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Summary
of Contents
SHAREKHAN SPECIAL
Q3FY2007 auto earnings
preview
Auto volumes
remained robust in Q3FY2007 led by the festive season and strong
economic activity. As in the past few quarters, the four-wheeler
sector has continued to outpace the growth witnessed in
two-wheelers. The growth in the commercial vehicle segment continued
unabated in Q3FY2007 and we expect the segment to report a strong
growth in Q4FY2007 despite the high base. The passenger car segment
sales were quite buoyant with various new models being launched in
the period coupled with the incentives offered by all the auto
majors. Looking at the heavyweights, Bajaj Auto's sales grew by
22.9% in Q3FY2007, while Hero Honda reported a rise of 12.4% in its
motorcycle sales. Maruti's car sales grew by 18.7%, Mahindra &
Mahindra's (M&M) overall sales were up by 17.7% and Tata Motors'
commercial vehicle sales (including exports) grew by 38%.
The strong volume
growth during the quarter with stable raw material prices should
lead to a margin expansion on a quarter-on-quarter (q-o-q) basis.
However, we expect the margin pressure to continue in the
two-wheeler segment due to the intensified competition and various
sales promotion activities undertaken by the major
players.
We expect Ceat,
Apollo Tyres, M&M, Ashok Leyland and Tata Motors to be among the
leaders in performance in the sector for Q3FY2007.
STOCK UPDATE
Ashok Leyland
Cluster: Ugly
Duckling
Recommendation: Buy
Price target: Rs53
Current
market price: Rs45
VAT caps
growth
December sales
highlights
-
Ashok Leyland
reported good numbers for December with an overall growth of
29.6%. However, the growth was lower on a month-on-month
basis.
-
The growth was
affected by the implementation of the value-added tax (VAT) in
Tamil Nadu, as most of the sales from the state got deferred to
January 2007. Tamil Nadu contributes around 18% of the company's
sales volumes.
-
The truck
segment continued to witness buoyancy, recording a growth of 43%
with sales of 4,418 units in December 2006.
-
The bus
segment recorded a growth of 6.3% during the month, after
recording a consistent decline in the earlier months. The light
commercial vehicle sales declined by 76% to 22 units.
-
The domestic
sales for the month grew by 48% to 5,413 units while the exports
declined by 46% in December.
-
At the current
market price of Rs45.2, the stock discounts its FY2008E earnings
by 12x and quotes at an enterprise value/earnings before interest,
depreciation, tax and amortisation of 6.7x. We maintain our Buy
recommendation on the stock with a price target of Rs53.
VIEWPOINT
Allsec Technologies
All set to
grow
Allsec, a
Chennai-based business process outsourcing (BPO) company, started
operations in mid-2000 with a 100-seat facility. Currently, the
company has staff strength of 2,700 employees spread over three
delivery centres (two in Chennai and one in Bangalore) with a
combined capacity of 2,300 seats. It includes a 600-seat capacity
acquired by the take-over of B2K Corporation in December
2005.
The company is largely focused on financial
services and insurance industry vertical. Currently, it generates
around 80% of its revenues from voice-based processes. However, it
has continuously improved the revenue contribution from non-voice
based services and hopes to maintain the
trend. |
