1 min read.Updated: 16 Jul 2021, 11:09 AM ISTLivemint
Companies that are likely to see better performance include Tractor OEMs like ESC/MM and ancillaries with overseas presence such as MSS/APTY/BHFC
NEW DELHI: Revenues of listed automobile manufacturers will likely decline an average 2% in the first quarter of the current fiscal (Q1FY22) from the corresponding period in FY20, as a result of lockdowns in April and May, according to estimates by brokerage firm Emkay Global. Vehicle production and sales came to halt as factories and dealerships were shut across the country.
“With lockdowns impacting the quarter, we expect aggregate revenue decline at -2% CAGR in Q1FY22 (compared with Q1FY20 due to extremely low base of Q1FY21). Companies that are likely to see better performance include tractor OEMs like ESC/MM and ancillaries with overseas presence such as MSS/APTY/BHFC," said analysts of Emkay Global.
High commodity prices are also likely to have hit margins of automakers at a time when volumes were down due to the pandemic. Two-wheeler and commercial vehicle manufacturers will see a bigger impact than passenger vehicles and tractor manufacturers.
“Aggregate EBITDA margin (ex-TTMT) should contract 150 bps vs. Q1FY20. Sequentially, the contraction would be at 200 bps due to lower scale and some delay in passing on commodity inflation. Regarding currency movement, INR depreciation is positive for BJAUT/TVSL/TTMT/MSS/BHFC/APTY, and JPY depreciation is positive for MSIL/HMCL," they added.
A devastating second wave of the pandemic, which hit India late March, saw states impose lockdowns. Maruti Suzuki, Hero MotoCorp Ltd, Hyundai and others either stopped production or reduced output significantly.
Some like Bajaj Auto Ltd, however, continued to operate with limited capacity to meet export orders. With a steady drop in infections, especially in north and south India, most automakers resumed operations from the middle of May.
“Our positive view on the Automobile sector is underpinned by expectations of a strong cyclical upturn which is expected to last at least three years. Our top picks among OEMs are TTMT (TP: ₹400), AL (TP: ₹155) and EIM (TP: ₹3,180). In Ancillaries, we like MSS (TP: ₹325) and APTY (TP: ₹290). Key downside risks: delay in economic recovery, third wave of covid-19, further increases in commodity prices and adverse currency movement," added the analysts.