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| Summary of Contents | SECTOR UPDATE Automobiles Automobile June 2014 sales: Shifting to higher gear The automobile companies continued the momentum created in May 2014 and reported a healthy growth in volumes in June 2014 too. The growth during the month was also aided by some pre-buying as customers finalised purchases before the deadline for a concessional excise duty expired on June 30, 2014. The concession was eventually extended to December 31, 2014 with the announcement made only a couple of days prior to the expiry of the original deadline. Maruti Suzuki India Ltd (MSIL) was the biggest beneficiary as it witnessed a sharp 52% jump in the entry level Alto and Wagon R volumes. Additionally, manufacturers with new launches, such as Hyundai Motor India (Hyundai), Honda Cars India (Honda) and Ford India, reported a strong growth during the month while those with dated products, like Mahindra and Mahindra (M&M), Tata Motors and General Motors, reported a fall in volumes. In the two-wheeler space Hero MotoCorp (Hero Moto) reported a healthy growth while TVS Motor Company (TVS) continued to report a strong volume growth, given the incremental volumes from new launches. However, Bajaj Auto Ltd (BAL) continued to report weak domestic volumes. The commercial vehicle (CV) segment was a mixed bag as, on the one hand, market leader, Tata Motors, continued to post a decline in volumes and, on the other hand, Ashok Leyland Ltd (ALL) and Eicher Motors (Eicher) reported a healthy growth albeit on a low base. In the tractor segment, volumes were above estimates as deficient monsoon rainfall in the month of June did not materially affect the volumes. The extension of the excise duty benefit to the end of the calendar year has given a much needed boost to the auto industry and manufacturers are bracing themselves for better times ahead. Picks: We continue to prefer TVS, MSIL and M&M among the stocks under our active coverage. Amongst the stocks under our soft coverage, we prefer Hero Moto.
VIEWPOINT Srei Infrastructure Finance
Current market price: Rs55
View: Positive Bracing up for a turn-around; scope for significant re-rating ahead Key points - Srei Infrastructure Finance (Srei), which has turned cautious in the past couple of years due to an economic slowdown, is likely to return to growth path gradually over the next two to three years. A revival in the economy coupled with the new government's focus on infrastructure augurs well for the project finance and equipment finance segments.
- The profitability and return ratios of the company are expected to improve led by traction in the operating income and recovery from the NPAs (reversal of provisions will boost earnings). The company expects to reduce the borrowing cost and focus on high yielding products (used construction equipment) to enhance margins. On a normalised basis, the company expects the RoE and the RoA to improve to 12% and 1.5% over the next two to three years.
- Value unlocking from strategic investments (investment of Rs1,600 crore in Viom Networks for a 14% stake and that of Rs350 crore in road projects) would also result in significant re-rating of the stock. It has close to 65% of its net worth in strategic investments (it targets to bring it down to 25% in FY2015) and the monetisation of investments would free up huge capital that could be deployed in its core lending business.
- The stock currently trades at 0.7x FY2016E consolidated book value which is at quite a discount to the other NBFCs and in line with the valuations of the mid-sized PSU banks. Given the revival in the economy, Srei's specialisation in the infrastructure sector could fuel loan growth while value unlocking from investments could leave considerable scope for the re-rating of its valuation multiples. We have a positive outlook on stock and expect 20-25% gains over the next four to six months.
| | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
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