GOLDEN RULES FOR TRADING

Auto Stocks Outlook for the week – 18 to 22.05.2015

Auto Stocks Outlook for the week – 18 to 22.05.2015
(Range bound next week; Bajaj Auto earnings eyed)
 www.rupeedesk.in ) 

Stocks of major automakers are seen trading in a narrow range next week in the absence of sectorspecific and macro-economic triggers. There isn't anything much expected next week.

Bajaj Auto's numbers could be a trigger, but that, too, will affect only two-wheeler manufacturers. Bajaj Auto's earnings are not expected to be positive, and the stock is seen under pressure in the run-up. Bajaj Auto Ltd is scheduled to detail its Jan-Mar earnings on May 21. The automaker's standalone net profit is seen down 14% on year at 6.55 bln rupees. Net sales for the company are seen at 45.61 bln rupees, down 5% on year. The company's earnings are seen down primarily due to a fall in motorcycle sales during the past few months, and due to the fact that the automaker is not present in the fast-growing scooter category.

Bajaj Auto witnessed a poor quarter as loss in domestic market share and headwinds in export markets lead to a sharp decline in volumes in Jan-Mar. We expect Bajaj Auto volumes to decline by 14% on year due to sharp decline in domestic motorcycle volumes and 10% on-year decline in motorcycle export volumes in Jan-Mar.


We expect EBITDA margin to decline by 310 basis points on quarter due to poorer product mix (lower share of exports and three-wheelers), currency headwind (Nigerian currency has depreciated by around 14% on quarter versus rupee) and increase in advertising expenses. Tata Motors Ltd, which yesterday reported a 4% on-year rise in its global wholesales for April, and is expected to see its share trade with a minor positive bias during the initial part of the coming week.