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Sector Update Running Full Throttle

Sector Update Running Full Throttle

Sector Update Running full throttle

mix) and M&M (on account of strong tractor sales) Automobiles are expected to report 214 bps, 321 bps and 237 bps Q4FY2018 results preview margin expansion y-o-y. Among tyre stocks, CEAT and JK Tyres are likely to report margin expansion of 340 bps and 245 bps, respectively y-o-y , due to Strong double-digit growth trend to continue, led improvement in mix (high share of aftermarkets) and by a low base and marked improvement in rural benign raw material prices. In contrast, Motherson demand: Sharekhan’s Auto universe (ex-TAMO) Sumi Systems (due to higher start up costs) and will continue its streak of double-digit growth for Jamna Auto (due to higher raw material prices Q4FY2018 with revenues expected to grow at and expiry of fiscal incentives) are likely to report whopping 26% y-o-y. Automotive volumes across margin drop of 160 and 140 bps, respectively. segments (two wheeler (2W), passenger vehicle Higher taxation and lower other income at select (PV) and commercial vehicle (CV) posted strong companies (, and M&M) double-digit volume growth in Q4FY2018. Low base is likely to results in net profit growing 22% y-o-y in Q4FY2017 (due to full impact of demonetisation (lower than 36% EBIDTA growth). Net profit growth and lower dispatches of 2W and CV, due to Supreme would be the fastest in the past five quarters. Court’s order in March 2017 banning sale of old Outlook: Automotive sector in upcycle; SIAM BSIII vehicles) drove strong volume growth. Further, forecasts double-digit growth to continue in improvement in rural demand (due to higher minimum FY2019 as well: FY2018 ended on a strong note support price (MSP) leading to higher farm incomes) with volumes across segments posting double- and business normalisation post GST glitches also digit growth. The uptrend in automobile sector is aided topline growth. Amongst our universe, Ashok expected to continue in FY2019 as well. Positive Leyland and TVS Motors (due to strong volume rural sentiments (expectation of a normal monsoon growth and better product mix) and Bajaj Auto (due for third consecutive year and higher budgetary to robust volume growth on back of low base) are allocations for rural development coupled with higher expected to outperform, reporting a topline growth of MSPs), higher economic growth and government’s 37%, 40%, 36%, respectively, Amongst the ancillary investment in infrastructure are expected to have a players, (on back of strong positive rub off effect on the auto sector. Automotive orderbook and acquisitions) and (due body SIAM expects the industry to maintain strong to strong CV OEM sales) are expected to outpace growth momentum in FY2019 (expect 2W segment industry with 36% and 30% growth, respectively. to grow 11-13%; PV segment to grow 8-10% while Ceat and JK Tyres will underperform with topline CV segment is estimated to grow 10-12%). Also, growing 12% and 13%, respectively, as against Auto ancillary players are likely to benefit from improving industry growth of 26%. aftermarket sales (switch from unorganised to Q4 to mark margin uptrend; strong operating organised post GST and the introduction of e-way leverage, price hikes and a favourable product bill). mix to more than offset increased raw material Preferred picks: Amongst the auto universe, we costs: After a gap of four quarters, auto sector’s prefer Maruti due to a strong demand for margins are expected to improve in Q4FY2018. its recent launches (~ 37% of its product portfolio) Auto universe (ex-TAMO) margins are estimated to which command a waiting period and the company’s improve 100 bps y-o-y to 14.3%. Operating leverage ability to gain market share in the PV industry. In (due to strong volume growth across categories) the CV space, we like Ashok Leyland, which is one and a favourable product mix (strong pick up in of the best companies to play the CV upcycle and high margin aftermarket space) aided in margin strong traction in LCV and defence space. We also expansion. Also, with demand environment being like TVS Motors given the market share gains on new strong, automotive OEMs enjoyed favourable pricing launches and its foray into premium scenario and were able to increase prices to pass on space and to play the rural theme. higher raw material costs. Auto universe operating profit is estimated to grow 36% y-o-y (better than Earnings outperformers for Q4FY2018: M&M, TVS 26% topline growth). Amongst our universe, and Hero Motocorp Motocorp (driven by operating leverage), TVS Motors (due to strong volume growth and better Earnings underperformers for Q4FY2018: Motherson Sumi, and

April 11, 2018 2 Sharekhan Sector Update

Q4FY2018 results estimates Sales (Rs cr) EBIDTA margins (%) PAT (Rs cr) Company Q4 Q4 YoY QoQ Q4 Q4 YoY QoQ Q4 Q4 YoY QoQ FY18E FY17 (%) (%) FY18E FY17 bps bps FY18E FY17 % % 20,840.3 18,333.4 13.7 8.1 14.7 14.0 70.7 -108.5 1,968.1 1,710.5 15.1 9.4 Hero Motocorp 8,619.8 6,915.2 24.6 18.0 16.0 13.8 213.5 13.1 942.6 717.8 31.3 17.0 Bajaj Auto 6,681.8 4,897.3 36.4 4.9 18.8 18.5 27.3 -56.1 978.5 801.8 22.0 2.7 TVS Motors 3,985.1 2,844.5 40.1 8.1 8.9 5.7 321.2 110.7 204.7 126.8 61.4 32.6 M&M # 13,423.3 10,612.1 26.5 16.8 14.0 11.7 237.0 -70.4 1,057.5 780.0 35.6 14.9 Ashok Leyland* 9,081.2 6,617.9 37.2 27.7 11.9 11.0 88.8 83.3 669.3 804.1 -16.8 48.8 Apollo Tyres @ 4,044.8 3,325.6 21.6 -0.1 12.8 11.1 171.5 58.2 255.7 228.3 12.0 4.2 Greaves Cotton 461.1 390.7 18.0 3.1 13.7 13.6 4.2 -22.5 44.7 40.4 10.8 35.6 Gabriel 489.0 391.2 25.0 9.8 9.3 9.4 -15.2 38.2 25.8 23.3 10.9 19.8 Rico Auto @ 329.6 274.7 20.0 8.6 10.7 8.0 270.6 47.2 13.8 7.2 93.4 -13.8 Soft Coverage @ 87,350.6 77,217.2 13.1 17.8 13.2 14.0 -82.8 163.9 3,276.3 4,319.6 -24.2 204.3 @ 2,500.9 1,888.1 32.5 10.2 32.9 31.0 188.3 168.7 647.6 459.4 40.9 24.4 Exide Industries 2,444.9 1,971.7 24.0 7.4 13.1 13.1 4.3 70.4 177.0 164.8 7.4 14.7 Bharat Forge 1,465.6 1,125.7 30.2 5.4 29.5 28.4 103.1 -48.7 244.6 169.5 44.3 7.2 Suprajit Engg @ 437.5 364.6 20.0 19.4 17.2 17.9 -66.4 135.7 42.2 39.9 5.7 49.3 Ceat @ 1,663.2 1,471.8 13.0 5.7 12.4 9.0 339.4 52.0 95.5 66.3 43.9 15.5 Balkrishna 1,312.4 1,002.9 30.9 13.0 29.9 25.5 441.7 17.2 221.5 137.5 61.1 16.9 Industries Jk Tyres @ 2,410.8 2,152.5 12.0 13.5 11.7 9.3 244.7 171.4 78.7 38.9 102.5 271.9 Jamna Auto 492.8 385.0 28.0 4.8 13.1 14.5 -138.2 3.9 35.9 35.4 1.3 13.1 Industries @ Minda Industries @ 1,315.3 948.1 38.7 24.5 11.5 11.7 -18.5 -46.6 65.2 57.8 12.8 9.6 Subros 522.5 414.7 26.0 16.4 10.6 11.0 -36.3 0.5 11.8 7.2 62.8 -28.4 Sundram 914.6 775.1 18.0 7.8 18.3 18.4 -14.5 56.8 101.1 87.7 15.3 10.3 Fasteners @ Endurance 1,835.8 1,380.3 33.0 16.1 14.9 13.8 112.8 78.1 131.4 83.6 57.2 68.0 Technologies @ Motherson Sumi @* 15,367.0 11,270.1 36.4 6.7 9.4 11.0 -160.7 65.3 512.3 474.8 7.9 40.6 GNA Axles 185.7 126.3 47.0 11.2 15.1 13.4 168.8 -96.1 14.1 6.1 131.2 11.4 Amara Raja 1,640.2 1,344.5 22.0 5.6 15.8 13.7 213.5 29.7 143.6 99.2 44.8 6.8 Batteries Escorts 1,483.5 1,022.3 45.1 23.1 12.3 7.3 504.9 28.7 118.9 44.4 167.7 29.4 Ramkrishna 463.1 288.7 60.4 15.8 18.7 19.5 -81.1 -56.4 34.3 14.1 143.1 23.5 Forgings Auto Universe 191,762.3 159,752.0 20.0 14.2 13.8 13.6 14.7 71.1 12,112.5 11,546.2 4.9 40.7 Auto universe (ex 104,411.7 82,534.8 26.5 11.3 14.3 13.3 99.8 0.5 8,836.2 7,226.6 22.3 17.3 TAMO) # MM+MVML ; @ Consolidated; @* not comparable due to acquisition; *- PAT declines Y-o-Y on account of Tax credit in Q4FY17

April 11, 2018 3 Sharekhan Sector Update

Valuation CMP EPS P/E (x) Company (Rs) Reco PT (Rs) FY17 FY18E FY19E FY17 FY18E FY19E Maruti Suzuki 9,298 242.9 270.2 350.8 38.3 34.4 26.5 Buy 11,085 Hero Motocorp 3,760 169.1 181.8 201.6 22.2 20.7 18.7 Buy 4,200 Bajaj Auto 2,758 132.3 140.5 151.9 20.8 19.6 18.2 Hold 3,038 TVS Motors 632 12.9 15.7 23.3 49.0 40.3 27.1 Buy 825 M&M @ 789 27.5 32 35.3 28.7 24.7 22.4 Buy 840 Ashok Leyland 145 5.3 5.5 7 27.4 26.4 20.7 Buy 170 Apollo Tyres # 288 21.6 16 18.3 13.3 18.0 15.7 Buy 292 Greaves Cotton 121 7.2 6.3 6.8 16.8 19.2 17.8 Hold 143 Gabriel 159 5.8 6.4 7.6 27.4 24.8 20.9 Buy 175 Rico Auto Industries # 82 3.7 4.2 5.5 22.2 19.5 14.9 Buy 115 Soft Coverage: Tata Motors # 355 21.9 22.6 43 16.2 15.7 8.3 Neutral Tata Motors - DVR # 201 21.9 22.6 43 9.2 8.9 4.7 Positive Eicher Motors # 30,689 612.7 801.4 1,058.7 50.1 38.3 29.0 Neutral Exide Industries 241 8.2 8.3 9.5 29.4 29.0 25.4 Neutral Bharat Forge # 731 12.5 19.5 27.5 58.5 37.5 26.6 Positive Suprajit Engineering # 282 8.2 9.7 11.9 34.4 29.1 23.7 Positive CEAT # 1,605 89.3 73.6 104.1 18.0 21.8 15.4 Neutral 1,289 37 41.9 51.3 34.8 30.8 25.1 Neutral JK Tyre & Industries # 163 16.6 0.3 13 9.8 543.3 12.5 Positive # 85 2.6 2.8 3.5 32.7 30.4 24.3 Positive Minda Industries # 1,130 19.4 31.8 41.8 58.2 35.5 27.0 Neutral Sundram Fasteners # 592 16.2 19.3 22.3 36.5 30.7 26.5 Positive Subros 340 7.5 8.5 14.7 45.3 40.0 23.1 Neutral Endurance Technologies # 1,320 23.5 29.2 35.6 56.2 45.2 37.1 Neutral Motherson Sumi systems # 343 7.4 7.6 11.4 46.4 45.2 30.1 Positive GNA Axles 513 13.8 20.8 24.3 37.2 24.7 21.1 Positive Amara Raja Batteries 818 28 29.5 35.6 29.2 27.7 23.0 Positive Escorts 906 23.1 32.6 42.3 39.2 27.8 21.4 Positive Ramkrishna Forgings 831 6.7 27.9 42.6 124.0 29.8 19.5 Positive @ MM & MVML; # Consolidated

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April 11, 2018 4 Know more about our products and services

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