EUR 120.00 For Business Accounts Only

MOSL: Morning India (10/January/20): 1. Automobiles (Bottom out plays – look for volume visibility/op leverage); 2. Cement (That time of the year again)

MOrning India (10/January/20): 1. Automobiles (Bottom out plays – look for volume visibility/op leverage); 2. Cement (That time of the year again)

 

Today’s top research idea

Automobiles: Bottom out plays – look for volume visibility/op leverage; MSIL/EIM best bets offering both

• After 12 months of dwindling demand, there have been initial signs of green shoots from the ground. Although the upcoming BS6 transition could lead to volatility in volumes, we are hopeful of a 'business as usual' scenario from 2HFY20.
• In our view, the best risk-adjusted way to play this theme would be to focus on companies offering (a) higher probability of volume recovery and (b) high operating leverage.
• From this perspective, we believe MSIL and EIM are best positioned for a sustained recovery, led by company-specific drivers and the least impact from the BS6 transition.
• Apart from operating leverage, both these companies offer scope of a gross margin improvement.
• A sustained volume recovery could drive a mean reversion of profitability by FY22, leading to earnings upgrade. Valuations are reasonable considering they are based on early cycle earnings of FY21/22.

Piping hot news

UK lawmakers back EU exit deal, turning page on Brexit crisis

Lawmakers approved legislation on Thursday which will allow Britain to leave the European Union on Jan. 31 with an exit deal, ending more than three years of tumult over the terms of the unprecedented divorce. They voted 330 to 231 in favour of the European Union (Withdrawal Agreement) Bill, which implements an exit deal agreed with the EU last year.