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PVs to drive growth ahead; maintain Buy
* Standalone revenue (including MVML) grew 12% yoy to Rs128.9bn (Emkay est: Rs128.3bn), driven by 11% volume growth. Revenue growth is expected to remain healthy, at 13% over FY19-21E, mainly led by a pick-up in PVs. We expect PV volume to see a 17% CAGR over FY19-21E, primarily driven by new products -- Marazzo MPV and XUV300 Compact UV.
* EBITDA margin contracted 130bps qoq to 13.2% (Emkay est: 13.9%) due to partial passthrough of commodity inflation, adverse mix, uptick in marketing spends, and higher discounts. Softening commodity prices are likely to support margins ahead.
* Management expects cumulative volumes of 9,000 units/month for three new UVs — Marazzo MPV, XUV300 compact UV, and Alturas luxury UV. In addition, new products in CVs (Furio I&LCVs) and electric vehicles (Treo 3W, eKUV) should support volume performance.
* We reduce FY20/21E EPS by 2%/5% to Rs46.4/Rs47.9 due to due to a 1-4% decline in volume expectations and a 30-50bps reduction in margin assumptions. Overall, we expect revenue/PBT CAGR of 13%/11% over FY19-21E, with an average ROE of ~15% and a free cashflow of ~Rs33bn.
* We maintain Buy rating with an SOTP-based TP of Rs860 (Rs890 earlier), based on 14x core FY21E EPS and the value of investments at Rs277/share.
* Conference call highlights:
1) FY19 industry growth expectations: PVs to grow at 4-6% (earlier estimate was 7-9%), Tractors to grow at 10-11% (earlier estimate of 12-14%), LCVs (<2T) to grow at 40-45%, and LCVs (2-3.5T) to grow at 10-12%; 2) FY20 Tractor industry to grow in single digits; 3) Cumulative volume target remains at 9,000 units/month for new UVs – Marazzo, Alturas and XUV300; 4) The company is planning to launch eKUV and new Tractor platform next year; 5) Q4FY19 Auto EBIT margin to be impacted by higher marketing spends due to new launch – XUV300. However, some support to margin is expected due to price increases in Marazzo, softening commodity prices and lower discounts; 6) Tax rate was lower due to a write-back of tax provisions of Rs4bn with respect to earlier periods; 7) Inventory stands at 4-5 weeks in Automotive and Farm segments at end Dec’18; 8) Jawa motorcycles have received a positive response, and capacity is fully sold out until September 2019.
* Maintain Buy:
We reduce FY20/21E EPS by 2%/5% to Rs46.4/Rs47.9 due to a 1-4% decline in volume expectations and a 30-50bps reduction in margin assumptions. Overall, we expect revenue/PBT CAGR of 13%/11% over FY19-21E, with an average ROE of ~15% and a free cashflow of ~Rs33bn. We maintain our Buy rating, with an SOTP-based TP of Rs860 (Rs890 earlier), based on 14x core FY21E EPS and the value of investments at Rs277/share.
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