Volume growth good despite high base. Overall volume growth rate for our auto coverage universe, in terms of India vehicle sales, was 20.9% yoy and 3.4% qoq. While CV companies had the lowest yoy growth rate, they registered the highest growth rate on a qoqbasis. With good volume growth sustaining, the auto sector is expected to witness healthy revenue growth of 25.5% yoy and 12.6% qoq.
Tata Motors - Main driver for profit growth. Owing to the low base, Tata Motors is likely to be the best performer in 4QFY11, with adjusted profit growth of 88.2% yoy. We expect Ashok Leyland, Escorts, Hero Honda, Maruti Suzuki and TVS Motors to register lower profitability yoy. We estimate M&M and Bajaj Auto to report good yoy profit growth of 15% and 13.4% respectively, despite higher base.
Valuation and risks. The auto sector trades at 12.3x FY11e and 10.8x FY12e earnings. While the high volume growth phase has ended, we expect a steady growth rate ahead with stable profit growth. We maintain our Overweight stance on the sector. Risks: Further increase in interest rates, commodity prices; low demand.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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