Report by- Sabyasachi Bhattacharya
Q3 review of Auto sector; subdued performance expected-
Brokerages expect a subdued quarter for automobile companies due to strain on volumes and reduced profitability along with rising fuel costs. Auto sales, too, have remained muted in December, which has added to the dampening sentiment. Challenges relating to tight liquidity and low buying sentiment continue to weigh on sales growth. Here is a gist of what Kotak Institutional Equities and Motilal Oswal expect from Q3 performance of auto companies. The research firm expects a soft quarter for auto companies. It expects revenue growth of 7 percent, while EBITDA could rise one percent and net revenue is seen rising 6 percent year on year.
“EBITDA margin will likely decline by 80 bps yoy due to increase in commodity prices and higher discount levels. Suppliers will have a relatively better quarter with revenue and EBITDA growth of 11% and 6%, respectively due to exposure to the steady and profitable aftermarket. Commercial vehicle and two-wheeler OEMs will particularly report weak results; earnings will decline for Maruti on a yoy basis,” analysts at the firm wrote in their report. A positive effect of fall in commodity prices will be accrued to companies during the start of fourth quarter. “We expect EBITDA margin of companies under our coverage to decline by 80 bps qoq in 3QFY19 due to (1) the lagged impact of increase in RM costs, (2) increase in discount levels due to softness in demand and (3) negative operating leverage,” the report added. Going forward, the brokerage expects EBITDA of Ashok Leyland/Eicher/Hero/Tata Motors standalone business to decline by 29%/5%/10%/31% due to weakness in volumes and reduction in profitability. It expects Maruti’s EBITDA to decline by 14% yoy in 3QFY19 due to 1% yoy volume decline and 260 bps yoy decline in EBITDA margin. We expect JLR profit to improve by 19% yoy led by lower hedge loss and cost-reduction efforts. Kotak Institutional Equities sees auto component companies to report a relatively better quarter with 11% yoy revenue growth and 6% EBITDA growth in 3QFY19. “This is due to exposure to the steady and profitable aftermarket. Further, battery companies such as Amara Raja and Exide will benefit from the recent decline in lead prices,” analysts at the firm wrote in the report. For Maruti, it has cut FY19 EPS estimates by 4% due to lower volume assumptions but cut our FY20-21E EPS estimates by only 1% as we increase our EBITDA assumptions by 50 bps to factor in the benefit of recent decline in commodity prices and potential reduction in royalty expenses.
Source-Purple Trades Research Department
Indian markets move forward but stays range bound-
Chart source- Upstox
Indian markets had a mixed day today as Nifty showed a lot of volatility. As you can see BULLS and the BEARS dominated at regular intervals. As you can see the markets had a major GAP-UP which was expected as the global markets performed very well on Friday. After the GAP-UP opening the market showed less volatility throughout the day. The only significant move came at the end of the day after which the Index lost a few points. The Index registered a bearish spinning top in the end but gained almost 45 points. At the end of the day the market started off the week on a positive note, though it failed to hold on to 10,800 levels at close on the Nifty on January 7. The BSE Sensex rallied 155.06 points to 35,850.16, driven by technology stocks and positive Asian cues amid a new round of trade talks between the US and China. Dovish comments from the Federal Reserve and strong US jobs data also lifted sentiment. The Nifty 50 surged in the morning to hit an intraday high of 10,835.95, but a bit of profit booking in late trade erased nearly half of its gains. The index closed 44.40 points higher at 10,771.80 and formed a bearish candle on the daily charts that resembles a ‘Spinning Top’ kind of pattern.
Let’s take a look at the performance of major Indices-
Global markets had a bullish day today. Asian Indices along with European Indices CAC, FTSE and DAX were all seen in the GREEN. NASDAQ was also seen in GREEN. NIKKEI was seen in the RED.
Source- MoneyControl, Purple Trades Research Department
Key Points for Traders to watch out for while trading Nifty tomorrow-
- 10,750 is a short term support for Nifty.
- If Nifty breaks 10,750 then it has the potential to go down.
- 10,800 is a short term resistance for Nifty.
- If Nifty breaks 10,800 then it has the potential to go up.