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MSOL: Morning India (5/July/19): 1. Automobiles (Demand weakens further across segments); 2. EcoScope; 3. Bulls & Bears; 4. Consumer; 5. Financials

MOrning India (5/July/19): 1. Automobiles (Demand weakens further across segments); 2. EcoScope; 3. Bulls & Bears; 4. Consumer; 5. Financials

 

Today’s top research idea

Automobile - 1QFY20 Preview: Demand weakens further across segments; OEMs margin at 4 year low, 4th consecutive quarter of QoQ decline

• All auto segments continued to face demand headwinds in 1QFY20 - a trend which has worsened from the previous quarter. High base, liquidity issues as well as elections led to further weakness in volumes.
• EBITDA margin for our OEM (ex-JLR) universe is likely to contract for the fourth consecutive quarter by 310bp YoY (-70bp QoQ) to 10.7% due to higher variable marketing expenses and negative operating leverage. While almost all OEMs (except TVSL and TTMT S/A) are likely to see YoY margin contraction, MM and TVSL are expected to deliver a QoQ margin recovery of 80bp and 20bp respectively.
• We have lowered our FY20/21 EPS estimates for all companies under coverage, with highest EPS cut in FY20 for AL (~18%), CEAT (~17%), MSIL (~13.5%) and MM (~12%). Least EPS cut is in BJAUT (~3%), TTMT (~4%), MCIE (~4%) and EXID (~5%).
• Our top picks in autos are MSIL and MSS among large caps, and AL, ENDU and EXID among midcaps.

Piping hot news

Monsoon pares deficit after strong spell over Central India

• The ongoing strong monsoon has brought down the rain deficit to 27 per cent as on Thursday (from a high of 33 per cent at June-end) and 6 per cent for the week to date, for the country as a whole. A causative well-marked low-pressure area showed no signs of weakening after three hyperactive days generating copious rainfall over many parts of East, Central, West and even parts of Peninsular India.