SML ISUZU Ltd Industrials - Capital Goods
BS-III Ban Results in Volume Push During Q4FY17
SML ISUZU Ltd (SML) recorded 15184 vehicles during FY17 which is 19.6% higher than that of FY16 where it was 12700 vehicles. Clearly, major push was attributed by the BS-III ban on vehicles which led volumes for Q4FY17 to grow at 61.7%/21.0% QoQ/YoY clocking 4241 vehicles. Q4FY17 revenue stands at Rs. 3711Mn higher by 61.5%/16.2% QoQ/YoY while EBITDA margins stand at 5.3%, lower by 358bps as compared to Q4FY16 due to inventory pile-up. Blended realizations remain flat as not much discounts were offered for SML dealers as the ones that are supplied to major metros were already BS-IV compliant, while Tier-2 and Tier-3 towns were supplied BS-III vehicles.
Market share increase in all Commercial Vehicle (CV) categories: SML has reported a rise in market share across all categories of the CV space, much of it has come from the Light Commercial Vehicle (LCV) passenger segment where they have gained 136bps from 6.7% in FY16 to 8.1% in FY17 owing to pricing and dealer networks. On the other categories, they have registered a nominal 20bps increase. Overall they have outpaced the industry growth which posted 0.04% and 7.41% in the Medium and Heavy CV (MHCV) and LCV segments respectively.
Volumes to be flat during FY18E: With the advent of BS-IV standards, I expect some lag in the vehicle supply during the first quarter which is already evident in April month sales which posted 768 units (least in the last three years). Moreover, the same prevails for most of the CV manufacturers where they have posted a higher double digit decline in their volumes. Overall CV volumes for April ‘17 have decreased by 22.9% as compared to April’16. On this note, I believe SML volumes to clock ~15000 vehicles this financial year leading to decline in revenue by 1% in FY18E. However, I expect the volumes to be back on track for FY19E at more than ~16000. Therefore, I expect revenue to grow at CAGR of 4.4% during FY17-19E where EBITDA is expected to grow at CAGR of 5.7% during the same period. EPS is expected to grow at CAGR of 11.7% during FY17-19E.
Valuation and Outlook
I have introduced FY19E estimates. Currently, the stock is trading at 26.5x FY19E EPS. I value the company at 29.0x P/E for FY19E EPS. I maintain our positive view on SML with a “HOLD” rating for an upwardly revised target price of Rs. 1457.
BS-III Ban Results in Volume Push During Q4FY17
SML ISUZU Ltd (SML) recorded 15184 vehicles during FY17 which is 19.6% higher than that of FY16 where it was 12700 vehicles. Clearly, major push was attributed by the BS-III ban on vehicles which led volumes for Q4FY17 to grow at 61.7%/21.0% QoQ/YoY clocking 4241 vehicles. Q4FY17 revenue stands at Rs. 3711Mn higher by 61.5%/16.2% QoQ/YoY while EBITDA margins stand at 5.3%, lower by 358bps as compared to Q4FY16 due to inventory pile-up. Blended realizations remain flat as not much discounts were offered for SML dealers as the ones that are supplied to major metros were already BS-IV compliant, while Tier-2 and Tier-3 towns were supplied BS-III vehicles.
Market share increase in all Commercial Vehicle (CV) categories: SML has reported a rise in market share across all categories of the CV space, much of it has come from the Light Commercial Vehicle (LCV) passenger segment where they have gained 136bps from 6.7% in FY16 to 8.1% in FY17 owing to pricing and dealer networks. On the other categories, they have registered a nominal 20bps increase. Overall they have outpaced the industry growth which posted 0.04% and 7.41% in the Medium and Heavy CV (MHCV) and LCV segments respectively.
Volumes to be flat during FY18E: With the advent of BS-IV standards, I expect some lag in the vehicle supply during the first quarter which is already evident in April month sales which posted 768 units (least in the last three years). Moreover, the same prevails for most of the CV manufacturers where they have posted a higher double digit decline in their volumes. Overall CV volumes for April ‘17 have decreased by 22.9% as compared to April’16. On this note, I believe SML volumes to clock ~15000 vehicles this financial year leading to decline in revenue by 1% in FY18E. However, I expect the volumes to be back on track for FY19E at more than ~16000. Therefore, I expect revenue to grow at CAGR of 4.4% during FY17-19E where EBITDA is expected to grow at CAGR of 5.7% during the same period. EPS is expected to grow at CAGR of 11.7% during FY17-19E.
Valuation and Outlook
I have introduced FY19E estimates. Currently, the stock is trading at 26.5x FY19E EPS. I value the company at 29.0x P/E for FY19E EPS. I maintain our positive view on SML with a “HOLD” rating for an upwardly revised target price of Rs. 1457.
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