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MOSL: Morning India (4/January/19): 1. Automobiles (3QFY19 Preview); 2. Bulls & Bears (India Valuations Handbook — Nifty clocks modest gains in a volatile year); 3. Marico; 4. Tata Power; 5. Ecoscope

MOrning India (4/January/19): 1. Automobiles (3QFY19 Preview); 2. Bulls & Bears (India Valuations Handbook — Nifty clocks modest gains in a volatile year); 3. Marico; 4. Tata Power; 5. Ecoscope

 

Today’s top research idea

Automobiles (3QFY19 Preview): Speed-breakers in the form of weak demand, higher marketing cost; EBITDA margins contraction for the second consecutive quarter

• In 3QFY19, demand momentum across segments was hurt by increased cost of ownership led by a) rising fuel costs, b) increase in insurance costs and c) higher cost of financing, as well as stress at farm level lead to the lowest festive sales in past 4-5 years, particularly for 2Ws and PVs.
• EBITDA margin for our OEM (ex-JLR) universe is likely to contract 140 bp YoY (-70 bp QoQ) to 12.6%, impacted by RM inflation, currency depreciation and higher variable marketing expenses. Except MM (+20bp YoY/ +50bp QoQ), all OEMS to see YoY margin contraction.
• We expect operating performance for most of the auto OEMs to bottom out in 3QFY19, as we expect demand to normalize led by factors such as softening in fuel prices, improvement in liquidity and new product launches.
• Our top picks in autos are MSIL and MSS among large caps, and ENDU and EXID among midcaps. We also like MM as it is the best proxy for rural markets.

Piping hot news

Panel Suggests Relaxing Capital Requirements For Banks To Boost Lending

A parliamentary committee suggested suspending the new international accounting standards for Indian banks and extending time to implement Basel-III norms. The Parliamentary Standing Committee on Finance has said that the higher than global capital norms for Indian banks are unrealistic and unwarranted and an additional capital base required under the latest International Financial Reporting System’s norms for Indian banks may end up drastically reducing banks’ lending capacity.