Auto sector Q2 preview: Lower input costs and higher prices to drive revenue and margin growth. An adequate revenue growth is expected to be seen in the automobile sector and margin advancement.

An adequate revenue growth is expected to be seen in the automobile sector and margin advancement in the quarter ended September 2023, led by high realizations, benevolent commodity prices, and operating leverages for a few OEMs.

For the automotive industry, the comprehensive volumes in Q2 FY24 were somewhat flat, but they were bogged down by a decline in tractor and two-wheeler sales. During the quarter, volume performance stayed uneven, with passenger vehicles (PV), three-wheelers, and commercial vehicles (CV) exhibiting growth.

The brokerage firm Prabhudas Lilladher made the statement that, in Q2 FY24, led by the SUV segment, the PV industry developed by around 5 percent year-over-year. Because of the increasing industry strong-end user demand, the commercial vehicle (CV) industry developed by around 7 percent year-over-year, as the Medium & Heavy Commercial Vehicle (M&HCV) segment performed well.

On the back of lower exports and a deferred holiday season, the two-wheeler industry witnessed a de-growth of 3.7% year-over-year. The tractor industry witnessed a downfall in the September quarter, with domestic tractor sales declining by 2.7% year-over-year and 21.7% quarter-on-quarter. With price hikes, the average selling price rose, and due to the rise in the average selling price, the brokerage expects the accumulated revenue of the automotive companies to grow by 26% year-over-year.

Also Read: India's Auto Retail Sales Surge 20% YoY in September 2023

Solid growth was witnessed for Mahindra & Mahindra (+21%), Maruti Suzuki India (+23%), and Ashok Leyland (+18%). Dual growth was witnessed for Eicher Motors, Tata Motors, and TVS Motor Company; on the other hand, Bajaj Auto and Hero MotoCorp should see mid-single-digit growth year-over-year. The commodity costs remain friendly, and they will continue to aid margins. The brokerage expects the EBITDA margin to increase by around 320 basis points (bps) year-over-year.

In a report, the brokerage firm Prabhudas Lilladher stated that "the holiday season is the upcoming major catalyst for the automobile industry. While expectations are high and initial trends for regional festive periods have shown positive momentum, a lot depends on the one-month festive period, which starts in mid-October. OEMs have built inventory in anticipation of strong growth, and higher retail sales would be key to avoiding a large inventory backlog post-holiday season".


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