Summary 5 - 8
3 Valuation Snapshot 9 - 12
4 Performance Overview 13 - 17
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Passenger Vehicles
• Maruti Suzuki Ltd
• Tata Motors Ltd
2/3-Wheelers
• Bajaj Auto Ltd
• Eicher Motors Ltd
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Passenger & 2-Wheelers segment show recovery; Upcoming festive season & Rural market to drive demand Green-Shoots in Passenger vehicles and Two-Wheelers, while Commercial Vehicle remains challenging
• As per SIAM, In July-20, Industry Passenger Vehicle (PV) sales declined by 3.9% YoY at 182,779 units while 2-Wheelers (2-W) registered a decline of
15.2% YoY which was significantly better than preceding months wherein in Q1FY21, PV sales were down 63% YoY while that of 2-W were down by
60.5% YoY
• CV segment performance will remain challenging due to high axle norms, delayed infrastructure projects. We expect the announcement impending
scrappage policy to bring relief to CV segment
3-Wheelers to be impacted as people shun shared mobility and public transport
• Industry 3-wheelers performance continues to remain laggard as it witnessed a decline of 77.2% YoY in July-20, hardly improving compared to its
performance in Q1FY21 where the volumes declined 87.6% YoY
• This can be attributed to public transport and shared mobility being impacted due to social distancing which will in turn drive demand for personal
vehicles such as entry level passenger vehicles and 2-Wheelers
• Bajaj Auto reported a decline of 71.1% YoY in 3-Wheelers during the month of July-20, which indicates that recovery is expected to take a bit longer
Gearing up new launches to bolster sales ahead of festive season; Rural recovery expected to boost domestic demand
• Rural market led by good monsoon and robust crop output is expected to show strong growth as compared to urban region
• This will drive the demand for Tractor, Small Commercial Vehicles and Motorcycle sales which will benefit Eicher Motors and Bajaj Auto
• Urban demand is expected to recover by H2FY21 gradually, which will manifest during festive season
• New launches planned in affordable segment ahead of festive season: Tata Motors (micro-SUV concept ‘HBX’, Tata Gravitas), Maruti Suzuki (New-Gen
Celerio) KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS
Companies Revenue and Segment-wise Performance
• Revenue stood at INR 41,065 mn, declining 79.2% YoY/ down 77.4% QoQ due to 81.0% YoY/ down 80.1% QoQ decline in volumes to 76,599 units. • Average Selling Price increased 9.4% YoY/+3.6% QoQ due to better product mix on account of higher sales of Utility vehicles Maruti Suzuki and export sales. • Domestic sales was down 82.1% YoY while export sales declined 66% YoY. • The outlook appears favorable as inquiries are currently at 85-90% of pre-COVID levels as percentage of inquiries are higher for hatchbacks (65% in Q1FY21 vs. 55% on average earlier)
• Revenue declined 47.9% YoY/ down 48.8% QoQ to INR 3,19,831 mn, driven by 81.8% YoY volume decline in Tata Motor Standalone and 44.8% YoY decline in JLR business owing to lockdown • Tata Motor Standalone sales were down by 80% YoY while that of JLR declined by 44% YoY. Tata Motors • Within domestic business, volumes were down on YoY basis: M&HCV -92.1%, ILCV -92.1%, SCV & Pick Ups -85.4% and CV Passenger -97.2%. Domestic PV volumes were down 60.6% . • Currently, Indian CV plants are at ~20% utilization levels presently, with PV utilization levels at ~60-70% which shows demand recovery in PV business while CV still affected
• Bajaj Auto revenue declined 61.0% YoY/ down 55.4% QoQ. The volumes fell by 64.5% YoY/down 55.3% QoQ due to lockdown witnessed during the earlier part of the quarter. Bajaj Auto • Realizations increased by 9.8% YoY due to better export realizations and a higher sales of BS VI vehicles • The demand for 3Wheelers is affected as shared mobility and public transport has been impacted due to COVID precautions
• Eicher Motors reported consolidated revenue from operations of INR 818 Cr (in line with our estimates of INR 800 Cr) a decline of 65.7% YoY (down 62.9% QoQ). While the earlier part of the quarter was impacted due to lockdown, the company Eicher Motors witnessed recovery towards the end of June 20 Total volumes of Royal Enfield motorcycles declined by 67.8%YoY at 52,433 vehicles due to lockdown owing to COVID-19 • Average price realization increased by 6.8% YoY/+15.2% QoQ due to higher mix of BS-VI motorcycles
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Companies Margin Performance
• EBITDA loss of INR 863 Cr due to negative operating leverage on account of higher fixed cost and raw material cost in Q1FY21 (one-off mark down of inventory value of INR 110 Cr). The raw material cost is expected to normalize in the coming quarters. Maruti Suzuki • MSIL reported a loss of INR 249 Cr which was partially cushioned by higher other income on account of fair value gains on investments. • Focus on cost controls related to material cost through localization and fixed cost is likely to aid margin going forward.
• EBITDA margins were at 2.0%, down 289 bps YoY/ down 181 bps. • JLR cost and cash savings programme Project Charge+ continued to deliver significantly during the quarter. • Total savings during the quarter was £1.2 billion (£500 million in structural cost, £400 million in inventory, £300 million in Tata Motors investment reductions). India programme delivered INR 1,020 crore in cash savings in Q1FY21. The company maintains its stance of achieving INR 6,000 crore cash savings target in FY21E. • Consolidated loss after tax was at INR 8,438 crore, with JLR PBT loss at £413 million and standalone loss at INR 2,191 crore
• Gross margins improved by 460bps YoY/ 130 bps QoQ to 32.9% in Q1FY21. This can be attributed to higher USD-INR realization and improved mix skewed towards exports and higher segment bikes such as KTM and Pulsar. Bajaj Auto • EBITDA declined by 65.9% YoY while margins stood at 13.8% lower by 198 bps YoY due to low operating leverage. The overall decline in EBITDA was partially offset by cost savings and favourable currency. • PAT margin improved 3 bps YoY/ down 707 bps QoQ to 13.4% due to lower taxation rate
• Absolute EBITDA declined 99.4% YoY (down 99.1% QoQ) to INR 4 Cr while EBITDA margin contracted 2,533bps YoY/down 1,911bps QoQ to 0.5% due to negative operating leverage • In its Joint venture business, VECV continued to be affected by demand slowdown in commercial vehicle space. VECV sold Eicher Motors 2,129 trucks and buses registering a decline of 84% YoY (lower than industry level decline of ~95% YoY). Eicher Motor’s loss from JV stood at INR 65 Cr compared to profit of INR 21 Cr in Q1FY20 • Overall, Net Profit reported a loss of INR 55 Cr with Net Profit Margin at (-ve) 6.7% as compared to profit of INR 452 Cr in Q1FY20 and net profit margin of 19%
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Companies Industry/Outlook/ Strategy
• Demand has returned to ~85% of pre-COVID levels. Currently, the company manufactures 4000+ units/day across its Haryana and Gujarat (single shift) plants. As the Gujarat plant starts with the second shift in mid-Aug20, Maruti will produce an incremental 900 units per day. Maruti Suzuki • Maruti is benefitting from its entry level portfolio as customers are turning towards the use of personal mobility in the current environment. The company is exploring further export opportunities • Present MSIL inventory level is at ~80,000 units i.e. ~25 days of sales
• Total lifetime savings under Project Charge+ stood at £4.7 billion. The company raised targeted savings by £1 billion to £6 Billion (earlier £5 Billion) to be achieved through material cost, VME and other overheads which will aid margin Tata Motors • Capex (Indian operations): INR 492 crore for Q1FY21; FY21E capex guidance at INR 1,500 crore. • Capex (JLR): £548 million for Q1FY21; FY21E capex guidance: £2.5 billion • JLR inventory is at ~90 days of sales as of June vs. ideal levels of 55 days.
• While Q1 was impacted by Covid-19 related lockdowns, end-demand in domestic 2W is improving swiftly (80- 90% of normal) • Export volumes are also improving vs Q1FY21 (2W at 85%, 3W at 75% of normal). SE Asia, LATAM and Middle-east markets are Bajaj Auto leading recovery, while ASEAN and Africa regions are slightly behind. • Domestic 3Ws may take longer to come back to normal (currently at 20% of normal)
• Eicher Motors has signed a definitive agreement for the integration of Volvo India buses into VECV (Volvo Eicher Commercial Vehicles) for INR 100 Cr. The final business transfer is expected to be closed within the next two months. The transfer will be only for its business and assets and no debt will be transferred • The company has started getting bookings for bike nearly at pre-COVID level. Most of the dealers are operational Eicher Motors • The supply chain got impacted due to lockdown in Pune , Aurangabad and some parts of Chennai. Now supply chains are improving and getting better. The company is not sourcing anything from China • The company is currently operating at 40-45% capacity; new models to be launched in September-20. • The company has planned a new launch in Royal Enfield almost every quarter • The company received good response for its BS-VI vehicles specially from fleet owners and truck owners
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Companies New Launches/Market share
• Overall, share of diesel engine cars in the industry fell to 20.6% in Q1FY21 vs. 29.5% in Q1FY20, which benefitted Maruti as it exited the segment Maruti Suzuki • The share of second car buying and first-time buyers has risen to ~50% (from 45% in 4QFY20) • Maruti has new models in the pipeline and presently the plans are to launch them as soon as opportunities arise. • On 3rd August, the company launched 2020 S-Cross petrol version at INR 8.39 lakh (ex-showroom)
• Indian PV market share improved substantially to 9.5% as of Q1FY21 vs. 4.8% as of FY20 due to the “New Forever Range” including the newly launched Altroz. Market share in MHCV up 1,440 bps as compared with FY20. Encouraging response to EVs, 289 EVs sold during the quarter. • New Defender wholesale volumes were at 7,900 units, with order book at 30,000 units. . The Defender is Tata Motors expected to drive volumes and expected annual volumes are over 100k units • Passenger wellbeing has been enhanced with new Cabin Air Ionization, which filters harmful particulates and improves interior air quality • On 13th August, Tata Motors launched India’s first 47.5-tonne multi-axle tipper truck for surface transport of coal and construction goods, priced at INR 52.81 lakh
• Pulsar’s share in BAL’s domestic motorcycle mix has increased to 50% in Q1FY21 vs. ~40% in Q4FY20 • BAL has also been able to increase its market share in the sports segment (59.0% in Q1FY21 vs. 44.7% in FY20). KTM has also been doing well and the management expects KTM to cross 5-digit sales number this year. Bajaj Auto • BSVI electric injections have been launched for Husqvarna and Platina models • In August, Bajaj Auto launched an upgraded version of premium motorcycle KTM 250 DUKE priced at INR 2.09 lakh. The bike comes with an advanced 'Supermoto' mode that can be activated at the push of a button.
• The company’s market share fell from 22% to 20% in Q1FY21. The company is continuously expanding its network in Q1FY21 and added 38 stores and internationally it added 5 exclusive stores and 32 multi brand outlets • The company launched contactless sales platform during the quarter which is doing well • Witnessed a surge in its website count of number of visits from 2.5 mn in pre-covid level to 5 mn currently Eicher Motors • Interceptor was the best-selling bike in middleweight segment in June-20 in UK. Exports are doing well which was around 2.5-5% of the company’s sales. It is targeting to bring it to 20% of sales. • VECV’s market share increased from 30% to 36% level due to supply issues at competitors end and the share gain could be temporary.
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Our top pick is Bajaj Auto; however we maintain an ACCUMULATE rating on the stocks
CMP* Target Price Stock Recommendation Upside (%) (INR) (INR)
Maruti Suzuki Ltd ACCUMULATE 6,768 7,182 6.1%
Tata Motors Ltd ACCUMULATE 124 133 7.3%
Bajaj Auto Ltd ACCUMULATE 3,116 3,410 9.4%
Eicher Motors Ltd UNRATED** 21,135 - -
Source: Bloomberg, KRChoksey Research *Prices are taken as of 17th August 2020 * * We have a soft coverage on Eicher Motors Ltd
KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS
Investment Rationale: Maruti Suzuki Ltd
Maruti Suzuki’s Q1FY21 results were characterized by double digit decline in volumes amidst the lockdown wherein the operations were hampered significantly. Management remains positive on the demand recovery, however it expressed uncertainty over demand outlook owing to the current situation. We believe that MSIL with its strong brand image and strong distribution network will be able to recover faster than its peers. Maruti is set to benefit from increasing demand towards entry level segment, wherein it has a strong presence and it is also focusing on increasing its share utility vehicles which have high margin. Though near-term pressure exist, however volumes are likely to recover from H2FY21 owing to festive season and cost cutting initiatives undertaken by the company which will aid margin sustenance going forward.
We revise our FY21/22E EBITDA estimates upwards by 22.2%/18.9% due to cost cutting initiatives undertaken by the company and higher other income. Since our last recommendation on 14th May-20 (accumulate at TP of INR 5,569), the shares of Maruti Suzuki Ltd has rallied 29%. We apply a higher P/E multiple of 28.5x (to reflect expected recovery in business mainly passenger segment) to FY22 EPS of INR 252 (earlier 26x FY22E EPS of INR 214) to arrive at a revised target price of INR 7,182 per share (Previous TP: INR 5,569 per share); implying an upside potential of 6.1% from CMP. Accordingly, we reiterate “ACCUMULATE” rating on the shares of MSIL.
KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS
Investment Rationale: Tata Motors Ltd
Q1FY21 result was characterized by steep volume decline in both JLR and domestic business on account of COVID-19 along with ensuing demand slowdown. Tata Motors will face near term challenges with gradual recovery in volume expected in H2FY21E with lockdown easing and adherence to social distancing. Strong backing by parent group will help the company in handling its crisis better. Going forward, management initiatives on cost cutting measures, launch of exciting new models, improvement in cash flows through reduction in capex and debt reduction are expected to improve group profitability and cash flows going ahead.
Tata Motor’s shares are currently trading at 14x P/E on FY22E. Since our last recommendation on 16th June 2020, Tata Motor shares have already achieved our target price of INR 104 and have rallied 20% since then. We see Tata Motors turning the tide around with strong international performance particularly in China and improved margin performance on the back of cost rationalization measures and apply a higher P/E multiple of 15.5x on FY22E EPS of INR 8.6 (earlier 12x on FY22E EPS of INR 8.6) to arrive at a revised target price of INR 133 per share, implying an upside potential of 7.3%. We continue to remain positive on Tata Motors and reiterate our rating to “ACCUMULATE”.
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Investment Rationale: Bajaj Auto Ltd
Taking cues from Q1FY21 performance, both the domestic & export outlook is expected to remain subdued in the near term due to Covid-19 uncertainty and suppressed purchasing power/demand. Furthermore, there is a risk of downtrading (where consumer will switch from premium segment to the budget alternatives) to the company. While the margins were strong for the quarter, the company expects the business to revive in H2FY21 with improvement in the economic situation in exports and better realization in the domestic markets.
Since our last BUY rating (reported dated 21st May 20), the shares of Bajaj Auto has advanced 14% and almost touched the previous Target Price. We retain our positive stance on Bajaj Auto based on its resilient performance especially in the export markets and the company's ability to control costs amid plant shutdowns/ demand slowdown. In our view, Bajaj Auto is well placed to benefit from the expected revival in 2-wheelers demand especially in rural markets due to better harvesting and remains our preferred play in the 2-wheelers space. Hence, we apply a P/E multiple of 19x (earlier, 17x) on FY22E EPS of INR 179.5 (same as earlier); to arrive at a target price of INR 3,410 per share; implying an upside potential of 9.4% from CMP. Accordingly, we reiterate a “ACCUMULATE” recommendation on the shares of Bajaj Auto.
KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS
Revenue significantly impacted due to low volumes Total Sales volume decline due to lockdown (Nos)
3,00,000 5% 10%
4,37,361 0% 4,02,594 3,85,025 -12% -10% -24% 2,07,068 -15% 3,38,317 1,97,198 -20% 2,00,000 1,81,987 1,69,853 -30% -40% -50%
1,00,000 -60% -70% 76,599 41,065 -79% -80%
0 -90% Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Revenue (INR Mn) YoY growth Total Sales Volume
Volume decline pervasive across segments (Nos) EBITDA impacted due to negative operating leverage (INR Mn) 3,50,000
25,000 15.0% 21,021 20,478 3,00,000 20,000 10.0% 16,063 15,464 10.4% 10.2% 2,50,000 15,000 9.5% 8.5% 5.0% 2,00,000 10,000 0.0%
5,000 -5.0% 1,50,000
- -10.0% 1,00,000 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 (5,000) -15.0% 50,000
(10,000) -20.0% -8,634 - Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 (15,000) -21.0% -25.0% Passenger cars Utility Vehicles Vans+LCV OEM sales EBITDA (INR Mn) EBITDA margin
Source: Company reports, KRChoksey Research
KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS
Total Vehicle Sales Volume (Nos) Domestic business severely impacted due to lockdown 1,60,000
1,40,000
1,20,000 25% 1,00,000 52% 45% 48% 48% 80,000
60,000 75% 40,000 48% 55% 52% 52% 20,000
- Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 JLR Sales Tata Motors Sales JLR Sales Tata Motors Sales
EBITDA decline due to low operating leverage Tata Motors Vehicle Segment Mix (Nos) 8000 12.00% 70,000 10.9% 7000 60,000 10.0% 10.00% 6000 50,000 8.00% 5000 40,000 4000 6.00% 30,000 3000 4.9% 3.8% 4.00% 20,000 2000 2.0% 2.00% 10,000 1000
- 0 0.00% Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
M&HCV LCV Utility Cars EBITDA (INR Cr.) EBITDA margin Source: Company reports, KRChoksey Research
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Motorcycles sales (Units Sold) Commercial Vehicles (Units Sold) 7,00,000 1,20,000
6,00,000 1,00,000
5,00,000 80,000
4,00,000 60,000 3,00,000 40,000 2,00,000 20,000 1,00,000 - - Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
Domestic Exports Domestic Exports
Revenue impacted due to lower volumes EBITDA margin largely sustained due to better realization and 9,000 10% 2.7% cost cutting measures 3.9% 8,000 -4.1% 0% -8.1% 1,600 17.9% 18.4% 20% 7,000 7,756 7,707 7,640 -10% 16.6% 1,400 15.4% 18% 6,000 6,816 16% -20% 1,200 1367 13.3% 5,000 1,279 1252 14% -30% 1,197 1,000 12% 4,000 -40% 800 10% 3,000 8% 3079 -50% 600 2,000 6% 400 1,000 -60.3% -60% 4% 408 200 - -70% 2% Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 - 0% Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Revenue (INR Cr) YoY growth EBITDA (INR Cr) % Margin Source: Company reports, KRChoksey Research
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Margin highest for Bajaj Auto due to favourable currency and better cost rationalization.
Particulars (INR Mn) Maruti Suzuki Tata Motors Bajaj Auto Eicher Motors
No of vehicles 76,599 99,114 4,43,103 52,433 Sales 41,065 3,19,831 30,792 8,182 Total Expenditure 57,705 3,87,765 27,356 8,143 Cost of Raw Materials 13,253 99,164 16,959 3,291 Purchase of Stock 9,281 17,249 898 258 Changes in Inventories 6,830 82,800 2,809 1,462 Employee Cost 7,303 56,943 3,377 1,769 Other expenses 13,032 56,849 2,683 1,364 EBITDA (8,634) 6,356 4,084 38 EBITDA Margin (%) (21.0%) 2.0% 13.9% 0.5% Depreciation 7,833 55,994 638 982 EBIT (16,467) (49,638) 3,446 (944) Interest Expense 173 18,768 10 51 Other Income 13,183 6,065 3,379 1,142 Exceptional Items - (32) - - PBT (3,457) (61,837) 5,491 (507) Tax (963) 22,005 1,536 45 Share of Associates/Minorities - (658) - (654) PAT (2,494) (83,842) 3,955 (552) PAT Margin (6.1%) (26.4%) 13.4% (6.7%) EPS (8.26) (23.46) 13.7 (2.02) Source: Company, KRChoksey Research
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Overall Bajaj Auto performed better than peers
Particulars Maruti Suzuki Tata Motors Bajaj Auto Eicher Motors Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY No of vehicles (49.1%) (80.1%) (53.1%) (62.7%) (55.3%) (64.5%) (67.8%) (67.8%) Sales (77.4%) (79.2%) 48.8% 47.9% (54.8%) (60.3%) (62.9%) (65.7%) Total Expenditure (67.0%) (69.1%) 44.3% 40.7% (51.4%) (58.7%) (54.1%) (53.9%) Cost of Raw Materials (84.1%) (86.1%) (74.4%) (74.8%) (62.2%) (66.1%) (72.9%) (73.2%) Purchase of Stock (80.5%) (79.3%) (41.5%) (44.2%) (78.2%) (73.5%) (61.8%) (54.7%) Changes in Inventories NM NM NM NM (218.9%) 25.2% NM NM Employee Cost (10.9%) (15.0%) (26.0%) (26.2%) (1.4%) (6.4%) (17.2%) (16.4%) Other expenses (57.2%) (56.5%) (57.2%) (48.9%) (52.2%) (58.1%) (57.2%) (51.0%) EBITDA NM NM (73.2%) (78.8%) (67.4%) (65.9%) (99.1%) (99.4%) EBITDA Margin (%) NM NM (181bps) (289bps) (510bps) (197bps) -1911bps -2533bps Depreciation (4.8%) (14.7%) (3.7%) 9.5% 0.8% 6.1% (9.8%) 12.1% EBIT NM NM NM NM (71.0%) (69.7%) NM NM Interest Expense (38.9%) (68.4%) (3.9%) 9.7% 4.4% 75.9% (8.0%) 9.0% Other Income 49.7% 57.6% 7.5% (27.5%) (21.0%) 0.1% (20.2%) (5.1%) PBT NM NM NM NM (68.9%) (62.5%) NM NM Exceptional Items ------Tax (133.9%) (120.3%) NM NM (62.6%) (66.1%) (96.8%) (97.9%) Share of associates - - NM NM - - NM NM PAT NM NM NM NM (70.8%) (60.9%) NM NM PAT Margin NM NM NM NM (707bps) 3bps NM NM Source: Company, KRChoksey Research
KRChoksey Research ANALYST Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 is also available on Bloomberg KRCS
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