Q3 Result Preview- Bajaj Auto, Hero other 2W and PV manufacturers to lead earnings growth for auto producers
- Q3 Result Preview: The Q3 performance of Auto OEM's may be driven by strong volume growth seen by two wheeler manufacturers and passenger vehicle manufacturers. The operating profits may rise helped by lower commodity prices and operating leverage leading to earnings growth.
Q3 Result Preview: The auto OEM (original equipment manufacturers) have seen a strong sales growth during the October- december quarter. The festival season propped up sales of two-wheelers and passenger vehicles as wedding season in December also supported sales figures. The two-wheeler sales stood out on low base of last year and some uptick in rural demand also lifting entry level sales.
The Commercial Vehicle sales were slightly muted on a large base of last year. Among some reason for muted numbers attributed by analysts were temporary decrease in freight demand, discounts being slashed post the festive season, and a lack of liquidity. Nevertheless, overall economic growth outlook remains strong and freight demand and freight rates are likely to improve regularly, keeping outlook for CV sales strong.
The third quarter witnessed healthy demand across the segments, as volumes are expected to grow 18% YoY, said analysts at Motilal Oswal Financial Services in their preview report. The two wheelers outperformed other segments and are likely to rise 20% YoY while volumes for three wheelers, passenger vehicles, and commercial vehicles are likely to improve 15%, 12%, and 3% YoY, respectively, while the same should decline 4% YoY for tractors, as per MOFSL estimates.
Analysts at Kotak Institutional Equities in their quarterly preview said that they expect automotive OEM revenues (except for Tata Motors) to improve 15% year on year, mainly due to more than 20% year-on-year growth in total two volumes, high single-digit yoy growth in passenger vehicle volumes, low single-digit yoy improvement in the Commercial vehicles segment’s volumes and low-to-high single-digit increase in average selling prices due to price increases and richer product mix, partly offset by a mid-single-digit decline in the tractor segment’s volumes.
The export volumes have remained lower nevertheless are likely to see gradual recovery as the supply chain situation improves further, followed by improving macro-outlook in key geographies.
On profitability front the regular decline in the commodity prices have remained favorable over the last few quarters. Inflationary pressures peaked in the year-ago quarter and prices corrected for most commodities. The OEM may see improvement in the operating performance and Earnings before interest tax depreciation and amortisation is likely to see further improvement.
Analysts at MOFSL said that despite a slight increase in some of the raw material prices sequentially, we expect gross margin to improve 100bp year-on-year for their OEM coverage universe in 3QFY24. They estimate Ebitda margin to improve YoY for the seventh successive quarter, with a 160bp YoY gain (up 40bp sequentially) for our Auto OEM Universe (ex-JLR). This will be driven by better gross margin, cost efficiencies, and operating leverage.
Analysts at Kotak Institutional Equities also expect the Ebitda margin to improve 140 bps yoy in 3QFY24 for auto OEMs, mainly led by operating leverage benefits, price increases and richer product mix.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
- Top Gainers
- Top Losers
- 52 Week High