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MOSL: AUTOMOBILES 2QFY19 PREVIEW-Earnings growth to slow down amid rising pressures

AUTOMOBILES 2QFY19 PREVIEW: Earnings growth to slow down amid rising pressures; EBITDA margins contract after four consecutive quarters of expansion

 

• Timing difference in festive season would influence volume growth momentum in 2QFY19. However, healthy volume growth momentum continued in 2QFY19 in 2Ws (+9%), 3Ws (+35%) and CVs (27%). PVs (including UVs) took a breather in 2QFY19, with a volume decline of 2%, impacted by Kerala floods and rising fuel and financing costs.
• EBITDA margin for our OEM (ex-JLR) universe is likely to contract by 110 bp YoY (-40 bp QoQ to 13.6%) after four consecutive quarter of margin expansion, impacted by high commodity costs, weak INR and heightened competitive intensity in 2Ws. The base quarter of 2QFY18 witnessed one of the highest EBITDA margins in over 12 years.
• We have lowered our FY19/20E EPS estimates for MSIL (by 11%/13%), TTMT (35%/13%), ESC (7%/13%), EIM (3%/7%), and HMCL (7%/6%). We have raised our FY19/20E estimates for BJAUT by 3%/11%.

Rural recovery drives 2W sales, CVs unfazed by change in axle load norms: A healthy momentum in rural areas and a pick-up in construction/mining activities drove sustained recovery in volumes. Demand growth in rural markets continues to outpace urban markets. This has translated into strong 2W demand, which is estimated to have grown 9% YoY in 2QFY19. CV volumes grew ~27% driven by growth in infrastructural activities and the cyclical recovery in LCVs. PVs witnessed restraint in demand, with both cars and UVs declining by ~2%.