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MOSL: AUTOMOBILES 1QFY18 PREVIEW-Another quarter of regulatory impact-PVs and LCVs grew, whereas 2Ws and M&HCVs declined

​Automobiles 1QFY18 PREVIEW: Another quarter of regulatory impact; PVs and LCVs grew, whereas 2Ws and M&HCVs declined

• After the impact of BS-3 inventory flushing on 2W/CV players in 4QFY17, 1QFY18 was another quarter of uncertainty ahead of GST and impact of Gujarat plant for MSIL.
• In 2Ws and PVs, customers were holding back on purchases in anticipation of lower prices. In CVs, both wholesale and retail sales were weak due to BS-4 related supply constraints and fleet operators pausing fleet additions ahead of GST. We expect 2W/3W volumes to decline 2%/6.5% YoY. PV volumes are likely to grow 11.5% YoY, while CVs should decline 8% (27% decline in M&HCVs; 5% growth in LCVs).
• EBITDA margin for our Auto OEM (ex-JLR) universe is likely to decline for the third consecutive quarter – down 90bp YoY (up 90bp QoQ) to 13%. This is without any material impact of compensation to dealers, which would be accounted in 2QFY18.
• We have lowered our FY19 EPS estimates for BJAUT (-6%), EIM (-3%), TVSL (-3%) and AMRJ (-3%), but have raised our estimates for AL (+5%) and MSIL (+2%).
• Our top picks are TTMT and MSIL among large caps, and AMRJ among midcaps. We also believe that MM is the best play on rural market recovery.

2W/3W/M&HCV volumes declined; PV/LCV volumes grew

Demand turned weak ahead of GST implementation, as customers held back their purchases in June in anticipation of discounts/price cuts. This coupled with pre-buying (in March) impacted 2W volumes. Additionally, constrained supplies of BS-4 components also restricted CV wholesale sales, though retail demand itself was weak. We estimate 2%/6.5% YoY decline in 2W/3W volumes, 11.5% YoY growth in PV volumes, and 8% decline in CV volumes (-27% for M&HCVs; +5% for LCVs).