The auto industry, which has been on an uneven ride as the recovery post the pandemic was halted by semiconductor shortages, might finally be seeing a smooth patch ahead. Sector watchers and market analysts expect the September quarter to show a steady improvement as volumes have recovered across segments due to a low base, festive season stocking and easing of supply chains.
Constraints and lower channel inventory are likely to have aided wholesales this quarter, with margins expected to improve for the second quarter running due to lower raw material costs and a significant improvement in semiconductor supplies.
According to business updates provided by the companies, the medium and heavy commercial vehicle sector recovery is very strong, led by improved freight rates and healthy fleet operator profitability.
The only problem area continues to be two-wheeler exports which have suffered due to a slowdown in the African markets.
The stock of Bajaj Auto, which reports its results on Friday, October 14, has been under pressure after the weakness in exports continued. Street would look out for clarity on recovery in African business, which was down 20-25 percent in August and September.
A quick look at expected volume growth:
Apart from two-wheelers, all the companies are expected to see a growth of 35 percent to 70 percent year on year. Mahindra and Mahindra (M&M) is expected to lead the volume growth among large-caps.
A quick look at expected margin growth:
The street expects Maruti to see maximum growth in the margin when compared to the previous quarter.
The stocks have done well this year, with the Nifty Auto index up 14 percent year to date. Valuations of most auto companies have picked up due to a recovery in demand.
Things to watch beyond the numbers:
- Will recovery stall as inflation and interest rates rise?
- Has the weakness in two wheelers exports abated?
- Upcoming product launches in the PV space.
- Discounts in small cars, SUVs and CNG cars rise further?
Kotak Institutional Equities said they expected automotive OEM revenues to rise by 11 percent quarter-on-quarter, mainly on account of double-digit increase in car and two-wheeler segment volumes, led by improvement in chip availability leading to higher production and channel filling before the onset of the festive season.
"We expect EBITDA margin (except for Tata Motors) to improve by 130 bps QoQ. The numbers are not comparable YoY, as volume numbers were impacted in 2Q of FY22 by supply-chain issues," the firm said.
Brokerage firm Nirmal Bang said they expect the September quarter revenue of auto and auto ancillary companies to grow 9 percent quarter-on-quarter, led by the strong volume growth.
"Going ahead, we expect to see recovery in rural sentiments amid improving income levels, which should support two-wheeler volume while car demand will remain robust amid new product launches. CV segment is expected to continue its growth trajectory on the back of replacement demand," it said, adding it would remain cautious about the outlook for the exports led by concerns over economic slowdown and geopolitical issues in US and EU.
(Edited by : Abhishek Jha)
First Published: Oct 13, 2022 11:30 AM IST
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