EUR 120.00 For Business Accounts Only

MOSL: Morning India (20/July/21): 1. Automobiles – Tyres (Ready to roll; Return of growth, supported by timely capacity addition); 2. HCL Technologies; 3. HDFC Life Insur.; 4. ACC; 5. L&T Finance Holdings; 6. I

MOrning India (20/July/21): 1. Automobiles – Tyres (Ready to roll; Return of growth, supported by timely capacity addition); 2. HCL Technologies; 3. HDFC Life Insur.; 4. ACC; 5. L&T Finance Holdings; 6. Indian Bank

 

Today’s top research theme

Automobiles – Tyres: Ready to roll; Return of growth, supported by timely capacity addition | APTY is our top pick

• The Indian Tyre industry is expected to recover from five years of weakness and be on a linear growth path (~12% CAGR over FY21-25E), supported by timely capacity expansion across companies. Improving demand, stable competitive intensity, and peak capex (capex of INR116b over FY22-24E v/s INR135.5b over FY19-21) augurs well for profitability.
• We estimate 2W/PCR/T&B tyre volumes to clock 8%/11%/13% CAGR over FY21-25E. This coupled with a reasonable pricing environment and operating leverage, will enable a recovery in profitability and capital efficiency.
• Against this favorable backdrop, we have built a Tyre Industry Investment (TII) framework to evaluate the attractiveness of various tyre segments as well as companies. Based on our analysis, 2Ws appear to be the best placed segment, followed by PCR. APTY tops our TII framework as it offers a good blend of strong earnings growth and cheap valuations.
• We initiate coverage on three stocks - APTY (Buy), BIL (Neutral), and MRF (Neutral). Maintain Buy on CEAT. APTY is our top pick due to benefits from: a) ramp-up of new capacities, b) reduction in capex intensity, c) EU operation turnaround, and d) debt reduction. This translates in the best earnings growth for our Tyre sector universe, which is still available at very attractive valuations.

Piping hot news

Growth in FY'22 to be around 11% as projected in Economic Survey, says CEA KV Subramanian

Notwithstanding the second wave of COVID-19, Chief Economic Adviser (CEA) K V Subramanian on Monday expressed hope that economic growth during the current financial year would be around 11 per cent as projected in the latest Economic Survey. He also said the overall impact of the second wave on the economy will not be very large. "We will be in that ballpark," Subramanian said when asked if the Economic Survey's target of GDP growth will be met in the backdrop of the second wave of the pandemic.