After a weak FY14, most auto companies have come out with decent volume growth in 1HFY15. Even M&H CV volumes have, on the lower base, grown yoy, indicating that the cycle is indeed on an upturn. In 1HFY15 two-wheelers continued to be the best-performing segment, and only Bajaj Auto's volumes disappointed.
The three-wheeler segment, as well, registered strong recovery in volumes. In passenger vehicles, Maruti's volumes have, on a lower base, grown at a good pace, while the success of the Celerio, M&M and Tata Motors continue to underwhelm. For Tata Motors, launches during the festival period may, however, help revive volumes.
Anand Rathi Research said, "We expect the EBITDA margin in the auto sector to come at 15.3%, a 60-bp decline qoq, but a 30-bp improvement yoy. A period of heavy discounting and the slump in demand resulted in the top-two CV companies recording low single-digit EBITDA margins in FY14."
For Tata Motors, though, the trigger has been sustained sales growth and a robust EBITDA margin at JLR, rather than losses at its India operations. Of the PV companies, M&M appears to be faced with a challenging near-term environment in both its key segments, UVs and tractors, with growth prospects for FY15 appearing fleeting. Maruti Suzuki's margin has recovered because of a favourable rate and its operating leverage.
Most companies in this space are quoting at a significant premium to past averages and appear to factor in the rapid improvement in demand over the next two years (except Tata Motors, where domestic demand is not a factor).
"Tata Motors is our top pick because of JLR's continuous good performance. Of two-wheeler companies, we are positive on Hero MotoCorp," it said.
"With better prospects in the CV segment, we maintain our Buy recommendations on Ashok Leyland and Eicher Motors. Of auto-component companies, we favour Motherson Sumi, Wabco India, Amara Raja Batteries, and Balkrishna Industries," it added.
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