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UBS dealers’ survey confirms autos shifting to top gear

The News International Team

Even as the Indian economy starts revving up its growth engines, the so-far struggling auto sector has already started showing early signs of a turnaround. According to a UBS survey of 40 dealers across India in August 2014, 88 percent of them expect an improvement in sales over the next two months, while 12 percent expect sales to be flat.  

“45 percent of dealers reported a sequential increase in footfall and 38 percent of dealers reported a decline. 48 percent of dealers reported an increase in first-time customers, while 25 percent reported a decline. 80 percent of the dealers believe that sales growth would increase in FY15. Overall average growth expected by dealers in FY15 is 12 percent YoY,” the UBS survey says.

While inventory levels are marginally down, discounts had increased. However, dealers said finance availability was more liberal n the previous two months, while 20 percent said it was more restrained.

Footfall rise sequentially; first time customers up

Overall, 38 percent of the dealers have reported decline in footfall by 5-15 percent or more, with none of the dealers reporting more than 15 percent decline. About 35 percent of the dealers reported increase in footfall by 5-15 percent, while 18 percent of dealers stated that footfall has remained the same. Meanwhile, 10 percent of the dealers indicated that footfall increased by more than 15%.

In terms of new customers 25 percent of overall dealers noted a decline new car buyers, while 48 percent of dealers indicated an increase. About 28 percent of dealers said first time customers remained unchanged.

Maruti top bet, followed by Tata Motors

UBS believes  Maruti is best placed to capture pent-up demand driven by a strong new model cycle. “With its high petrol car exposure, Maruti should continue to benefit from shift in demand and recovery in entry segment. We also expect margins to be supported by increased capacity utilization and potential decline in discounts. We are now 21 percent ahead of consensus EPS for FY16,” the report said.

UBS has a price target of Rs 3,500 on the stock.  

For Tata Motors , the research firm says JLR EBITDA margins will remain in excess of 17 percent going forward, despite the FX headwind.   

“We expect this strong volume growth to support premium valuations for JLR ahead of global peers like BMW. As the largest CV player, domestic business should be a big beneficiary of economic revival.

We value Tata Motors on sum of parts basis. We value JLR at 5x FY16E EBITDA while we value domestic business at 10x FY16E EBITDA. We also add Rs42/share on account of JLR’s stake 50% stake in the Chery JV,” the report said.  

UBS has a buy rating on the stock with a target of Rs 550.

Posted By Sagar Salvi


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