Result preview: Auto Inc may ride on strong revenue growth in Dec qtr

Analysts say margins would also be helped by benign commodity prices

Automotive companies are expected to report strong revenue growth of 17-18 per cent, resulting in earnings before interest, taxes, depreciation and amortisation (Ebitda) improvement of 36 per cent during the third quarter of 2023-24 (FY24).

This would be led by double-digit volume growth by two-wheeler original equipment manufacturers (OEMs), and continued surge in the passenger vehicle (PV) segment. The margins would also be helped by benign commodity prices, analysts feel.

Prabhudas Lilladher analysts said that during the third quarter, the auto industry witnessed overall strong double-digit growth in volumes of 17 per cent. It is on the back of strong growth in domestic two-wheelers and three-wheelers.

During the quarter under review, two-wheeler export demand grew by 2.5 per cent.

Prabhudas Lilladher expects companies under its coverage to report an aggregate revenue growth of 20 per cent year-on-year (YoY) (including Jaguar-Land Rover) and 16 per cent (excluding JLR).

“Commodity costs will remain benign and continue to aid margins in the coming quarters. For our coverage universe, we roll forward our estimates by one quarter and change our FY24-26 expected Ebitda estimates in the minus 3 per cent to 9 per cent range,” Prabhudas Lilladher said.

Motilal Oswal analysts said in a December report that they estimate Ebitda margins to improve Y-o-Y for the seventh consecutive quarter with a 160 bps gain for automotive companies they cover (excluding JLR).

“This will be driven by better gross margins, cost efficiencies, and operating leverage,” it said.

As the overall PV industry grew by 14 per cent or so during the third quarter, Prabhudas Lilladher analysts noted that Mahindra and Mahindra (M&M) gained a market share of 180 bps. Maruti Suzuki India and Tata Motors, however, saw a decline of 250 bps and 100 bps, respectively.

“Growth in the PV segment was led by SUVs. While retail was much stronger, led by higher discounting and continued demand, lower dispatches in December have brought down inventory levels for the industry,” Prabhudas Lilladher said.

The commercial vehicle (CV) industry grew by around 3 per cent Y-o-Y, with Tata Motors and Ashok Leyland losing market share while Mahindra & Mahindra and VECV gained.

The medium and heavy commercial vehicle (M&HCV) segment continued to outperform, led by strong end-user industry demand.

The tractor industry saw a decline of around 4 per cent. Three-wheelers continued their strong growth in the domestic market at around 38 per cent, while exports remained weak at minus 14.4 per cent.

Analysts said commodity prices were largely stable or declined sequentially in the third quarter.

Base metals fell the most with nickel dropping by 14.2 per cent and copper by 2.7 per cent quarter-on-quarter (Q-o-Q).

Steel prices, however, have grown 1.5 per cent and Zinc prices by 1.9 per cent. Aluminium and lead prices remained flat on a Q-o-Q basis.

Analysts expect Maruti Suzuki to regain some market share losses, and also improve margins from operating leverage, cost reduction and superior mix.

Tata Motors is expected to benefit from JLR’s volume ramp-up, resulting in strong revenue and profitability and free cash flow during the third quarter.

The domestic CV segment for Tata Motors would benefit from the ongoing upcycle, operating leverage and tailwinds from low commodity costs and low discounting, feel analysts.

Among other CV players, Ashok Leyland’s revenues may remain flat Y-o-Y as volumes have been flat. Emkay analysts said realisations will decrease Q-o-Q on adverse product mix (lower MHCV share). “Sequentially, Ebitda margin is expected to contract amid lack of operating leverage (volumes down around 5 per cent Q-o-Q),” the analysts said.   

Emkay analysts said Bajaj Auto’s revenue performance will be driven by higher volumes (up 22 per cent, Y-o-Y). However, sequentially, the realisations would be weaker amid adverse mix — lower exports and higher share of two-wheeler models.

“Ebitda margin will decline by around 39 bps Q-o-Q, despite lower commodities due to lower contribution from three-wheelers,” Emkay said.

Hero MotoCorp’s volumes grew around 18 per cent Y-o-Y and 3 per cent Q-o-Q. Emkay expects the average selling price to rise 1 per cent Q-o-Q. It will be driven by a better mix (lower share of entry motorcycles) and price hike, with margins seen rising by around 24 bps Q-o-Q. This is on lower input costs, pricing action and higher volumes.