INDU: Yaris - A silver bullet to cyclical slip
• We reiterate our call for INDU launching a new brand as a flanker to the successful Corolla franchise and effectively upgrading the OEMs offerings in the 1,300CC+ sedan category, contributed the lion’s share of INDU’s profits
• Running a sensitivity analysis for profitability accretion from variations in price and sales growth from any new-model effect compared against our base case (15% price dip vs. comparable Corolla variants and ~28K unit sales), we conclude with the view that unit sales growth trumps any price discounts, with the OEM possibly pushing annual profits by 5-31% from annual Yaris sales of 30-50K units
• On price rise frequency and cumulative hikes amongst the three major OEMs through the CY17-19 devaluation led pricing escalations, INDU has the highest cumulative price rise for its Corolla variant, with higher price rises sooner, confirming our case for INDU continuing this trend to preserve margins
• Based on our outlook for the Yaris launch, we retain our Buy stance on the stock (TP of 1,452/sh) where near term hiccups in profitability are countered by earnings growth from the new model, in a competitive segment largely shunned by new entrants (KIA or Hyundai yet to announce plans to enter this segment with CKD offerings) making for sustainable upside