Analysis of Automobile Sector - Passenger and Goods Carrier

 



Automobile sector has gone through a lot of turbulent phases and the industry has been able to face most of those challenges with its chin-up. India has become a major manufacturing hub for tractors, passenger vehicles and commercial vehicles. The country has also become one of the largest exporters of automobiles.

Automobile Sector Performance Snapshot

Performance of companies in Passenger & Commercisl Vehicle and Farm Equipment

Maruti Suzuki

Maruti Suzuki is the largest player in the passenger vehicle segment and they have also forayed into the commercial vehicle segment as well. Their first offer in the commercisl vehicle segmet is Super Carry which comes in a number of variants. Maruti Suzuki has been the market leader in the passenger car segment for last many years and they are coming out with newer models and modified versions of existing popular models every year.

Stock price of Maruti Suzuki has fallen by almost 35% from a 52 week high of Rs. 9929 per share. Even at this price, the stock looks quite expensive as the Forward P/E effectively comes at 26.02. This stock has given a return of 84% in the last 3 years which is among the best in the automobile sector. Price to Book Value ratio is at 4.69:1 which also indicates that the stock is expensive. The Return on Capital Employed stands at 26% and the company is debt free which is quite good for this sector as the automobile companies have to reinvest their earnings into product upgradation and plant modernization quite regularly. Even though the company has been alble to increase its revenue, Net Profit Margin has taken a severe beating which is reflected in the PEG ratio which gives a negative value.

Promoter of the company (Suzuki Motor Corporation) held 56.21% of the outstanding shares as on December 31, 2018.

Maruti Suzuki Financial Performance

Maruti Suzuki Website

MAHINDRA & MAHINDRA LTD

Mahindra and Mahindra (M&M) has become a name to reckon with in the last few years. M&M is the largest tractor producer in the world and holds a market share of more than 40% in India. The company has also introduced a number of SUVs and MUVs which created a mark in these segments. The company has been struggling to find an opening in the passenger car segment which is dominated by Maruti Suzuki, Hyundai and Tata Motors.

The company offers a range of products under the following categories:

  • SUVs
  • MUVs
  • Passenger Cars
  • Electric 3 and 4 wheelers
  • Light Commercial Vehicles
  • Heavy Commercial Vehicles
  • Buses
  • Tractors
  • Non Electric 3-wheelers

The company has an ROCE of 19% which can be considered as average. The company has managed to keep the Debt to Equity Ratio at 0.08 which is quite good considering the fact that it has invested a lot on R&D and new product launch and acquisition. The company is also present in the Electric Vehicles segment. M&M stock trades at a Forward P/E multiple of 15.35 and the PEG ratio stands at 0.74 which make this stock attractive. The Price to Book Value ratio stands at 2.51 which is relatively acceptable for this sector. Value investors may still consider the Price to Book Value ratio to be a high.

The stock has not given any return to its investors in the last 3 years. The share price has gone up by just 6.39% in the last three years. While EBITDA of the company has declined by 19% in Q3FY19 compared to Q3FY18, Revenue has jumped by 12% in Q3FY19 compared to the third quarter of the same quarter a year ago.

The promoter group held 21.57% of the outstandinf shares as on December 31, 2018.

Mahindra & Mahindra Performance

Mahindra and Mahindra Website

Tata Motors

Tata Motors started its journey in 1945 with manufacturing of locomotives and other engineering products. It has since then ventured into commorcial vehicles, SUVs, MUVs, Buses, Passenger Cars, Electric Vehicles and gone global by acquiring Jaguar and Land Rover range of vehicles from Ford Motors. It has launched India's first fully indigenous SUV, passenger car and Sedan.

  Tata Motors' stock has been the worst performer on the stock exchanges. The stock has given a negative return (-54%) to its investors in the last three years. The company has very high level of debt (Debt to Equity ratio of 1.27) and the RoCE is very low. Investors should take a close look at the amount of debt before considering Tata Motors for inclusion in their portfolio. Events in the last few years. like NPA crisis and price war between automobile companies, have also taken a toll on the company. The most important thing that Tata Motors possesses is the brand name.The management needs to take drastic steps and immediately to turnaround the company. Even though the company has done really badly in the last few years, the market still believes in the quality of the management and thus it has not severely beaten it down.

Tata Motor share is trading at a Forward PE multiple of 58 and PEG is Not Applicable as the company had made a loss of Rs. 1036 crore during the last financial year (FY17-18). The ROCE and Debt to Equity ratio of the company indicate that the company is in deep trouble.

The promoter group (Tata Sons, Subsidiary of Tata Sons and a few trusts managed by Tata Sons) holds 37.27% in the company.

Tata Motors Performance

Tata Motors Website

ASHOK LEYLAND LTD.

Even though the company has done quite well in the last few years, the performance is still so erractic that even the best of analysts may miss the earnings forecast by a huge margin (Velicle production and sales numbers provide a hint on the performance). It is a very well known name in the commercial vehicle segment and if the investors keep a close eye on the street then they may find that every other vehicle is a Ashok Leyland bus or goods carrier. The company has worked on enhancing the engines, better design of the vehicles and also launced electric vehicles.

The company has maintained a very low level of debt and the ROCE stood at 36% which is considered as good. The stock is trading at a P/E multiple of 16 and the Price to Book Value ratio stood at 3.62. The stock did not have a great return in the last three years and the investors have been disappointed..The stock price of Ashok Leyland has fallen by 17% in the last three years.

Promoter (Hinduja Group through its subsidiaries) shareholding in the company stood at 51.12% at the end of December 2018.

Ashok Leyland Performance

Ashok Leyland Website

ESCORTS LTD.

 The company also deals in farm, construction and railway equipment segments. The company wants to acqure a much larger pie of the market  share by 2022 in all the three segments. Escorts was founded in 1944, since then the company has come a long way in establishing itself as a major player in the farm and construction equipment segments. The company has had joint ventures with JCB and Ford in the past to manufacture backhoe and tractors respectively.In 2018, the company has started joint ventures with Tadano and Kubota for high end cranes and farm equipments respectively. The company also got into a disdribution agreement with Doosan Infracore in 2018.

The company has done exceptionally well in the last three years in terms of financial performance. Net Profit of the compeny has jumped from Rs. 16 crore for Q2FY16 to Rs. 140 crore for Q3FY19. The stock price has also jumped by 475% in the last three years. The management has also consciously dicided to get out of the non core businesses and divested out of them to focus only on the core businesses.

The stock of the company trades at a P/E multiple of 20 and PEG stands at 0.49 which indicate that the company is on a high growth trajectory. RoCE stood at 25 and the Price to Book Value ratio is 3.50 as on March 27, 2019.

Promoter shareholding in the company was 40.08% as on December 31, 2018.

Escorts Financial Performance

  Escorts Website

 

 

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