Fw: Investor's Eye: Update - Automobiles, Power equipment, Insurance

 

 

Investor's Eye [March 01, 2012]  Summary of Contents SECTOR UPDATE Automobiles      On a bumpy road Maruti Suzuki - The show-stopper in Feb 2012  Maruti Suzuki (Maruti) surprised positively with domestic sales breaching the 1 lakh unit mark yet again in February 2012. The Swift and the recently launched compact Dzire evoked a good response from the market leading to healthy sales. An improvement was also witnessed in the multi purpose vehicle (MPV) segment which had been under pressure a couple of months ago. Hard landing in tractors; worst performance in a seasonally high month A slowdown was witnessed in the tractors segment with Mahindra & Mahindra (M&M) reporting a drop in volumes by 21% year on year (YoY) in February 2012. The growth in the tractor industry for April 2011-January 2012 has slipped to 15.5% YoY from a growth of 19.8% YoY witnessed in the April 2011-October 2011 period. Going by the market leader M&M's tractor numbers in February 2012, the year till date (YTD) growth (April 2011-February 2012) is estimated to further slip to 12-13%.  Higher interest rates and an increase in input costs for farmers are the key reasons attributable to a slow down in the growth of tractor sales. Overall, the industry is estimated to grow by about 10% in FY2012, which is about half the growth rate witnessed in H1FY2012. LCVs shine; continue to outperform other auto segments The light commercial vehicle (LCV) segment has been the star performer showing no signs of a slowdown. The hub and spoke model adopted in the logistics industry has fuelled demand for LCVs towards last mile connectivity. LCVs continue to grow in excess of 25% YoY, growing 26.3% YTD in the domestic market. Moderation seen in two-wheelers Going by TVS Motors' and Hero MotoCorp's February 2012 volumes; two-wheelers are also witnessing a moderation in growth. Reports indicate higher dealer inventory with no waiting period. While the super bike segment is expected to grow well on a small base, the entry and executive segments are likely to grow in single digits. For Bajaj Auto, we expect an 8.5% YoY growth in February 2012 volumes. No pre-budget buying seen; consensus building for rollback of excise concessions  Given a general perception of a higher duty on automobiles in union budgets, we did not see any major advancement in buying. There is an impending risk that overall sentiments may deteriorate further if there is a rollback of excise from 10% to 12% and if there's an additional duty levied on diesel vehicles.   Power equipment      NTPC order - BGR shines, BHEL gets fair share, L&T misses yet again Event: Bids open for NTPC's bulk order; BGR emerges as lowest bidder  BGR Energy Systems (BGR) has emerged as the lowest bidder (L1) for the supply of supercritical boilers and turbine-generators (TG) respectively for the 7260MW (11x 660MW) National Thermal Power Corporation (NTPC) power projects. It is likely to get 7 units of boiler orders worth Rs6,500 crore at a realisation of Rs1.4 crore/MW. Here, Bharat Heavy Electricals Ltd (BHEL) is likely to get Rs3,700 crore worth of orders due to favourable NTPC tendering specifications, provided it matches the L1 quotations.  BHEL (CMP Rs299, Hold) - to get fair share of order  Power sector reforms and possible levy of import duty to improve competitive environment could result in re-rating of multiples. The recent few developments/reforms in the power sector seem to be working in favour of BHEL after a spate of bad news in CY2011. Price target revised to Rs328: The above positive developments and resulting containment in overseas competition would augur well for the company. Hence we are slightly increasing the target multiple to 12x (from the earlier 10x). Our revised price target stands at Rs328 (roll-over of the target multiple on average of FY2013 and FY2014 earnings estimate). We maintain our Hold rating on the stock. L&T (CMP Rs1,278, Buy) yet to open its account with NTPC L&T appears to have lost out to BGR and BHEL in its price bid in the super-critical bulk tender order from NTPC.  We feel that this was in accordance with the company's focus on the sustenance of healthy margins. The company has been earlier disqualified in the first round of 11x660MW equipment bid on technical ground. In the 9x800MW segment the company emerged as L2; the order was given to the joint venture of JSW Energy with Toshiba.  L&T currently has a well-diversified order book of Rs145,768 crore in M9FY2012, of which only 29% is contributed by the power sector. Hence, the shortfall in this sector could partly be compensated by contributions from other sectors. At the current market price the stock is trading at 11.9x its FY2014 consolidated earnings estimate. We maintain our Buy rating on the stock on its diversified business exposure and attractive valuations. Insurance      APE jumps 37.6% YoY in January 2012 Key points  The annual premium equivalent (APE) of the life insurance industry showed a jump of 37.6% year on year (YoY) and 10.4% month on month (MoM). The year-on-year (Y-o-Y) growth in the APE was mainly contributed by the Life Insurance Corporation of India (LIC), which reported a robust growth of 41.3% YoY. The private players also witnessed a rise of 31.5% YoY in their APE. The life insurance sector has started reporting growth on a Y-o-Y basis mainly due to the subsiding of the high base of the previous year (as new regulations were introduced from September 2010 onwards). However, on a year-till-date (YTD) basis (ie April 2011-January 2012), the APE of the industry continued to contract with the private players showing a higher decline (down 22.3% YTD) compared to a 3.9% growth shown by LIC. The market share of the private players declined to 33% levels in January 2012 while that of LIC expanded to 67%. Among the private players, SBI Life's market share decreased to 10.9% from 13.7% in January 2011 while that of Reliance Life declined to 6.1% from 8.4% in January 2011.The market share of HDFC Standard Life Insurance grew to 13.7% from 12.5% in January 2011 whereas that of ICICI Prudential Life Insurance remained stable at 18%. The share of Max New York Life Insurance also grew to 7% as against 6.7% in  January 2011. In terms of APE growth for January 2012, 14 out of 20 private players posted a decline Y-o-Y with Tata AIG Life Insurance Company showing the highest contraction of 32.8%. ICICI Prudential Life Insurance showed a growth of 53.5% YoY. On a YTD basis, the life insurance industry continued to report a decline in APE as the new unit-linked insurance policy (ULIP) guidelines set in and insurers awaited the clearance from the Insurance Regulatory and Development Authority (IRDA) for launching new products. Though premium collections will remain healthy in the next two month of the current fiscal (due to seasonality), the overall growth for FY2012 is likely to remain lower than in FY2011. Click here to read report: Investor's Eye Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions