The Indian automobile companies are expected to see further improvement in margins during the first quarter of FY24 driven by operating leverage benefits. Amid signs of growth moderation in most segments, auto manufacturers are likely to deliver fifth straight quarter of margin expansion in Q1FY24.
The demand in the auto industry during the April-June 2023 quarter was a mixed bag. New product launches and festive and wedding demand drove passenger vehicle (PV) and two-wheeler volumes, analysts said.
In terms of wholesale volumes, brokerage firm Motilal Oswal Financial Services estimates Q1FY24 volumes to grow 3% YoY for two-wheelers, 33% for three-wheelers, and 11% YoY for PVs, while it is expected to decline by 1% YoY for M&HCVs, 6% YoY for LCVs, and 3% YoY for tractors.
Meanwhile, revenue of automakers is expected to grow 24% YoY on the back of higher realization led by price hikes and improved volume driven by a strong order book, new product launches, and increased demand for personal mobility.
EBITDA margin for automobile companies is expected to improve for the fifth quarter in a row by around 200-220 bps YoY supported by softening commodity prices and improving operating leverage accompanied by better realizations.
According to Motilal Oswal, except for Commercial Vehicle (CV)-focused OEMs and Maruti Suzuki, all other OEMs are likely to report margin expansion on a sequential basis as well.
Ashok Leyland: The company’s EBITDA margin is likely to expand on-year, led by softening raw material prices, operating leverage, and lower interest expenses, Motilal Oswal said. Net price realization is expected to improve, led by price hikes and lower discounts during the quarter. Its net profit during Q1FY24 is expected to jump by 461% and revenue by 9.2% YoY.
Bajaj Auto: Two-wheelers domestic volumes of the company grew 73% YoY, led by industry recovery and easing supply challenges, while export volumes declined 35% YoY. Revenue growth is expected to be at 31% and net profit growth is likely to be at 45%, YoY.
“Export demand continues to be adversely impacted by unavailability of FX in end markets, while sequential recovery is visible. Margin to expand QoQ, led by price hikes and operating leverage,” Motilal Oswal said.
Eicher Motors: The company’s revenue in Q1FY24 may rise 20.3% and net profit by 48.2%. Overall Royal Enfield volumes grew 22% YoY, led by continued traction in Hunter and easing supply challenges. However, exports volume growth declined 31% YoY.
The impact of unfavorable product mix should be offset by operating leverage, resulting in EBITDA margin expansion. VECV margins are likely to improve YoY, led by higher CV volumes and moderating discounts, the brokerage said.
Hero MotoCorp: The largest two-wheeler manufacturer in the world is expected to see revenue growth of 6.2% and net profit growth of 36% YoY in Q1FY24. While price hikes largely offset the impact of cost pressures, operating leverage should help drive EBITDA margin sequentially in Q1FY24.
Also Read: Bajaj Auto, Hero Moto's race to triumph over Enfield’s market pie may dent Eicher's margins
Mahindra & Mahindra: The company’s net profit may increase 35% and revenue may rise by 21% YoY during the quarter under review. A sequential improvement in EBITDA margin by around 50 bps is likely due to favorable mix and softening raw material prices, the brokerage added.
Maruti Suzuki India: The largest passenger car maker may see its net profit in June quarter jump by 123% YoY, while revenue growth is expected to be 17% YoY. EBITDA margin is likely to expand 280 bps YoY to 10%, led by benefits of lower RM costs and operating leverage.
Tata Motors: The company may report net profit of ₹1,797.3 crore and revenue growth of 39% YoY. Led by lower RM costs, cost control, and operating leverage in PVs, EBIT margin for CV/PV is likely to expand 90 bps/190 bps YoY during the quarter, the brokerage said.
TVS Motors: Net profit of the company is likely to grow by 34% and revenue by 21.5%, YoY. EBITDA margin may expand 30 bps QoQ, driven by softening RM costs and price hikes.
Motilal Oswal revised its FY24E EPS for select companies to account for demand evolution in the domestic market, weakness in exports, and commodity price/FX changes.
“We prefer companies with higher visibility in terms of demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength,” the brokerage firm said.
Its top picks among OEM are Tata Motors and Ashok Leyland.
Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
